Interstate property investment deluge in Perth

With the property market continuing to heat up in Western Australia, investors from interstate have shown an increasing interest in buying Perth property.

At a recent presentation to UDIA WA members in Perth, REA Group Economist Anne Flaherty said investor activity in WA had ‘surged’, with the portion of investors in WA property increasing by 53 per cent over the year to May 2024.

Admittedly, this surge is coming off a low base, given investors have been scarce in the WA market in recent years, likely due to a range of factors including the five-year downturn the WA property market experienced in the lead up to 2020, rising interest rates, restrictions during the pandemic and rental reforms causing uncertainty.

It is also important to note that, according to the Australian Bureau of Statistics, the portion of investors in WA in January to May this year was still only 36 per cent, which, while up from 29.5 per cent last year, still remains far less than owner occupiers (42 per cent), combined with first home buyers (21 per cent).

According to UDIA WA’s Urban Development Index, 32 per cent of new land sales in the Perth metropolitan area were to investors in Q1 2024, with 34 per cent to first home buyers and the remaining 34 per cent to owner occupiers. This breakdown is compared with 2021, when the portion of investors in the new land market was just 17 per cent.

East coasters targeting WA property

East Coast investors are no doubt recognising the perfect storm that is pushing up WA’s house prices faster than any other state.

While Perth remains one of the most affordable capital cities in Australia, that mantle is slipping as, according to the PropTrack Home Price Index for June 2024, the annual growth rate for median house values in Perth was the highest for any other capital city, at 22.5 per cent over the last financial year.

Some of the most significant price growth has occurred in Perth’s northern and southern growth corridors, as well as regional centres such as Bunbury and Mandurah.

That growth is likely to continue as, according to Ms Flaherty, WA continues to grapple with our housing supply shortage over the next three years at least. 

Ms Flaherty highlighted what many of us in the industry here in WA are already acutely aware of, and that is our booming population growth, strong economic growth and dire housing shortage that has been compounded by the longer time it takes to build a new house in WA compared to anywhere else in Australia.

This is heating up demand while we struggle to deliver enough supply. In fact, UDIA WA has forecast a shortfall in excess of 30,000 dwellings over the next five years.

The rental market is also experiencing escalating prices, with Perth rents growing 18 per cent over the last year to $640 per week according to PropTrack. This is in the context of a 0.5 per cent rental vacancy rate.

All these factors are contributing to investor interest in our market as they recognise the potential return.  

Why investors should be welcomed in WA

While we have seen some negative press recently around the increased appetite from investors wanting to enter the WA market, it is important to understand that investors are a critical ingredient in boosting housing supply, particularly in the rental market.

We have seen the impact that an exodus of investors has had on the Perth apartment market in particular in recent years, with the challenge in securing sufficient presales stalling many potential projects. 

According to Urbis, only 441 new apartments were available for sale in Q1 2024. That is compared to more than 1,500 in Q3 2021. New apartment approvals are also at their lowest level since 2009.

There are several factors influencing the lack of new apartment projects getting off the ground in WA, but a big factor is securing presales to appropriately finance a project.

Investors are an important source of presales and are desperately needed to assist with getting more apartments onto the local market. 

While there is some fear mongering from some quarters about the impact of investors on our already tight housing supply, the fact is that investors are important in getting stock on the market.

This is especially the case if they are buying new house and land or apartments, as these contribute to getting more new stock on the ground and available to renters.

Tax reforms needed

UDIA WA continues to advocate for a range of recommendations to get more homes on the ground in WA, faster.

In terms of attracting further investment in the housing market, we believe there are property tax incentives that can be implemented in the short term, including making the transfer duty concession for pre-construction and under construction apartments permanent, extending it to grouped dwellings, and removing the purchase price thresholds. 

We are also asking for the land tax exemption for build-to-rent projects to be increased, and for the Foreign Buyer Surcharge to be removed or at least frozen for two years.

We believe these particular changes could boost investment in the WA market and hopefully get more supply on the ground, meaning more homes for the people that so desperately need them.