As always we keep our fingers on the pulse regarding the latest economic activity and forecasts including, in particular, those impacting the Perth property market.
To that end our Team recently attended the Commonwealth Private “Property Pulse” presented by Performance Property Advisory (“PPA”) (performanceproperty.com.au).
This event was much anticipated, being the first real update regarding the property markets of the country since the pandemic hit, and we have to say, for Perth property owners and investors, there were some very positive signs indeed.
Property Pulse – Summary
Here’s our summary of what Performance Property Advisory had to say regarding residential property markets around the country and in particular for Perth –
Key Markets Remain Resilient
Throughout the country, the markets for quality properties remains resilient and despite what many in the media are saying, prices are not softening, in fact there are some price rises occurring (in part due to the low available stock levels).
The last time Perth was this affordable was 1989 and house prices doubled in the following 12 months!!!
Discounting is Not Prevalent
The discounting that is being seen is primarily in relation to lower quality properties.
This is a Health Crisis Creating an Economic Crisis, but NOT a Credit Crisis
There are no signs of a credit crisis, money is flowing to credit worthy borrowers, and its cheaper than ever.
Forced Sales are Not Predicted to Flood the Market
Forced sales (due to lenders being unable to pay mortgages) are not expected to cause pain for some time. The banks are looking to work with lenders giving them the best chance to get back on their feet. Where they have to force a sale they are indicating they will not dump stock all at once therefore softening any impact on markets. The prediction is that if there will be pain caused by forced sales, it will likely not be until 2021-22 and even then it will be spread out, it won’t likely be in one quarter or one single event.
Deals are Still Being Done, Including Off-Market
For every property officially on the market, there is another half to one additional property off market. And there are off market deals being done. PPA’s buyer agents are very busy buying off-market properties for their clients.
Government Debt Levels are Not Unprecedented
The high levels of government debt that will result from the pandemic (estimated to be 45% of GDP) have actually been seen before (this is around the same as at the end of the Spanish Flu), and they didn’t necessarily mean disaster for the local property markets in the past.
Government Commitment to Supporting the Economy is Strong
Government support for the economy is strong and they are committed to see economic activity return. The prediction is the Federal Government will get economic activity back on track BEFORE looking to implement measures that will allow it to repay its debt. This will help support the property market.
Recessions Don’t Necessarily Mean Property Price Falls
If you compare prior years that also suffered economic contractions (1973, 1982, 1989, 2001, 2008), property prices didn’t fall during these events. Recessions don’t necessarily result in house price falls.
The Fundamentals haven’t Changed
In the short term anything can happen, but in the long term markets return to fundamentals. Remember people have to live somewhere. When you invest in property you are investing in a basic need of ‘shelter’.
Demand is expected to continue, supply will likely be restricted for some time, the RBA retains its inflation target which will flow through to wages growth, and our organised government, in comparison to the occurrence of past economic shocks, is well positioned to deal with what comes our way.
The Key Drivers of Property Markets in the Short to Medium Term remain –
- Demand relative to Supply
We have continued to enjoy population growth, and while the short term halt on immigration will effect this, the population is still expected to continue to grow and to return to normal growth levels in the medium term.
On the supply side, we have been building less over the past five years. Vacancy rates are falling (especially in Perth) and stock on market is down, particularly when it comes to quality properties.
We have super low interest rates, which are expected to continue for some time.
Many investments being made today will instantly be cashflow positive. In many cases it is actually cheaper to buy than to rent.
Most markets around the country are at their most affordable they have been for at least the last 10 years and when they were this affordable in the past, markets went up the following year.
…best case scenario is that we will experience a 100% price increase!!!
The last time Perth was this affordable was 1989, and house prices doubled in the following 12 months!!!
Clearly this is the one area of doubt at this time, but as soon as this starts to turn, and therefore the stars start to align, based on PPA’s commentary, we think we would rather already be in the property market than trying to get in.
THE REAL HEADLINE – PPA’s House Price Forecast for Perth
- PPA give only a 15% chance property prices will fall from their current levels, they believe it is a much more likely 85% chance they will rise from here.
- If prices do fall, PPA believe the worst case scenario is that they will only go down a further 5% from current levels.
- But if they increase, the best case scenario is that we will experience a 100% price increase!!!
PPA’s Current Advice to their Clients
- Increase Cash Buffers
- Continue with existing Long Term Strategies
- Don’t hold back on purchases, you could find yourself chasing the market up if you do.
Are You Considering Getting into Property Investing or Expanding Your Portfolio
Call Kapil in Perth on 9228 7100 or Pavan in the South West on 9787 8861 to obtain a copy of PPA’s latest Perth Property Market Report and to discuss how we can help with all the key aspects including your budgeting, structuring for tax minimisation and asset protection, and how best to obtain, and structure, your financing.