- 09 Oct 2024
- By API Magazine
Perth’s property market has been the head-and-shoulders standout nationally for the past year or more but investors expecting that to continue will need to keep an eye on one particular aspect of the city’s economy.
Much of Perth’s stellar capital growth has come as the city plays post-pandemic catch up, having not enjoyed the same level of advancement as other markets around the country.
But what will support a continuation of the skyrocketing prices is still delivering?
The latest CoreLogic home value index indicates prices in Perth have risen 24.4 per cent in the 12 months to the start of October, significantly more than Sydney’s 4.5 per cent, Adelaide’s 14.8 per cent and Brisbane’s 14.5 per cent.
Western Australia is currently undergoing a construction boom that will likely support its growth for the next three years.
Beyond this, the outlook is not as bright as construction booms differ from infrastructure booms, like that witnessed in South Australia.
Perth infrastructure spend not keeping up
Longevity in market growth comes through major infrastructure spend that stimulates the economy in the area and creates long term jobs across diverse industry, and Perth misses the mark here.
Perth is indeed in the midst of a substantial construction boom. A variety of residential towers, commercial and retail type projects have hit the market and continue to make their way through planning portals to break ground.
Residential projects such as One Subiaco, The Grove Residences, The Towers at Elizabeth Quay and Garden Towers will continue to inject new residents into Perth’s market, but these projects do not inject much needed future income or job creation to the market to sustain growth beyond the construction boom.
Infrastructure spend is lacking in the west, especially in comparison to other Australian capitals.
Metronet’s 21-kilometre Morley-Ellenbrook rail line extension that should start serving passengers later in the year is an infrastructure project that will boost areas outside the CBD and the residents it serves but will not provide a long-term boost to the market overall.
This type of project is not a major piece of infrastructure like a hospital and unfortunately, it’s not a long-term employment driver – the type of driver Perth needs to sustain its price boom.
According to Suburbanite’s Perth Property Advisor, Michael MacKinnon, large infrastructure projects in Perth like the Metronet add to the appeal of living in outer suburbs but offset that growth driver by detracting from the demand for more inner-city apartments.
“Rising construction costs are impacting all property types in Perth, however, rising values that are on the same trajectory are not impacting apartment complexes in the same way.
“This makes it incredibly difficult for affordable apartment complexes to become feasible without a large portion of off-the-plan sales,”
“For example, large development sites in Cockburn Central planned for residential apartments have remained vacant while the surrounding estates have built up around them.”
Even though private and public developments are in the pipeline for Perth, investors must be mindful that without long term job creation, construction booms will typically only last two to three years.
Beyond that, if the government doesn’t generate infrastructure projects like they have done in Adelaide through projects such as Royal Adelaide Hospital and the naval shipbuilding program, the growth won’t be sustainable beyond the short term and it could result in some softening of the real estate market.
Considerations for property investors
Adelaide’s growth has pushed well beyond the three year timeframe, and the city of churches is experiencing its fifth solid year of growth because there is not just a construction boom but rather an infrastructure boom.
Perth needs to follow suit to remain sustainable in the future.
So how does this affect investor decisions? Investors need to be mindful that if they want to make money in Perth, they will need to consider that two to three year timeframe, get in and get out.
If they have an appetite for development, they could also perhaps consider redeveloping a site where they do a small project or renovation.
Investors will need to remain vigilant and look at timing closely.
It is also beneficial to keep an eye on the government infrastructure pipeline, and any major project announcements coming through that could push growth beyond the two to three year construction boom norm.
Article Q&A
Where have property prices risen fastest in Australia in the past year?
The latest CoreLogic home value index indicates prices in Perth have risen 24.4 per cent in the 12 months to the start of October, significantly more than Sydney’s 4.5 per cent, Adelaide’s 14.8 per cent and Brisbane’s 14.5 per cent.
Will Perth property prices continue to rise?
Longevity in market growth comes through major infrastructure spend that stimulates the economy in the area and creates long term jobs across diverse industry, and Perth misses the mark here. Investors need to be mindful that if they want to make money in Perth, they will need to consider that two to three year timeframe, get in and get out, unless major new infrastructure projects are unveiled.
