Sydney-based Australian Property Monitors believes Perth is in line for a price correction of between 16 and 20 per cent in six to 12 months, if global commodities markets slow.
Sydney-based Australian Property Monitors believes Perth is in line for a price correction of between 16 and 20 per cent in six to 12 months, if global commodities markets slow.
APM general manager Louis Christopher said Perth was in a cyclical phase and prices had risen so hard, so fast, that a correction was inevitable.
“WA is outstripping all of the state economies but fundamentally things are not quite right because interest rate rises are having no influence,” Mr Christopher said.
Without a decline in commodities, however, APM predicted Perth prices would grow by more than 5 per cent in the next 18 months.
Rival property industry forecaster BIS Shrapnel believes there are early indicators in the Perth market that its price cycle is starting to fade.
BIS Shrapnel senior project manager Jason Anderson told WA Business News affordability in WA had far exceeded that of Queensland in 2005, when its market peaked.
Mr Anderson said it would be waiting for first-home buyer demand to soften, as this was an indicator of affordability beginning to impede demand.
“Evidence is starting to point in the direction of a price correction,” he said. “In 2005, momentum was strong in WA with 4,500 new and established dwellings purchased per quarter. This year levels have been weaker and in the June quarter only 4,100 were transacted.”
Another possible sign the market was responding to pricing levels was a decline in dwelling starts.
Mr Anderson said price growth would likely slow in 2006-07 if building starts softened, with approvals already down 4 per cent in the month of June.
The last sign of an impending new cycle phase was a drop in investor demand, according to BIS Shrapnel, but the forecaster believes WA is still going strong.
Last year, total resale and rental property investments in WA reached $6.9 billion, however, in the six months to June 2006, about $4.9 billion has already been bought, indicating that investors still have faith in the market.
The Real Estate Institute of Western Australia says the state’s prospects for long-term growth have never been better.
REIWA president Greg Rossen said WA’s 3.1 per cent unemployment, strong wages growth and enormous resource wealth would hold it in good stead for the future.
“What we’ve had is a major growth spurt of 15 per cent in the first quarter. If this were to happen in the rest of the quarters we’d have 60 per cent growth over the year, so clearly this is not sustainable,” he said.
However, Mr Rossen warned that for the market to remain strong, buyers entering the market must be able to trade up, by putting property into the market before taking more out.
Listed property investment and management company Aspen Group remain optimistic about WA’s prospects.
Aspen Group managing director Angelo Del Borrello suggested the WA market was a market unto itself and he believed the low unemployment rate would be enough to keep the market bubbling.
“We’ve had a pretty strong run these past two to three years and it hasn’t turned around yet,” he said.
Stamp duty reform push
EACH rise in Perth’s median house price encourages the Real Estate Institute of Western Australia to further ratchet up the pressure on the state government for a review of the $250,000 tax-free threshold for homes in WA.
It’s a strategy the institute says is aimed at making property more affordable for first-home buyers.
To support the case for a review, REIWA’s claims that only 6 per cent of dwellings currently for sale in Perth are valued at less than $250,000. And with the latest median house price tipped to reach $420,000, the institute expects the percentage of properties in this price range to narrow.
REIWA president Greg Rossen said first-home buyers were effectively losing their $7,000 first-home buyer’s federal grant when they bought properties over $303,000, handing it back the to state government in the form of stamp duty.
“In 2004, 49 per cent of properties were priced under $250,000, now it’s only 6 per cent,” he said.
“The reality is that most first-home buyers have to buy in the $300,000 to $400,000 price range, and this is where they get stung with stamp duty.”
Mr Rossen said New South Wales had already indexed its stamp duty threshold to its current median house price of $500,000, providing assistance to entry level buyers.
In response to growing concerns for affordable housing in WA, the institute has called on the government to fast track its State Tax Review to take advantage of WA’s $1 billion budget surplus this year by offering tax cuts.
But the Department of Treasury and Finance has other ideas, as evidenced in a statement released this month.
Treasurer Eric Ripper warned that cutting stamp duty could force house prices up in Perth even further and would do little to help first-home buyers.
‘In an environment where demand already exceeds supply, policy measures which increase demand, such as stamp duty cuts, are likely to result in further price rises,” Mr Ripper said.
The minister quoted an ANZ Bank submission to the 2003 Productivity Commission Inquiry into First Home Ownership where it noted that stamp duty was likely to lead to a corresponding rise in house prices and a windfall gain for house sellers.
Mr Ripper said a key issue facing Perth was the delivery of land to the market and the availability of skilled labour to build houses.
Further cuts to stamp duty will be considered as part of stage two of the State Tax Review, which is due to release its final report next year.
