Real Estate Crash, Australia

Perth unit owners in for prolonged market pain as oversupply predicted to last years

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Too many apartments and too few buyers means there are a couple of years of pain ahead for Perth unit owners wanting to sell.

It's the perfect storm, according to property adviser and valuer Rod Davidson.

Slowing population growth, a decrease in investor lending, reduced rents and a large number of apartments under construction mean properties will not sell quickly or profitably, Mr Davidson warned.

The problem is particularly acute in Perth's inner-city suburbs where hundreds of apartments sold off the plan during the mining boom are now coming onto an already crowded market.

"At the beginning of the year in East Perth, Perth and West Perth there were 541 units for sale and another 1,172 due to come out of the ground, so we are going to end up with another 1,600 units there," Mr Davidson said.

The Real Estate Institute of Western Australia (REIWA) reported that last week just 43 rental properties were leased in East Perth, while another 275 remained available.

Average unit rents across Perth have fallen from an average of $395 in September 2015 to $330 in June 2017.

Exodus to the east

Perth is no longer getting the influx of new residents who arrived during the boom.

"We had about four to six years of population growth of about 75,000 per annum," Mr Davidson said.

"The long-term trend is about 35,000 to 40,000 a year; we are now at about 25,000.

"We have lost about 10,000 people last year back to the eastern states and they are tipping this year it is going to be about 5,000."

During the boom, the high demand for rental properties attracted investors and property developers alike; it was a market in which rental returns were strong and values were increasing.

In that period, many apartment buildings were planned, some of which are only now reaching completion.

But the owners and developers are finding there is little interest from either buyers or tenants.

And for owners of existing units who want or need to sell, it can mean waiting months for a buyer to come along — and possibly selling at a loss.

Average 68 days on the market

Last week, rating's agency Moody's reported that for the first time, investors outnumbered owner-occupiers in mortgage defaults and that in the first three months of 2017, one quarter of Perth properties sold at a loss.

Average selling days have risen from 40 in September 2013 to 68 in June 2017.

"The overall Perth market is made up of about 80 per cent houses and 20 per cent units," Mr Davidson said.

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Last week in Perth there were 7,836 houses listed for sale and 2,824 units, with units making up 27 per cent of properties on the market.

Sales data shows that only 15 per cent of properties that sold last week were units.

"If we are about 30 per cent oversupplied in the unit market, it gets even more exacerbated when you look at the rental side of things," Mr Davidson said.

Last week there were 10,646 properties for rent in Perth, 4,102 (39 per cent) of which were units.

"That should really be about 2,000 and it's 4,000," Mr Davidson said.

Sydney surge hurts Perth borrowers

Rapidly rising property prices in Sydney have also had unfortunate consequences for Perth.

"The banks, in trying to slow Sydney down, have changed their investor loan guidelines," Mr Davidson explained.

"To get investor loans it has become significantly harder, and that does have a roll-on effect.

"It's just another barrier to the market operating efficiently."

On the upside, Mr Davidson said there was still interest coming from investors from the eastern states.

"It's just a time thing," he said.

"I think units are going to be oversupplied for three years, particularly in the CBD."

(Source: Australian Broadcasting Corporation )