After years in the doldrums, Perth property is now the hottest in the country.
According to CoreLogic, Perth property prices increased 1.9% in March, taking the annual increase to 19.8%.
Perth has witnessed a big turnaround in recent years after the mining state fared poorly for nearly a decade on the back of the end of the mining boom.
CoreLogic said that the main driver of property prices in the current market has been the huge levels of overseas immigration as well as people from interstate moving west.
Last month’s ABS population data showed some of the extremes in both interstate and overseas migration trends for WA more broadly. Net overseas migration to WA was running well above average at 18,122 in the September quarter of last year (up from a decade average of 4,639 per quarter), a trend seen in most states.
Unlike some of the states, net interstate migration held well above the previous decade average of -96, reaching 2,237 in the quarter. The extreme change up in demographic trends has delivered a significant positive demand shock across WA housing.
People are landing in Perth because home prices still remain relatively affordable compared to the east coast.
In Perth, the median property value is $703,502 which is significantly less than Sydney and lower than Brisbane, Melbourne and Adelaide.
While on the surface it looks like a great place to be a property investor, we do need to be cautious.
We only have to look at what happened during the last property boom in Perth as a reminder. Values also increased sharply prior to the GFC, then when the mining boom eventually ended, prices dropped by 20% over a period of five years.
They only really recovered after the COVID boom that saw rates cut to virtually nothing.
At the same time, we are also seeing a big portion of investors from interstate buying into WA. Again drawn by low prices and strong growth.
This can also be a bit of a trap. Ultimately it is owner-occupiers and not investors that drive prices higher over the long term. While in the short term, investors will look to jump on the trend, fundamentally you need owner-occupiers to be setting the prices.
With that in mind, while seeing values rise 20% annually is impressive, you have to ask yourself if you are in fact taking on more risk by buying into a market like Perth.
Traditionally Perth is a boom and bust town so you must be prepared for things to slow down should commodity prices take a hit.
As any miner knows, all booms eventually bust. So if you’re looking at investing in Perth, you should really be weighing up your options.
You might just find that you can find other locations in more blue-chip areas of NSW or QLD, where you are still able to achieve strong growth, but without the potential downside risk that a market like Perth presents.
