Perth property booming but not all property types are equal
The Perth property market appears to outsiders as a sure-fire investment win but some property types are increasingly selling at a loss.
The residential housing market in Perth is seeing some of the strongest growth conditions in nearly a decade, with property values climbing 21.1 per cent for the year to April 2024, according to the latest CoreLogic data.
Over 90 per cent of resales in Perth made a gain in the December quarter, with less than 10 per cent of resales trading at a loss from their previous transaction. It was also the highest rate of profit-making sales in just over a decade for Perth.
The unit sector, however, has not seen as strong results as the housing sector. Over 97 per cent of house resales made a gain in the quarter, compared to just 78 per cent of unit resales.
According to CoreLogic’s Pain and Gain Report, the number of loss-making unit resales was down 7.1 per cent from the previous quarter, totalling around 600 in the three months to December 2023.
While this is a slight turnaround, it still means 600 property owners in Perth have sold their unit for less than they purchased it.
Many buyers incorrectly believe that the market will always go up or they will make gains on their property value no matter what or when they buy. They rely on the market to cover up any costly mistakes they make and hope overpaying or choosing the wrong property will be absorbed by strong market conditions in the years to follow.
Unfortunately, this is not always the case, and investors can get burned if they don’t make an informed and well researched decision.
There are several factors that can lead to this outcome for investors, and it is easy to get caught out if you haven’t done your due diligence.
Perth unit oversupply
There are many pockets around the CBD of Perth that have an oversupply of units, and this puts downward pressure on values.
With a substantial amount of new development coming through Perth metro and beyond, the new product will be more desirable to buyers, which will stifle values for older product.
Investors should expect this trend to continue and anticipate that units won’t perform as well as houses.
Buyers need to ensure they aren’t paying too much when they go to offer, as a hot market can result in panic buying with wild and unsubstantiated offers being made. Buyers need to look at what has sold and not just what is on the market to get an accurate gauge of local values.
If they are an out-of-area buyer, then getting a property valuer or buyers agent to assist is critical. If you pay too much for the property then need to sell in the first few years of owning it, you could be more likely to become part of the 600 owners selling at a loss.
If you are looking to acquire an investment property in Perth and you don’t have the budget for a quality house, which now pushes you in to the $600,000s in most areas, you could consider a townhouse or villa over an apartment.
They tend to grow in value a bit better than units and attract good rental returns and tenant demand. They appeal to a broader market, and this is seen in the performance of this asset class.
If you do feel a unit is the right fit for your portfolio, try to secure something a little unique so that it will hold its value better. Look for a unit in a smaller boutique complex, with two or more garaged car spots, generous outdoor spaces, views, and lots of natural light. This will put you in the best position to have a stronger growth asset with steady rental demand.
