Anyone that has been following the Perth property market over the last few years would be nothing short of astounded by the amazing growth results achieved.
Having achieved a remarkable 38.7% growth in median house prices for the year to 30th September 2006 (Source Real Estate Institute of Australia), where does this lead this buoyant market in the future.
Firstly, lets recognize that Perth had been growing slowly up to about 2002 and had been outshone by the then booming East Coast markets. No doubt some of the spectacular growth was indeed a “catch up” for these times.
Fuelling the initial growth was a strong economy in Western Australia, which has ridden the wave of the global commodities boom and significant investment in new mining activity particularly in the North of the State,
This led to a joyous combination of high economic growth and low unemployment, and all of a sudden the property market got picked up and taken for a joy ride.
The increased activity in the state also lead to attracting additional migrants in both from abroad and interstate, thus putting pressure on the property market. Many of whom found the property prices to be far less than their previous locations and quickly took advantage of what was on offer.
Soon news of the rising prices spread to the East Coast, which has been experiencing a slow property market over the past two years, so the opportunity to make profit in the West was very appealing and inevitably drew in investors and speculators seeking to make profits in the West.
We can sometimes forget that Perth is still a small city by international standards with only 1.4 million inhabitants. Coping with the new influx of people and investors was always going to be hard and the city was not ready for this and the lack of availability of new land and housing added to the natural pressures, further pushing up prices.
So what’s next? There is no denying that the economic prosperity of Western Australia will continue into the near future and quite possibly beyond.
As such, it is strongly believed that the market will continue to show strong signs in the traditional and top end domestic markets, albeit one would have to assume at a slower rate of growth than that achieved in the last two years.
Anyone looking to acquire a quality property in a good location can look forward with safety and optimism.
There are signs emerging of a slowing down in the market, which was inevitable, but there may be some warning signs from history worthy of taking note of.
We soon forget that as recently as 2002, Sydney and Melbourne were experiencing similar buoyant times to that of the current Perth market, enjoying 10% plus growth per annum and “assured profits” on investing.
A major factor that contributed to the lack of confidence that slowed these markets, was too much speculation and Perth is in danger of following the same path.
When people are snapping up development property with the sole intention of on selling for a profit prior to the property being completed, it places an enormous pressure on the market to cope with this and assumes that there will be a glut of willing buyers waiting and willing to pay premiums.
This scenario is optimistic at best, as you quickly move from a shortage of availability to a glut as everyone tries to sell at the same time. Logic would suggest this may require a correction.
It is not that the possibility of profit does not exist, quite the opposite it does, however if everyone is seeking a quick profit then it becomes a self defeatist situation.
Many of the speculators that where in the Sydney and Melbourne markets, are now active in the Perth market. A great test will be their willingness to take long term positions rather than quick exit profits.
If you are taking a long term investment outlook, then the fundamentals in the Perth Market remain strong and as long as you do your homework and seek true value, you will be rewarded.
However, if quick profit is your game, you may well have missed the boat, so be doubly careful of the property you choose to invest in.
Remember to choose your property on sound fundamentals of location, quality, value, services and desirability as these will protect you just in case the market slows quickly and you get caught in it.
Ensure you can afford to settle on the property and consider the option of a possible sale prior to completion as a potential bonus rather than a money making opportunity.
The continuing economic activity in Western Australia combined with the premium quality lifestyle on offer, make Perth a very attractive property investment opportunity.
You just need to ensure that the risks of a rapidly rising market are managed and understood as best as you can.
