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While the economy in Western Australia is slowly starting to rise, the outlook for the Perth property market is less optimistic, one pessimistic pundit is insisting.
RiskWise CEO Doron Peleg said that despite its outlook, the WA economy is still “significantly below” the 10-year benchmark.
He said that while there were positive signs the mining sector had begun to recover (with exports of LNG and coal having hit record figures), it would be a slow road to recovery for the Perth property market.
“It should bode well for the local property market; however, WA’s effective unemployment is still significantly above the 10-year benchmark.
“Consequently, its population growth of 0.83 [of a percentage point] is very low, the third lowest nationally. As a result, the housing market, particularly units, has experienced continued weakness in recent years.”
Mr Peleg said that it is useful to consider the data.
“According to CoreLogic, house and unit prices in Perth have declined by 4.3 per cent and 6.5 per cent, respectively, in the past year.
“So, while WA is in a long transition process from a mining-oriented economy to a more diverse one, it is still projected to deliver low economic growth, a soft job market and low population growth which, of course, has a flow-on effect to the property market.”
He also said that the state government’s 4 per cent overseas surcharge will decrease demand.
“Perth prices, which had stabilised, once again started falling,” Mr Peleg said.
“And this impact is expected to increase if a blanket approach is also taken when introducing Labor’s proposed taxation changes if they win the election.”
The ALP proposes to limit negative gearing to new houses only and reduce the discount on capital gains tax from the current 50 per cent to 25 per cent.
Mr Peleg’s comments come after WA Treasurer Ben Wyatt complained to APRA that lending restrictions introduced across Australia were hurting the Perth property market and wider economy.
“Furthermore, mortgage arrears in WA are at an alarming level. This number has grown over the course of several years and is now well above the Australian average,” Mr Peleg said.
“While Perth is very affordable, the overall demand for both houses and units is low and the risk associated with units is even higher than the risk associated with houses. While there is a small number of suburbs where houses have delivered reasonable or good capital growth in recent years, these are exceptions only.
“Overall, houses carry a high level of risk due to the economic conditions in Perth. However, it is units which carry a very high level of risk to deliver poor or negative capital growth, due to the combination of oversupply, lending restrictions, low rental returns and low demand, as well as fears over Labor’s proposed changes to negative gearing and capital gains tax.”
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