Caution, not panic, urged for investors
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Tuesday, 13 August, 2002 - 22:00
A RECENT publication from the Reserve Bank of Australia has presented a sobering warning for investors considering property as a safe investment alternative.
Much of the market analysis, however, is based on statistics from the boom markets on the eastern seaboard, which is good news for Perth.
The publication, Recent Developments in Housing – Prices, Finance and Investor Attitudes, suggests the market is unlikely to continue to grow at the rate it has during the past 18 months.
According to the publication, investors shouldn’t rely on the continuation of recent strong capital gains.
“In the current environment prospective yields on rental proper-ties may be lower than those seen to date,” it says.
“It would be unlikely that further strong price increases could co-exist with rising vacancy rates and falling rental yields for very long.
“It is more likely that any assumptions by investors that future capital gains can be assured will have to undergo some revision.”
Industry analysts agree that much of the pessimism surrounding rental market vacancies in Perth has been generated in Sydney and Melbourne, where a very flat rental market has forced investors to lower rents to secure tenancies.
According to figures released by the Real Estate Institute of Western Australia, rental levels in Perth have grown by 5.7 per cent in the past year.
The average weekly rent is $150, which delivers an average yield of 4.3 per cent on dwellings.
An industry analyst said the fact that Perth hadn’t experienced levels of residential housing growth similar to those in the eastern states indicated that the local market was in a better position to weather any downturn in the rental market.
A number of industry players commented that, while Perth had the highest rental vacancy rate in a national context, the figure was nowhere near the levels experienced in the early 1990s.
A decade ago the vacancy level was about 8 per cent.
One reason offered for the increase in vacancy rates is the number of people leaving Perth to live elsewhere in Australia.
Asset Special Projects senior manager Gianpaolo Crugnale said the Perth market needed to be analysed in isolation from the boom markets of both Sydney and Melbourne.
“Sydney and Melbourne are beginning to feel a rise in vacancies, with landlords bending over backwards to ensure tenants stay,” he said.
“Those who have failed to do this have been left behind with no real rental income.
“The eastern States have been going through inner-city booms for the past nine years and it’s now considered to be at saturation point.
“Perth has experienced only smaller boutique developments and only when East Perth began to be developed did a shift towards apartment and inner-city living begin.”
Mr Crugnale said investors needed to look carefully at the type of product demanded by the local market.
“Perth properties in excess of $400,000 will typically have lower rental yields as tenants are not prepared to pay the rents that provide a satisfactory yield,” he said.
“Developments in the range of $200,000 to $300,000 have proved favourable in the Perth market as investors reap higher yields as rental income is more affordable.”
The rental market in Perth is supported in part by major industry sectors, such as mining. That being the case, this corporate sector of the market tended to be cyclical, according to Colliers International manager research David Cresp.
“I don’t think the vacancy rate is too bad, especially considering the amount of stock,” Mr Cresp said.
“There’s been a huge amount of development and a lot of that has been aimed at the investor market.
“One of those [markets] is the corporate rent market, which is the three to six weeks type of rental.
“It can be quite cyclical, depending on what’s happening in the mining industry.”
Perth hadn’t seen the massive supply levels experienced in Sydney and Melbourne, he said.
“The city [here] is much more diverse. Four years ago the inner-city developments were aimed at investors and now almost half of it is aimed at owner occupiers,” Mr Cresp said.
While uncertainty in the stock market is driving some investment back into property, this can be a bit of a double-edged sword for the market.
“Following the last stock market crash there was a rush of funds into property,” Mr Cresp said.
“The investment in shares in 1987 was much lower. Now if people lose money in shares it means they have less to spend because it’s not just the wealthy who own shares.
“One lesson individuals learnt from that experience was, don’t sell [property] in the down.”
Much of the market analysis, however, is based on statistics from the boom markets on the eastern seaboard, which is good news for Perth.
The publication, Recent Developments in Housing – Prices, Finance and Investor Attitudes, suggests the market is unlikely to continue to grow at the rate it has during the past 18 months.
According to the publication, investors shouldn’t rely on the continuation of recent strong capital gains.
“In the current environment prospective yields on rental proper-ties may be lower than those seen to date,” it says.
“It would be unlikely that further strong price increases could co-exist with rising vacancy rates and falling rental yields for very long.
“It is more likely that any assumptions by investors that future capital gains can be assured will have to undergo some revision.”
Industry analysts agree that much of the pessimism surrounding rental market vacancies in Perth has been generated in Sydney and Melbourne, where a very flat rental market has forced investors to lower rents to secure tenancies.
According to figures released by the Real Estate Institute of Western Australia, rental levels in Perth have grown by 5.7 per cent in the past year.
The average weekly rent is $150, which delivers an average yield of 4.3 per cent on dwellings.
An industry analyst said the fact that Perth hadn’t experienced levels of residential housing growth similar to those in the eastern states indicated that the local market was in a better position to weather any downturn in the rental market.
A number of industry players commented that, while Perth had the highest rental vacancy rate in a national context, the figure was nowhere near the levels experienced in the early 1990s.
A decade ago the vacancy level was about 8 per cent.
One reason offered for the increase in vacancy rates is the number of people leaving Perth to live elsewhere in Australia.
Asset Special Projects senior manager Gianpaolo Crugnale said the Perth market needed to be analysed in isolation from the boom markets of both Sydney and Melbourne.
“Sydney and Melbourne are beginning to feel a rise in vacancies, with landlords bending over backwards to ensure tenants stay,” he said.
“Those who have failed to do this have been left behind with no real rental income.
“The eastern States have been going through inner-city booms for the past nine years and it’s now considered to be at saturation point.
“Perth has experienced only smaller boutique developments and only when East Perth began to be developed did a shift towards apartment and inner-city living begin.”
Mr Crugnale said investors needed to look carefully at the type of product demanded by the local market.
“Perth properties in excess of $400,000 will typically have lower rental yields as tenants are not prepared to pay the rents that provide a satisfactory yield,” he said.
“Developments in the range of $200,000 to $300,000 have proved favourable in the Perth market as investors reap higher yields as rental income is more affordable.”
The rental market in Perth is supported in part by major industry sectors, such as mining. That being the case, this corporate sector of the market tended to be cyclical, according to Colliers International manager research David Cresp.
“I don’t think the vacancy rate is too bad, especially considering the amount of stock,” Mr Cresp said.
“There’s been a huge amount of development and a lot of that has been aimed at the investor market.
“One of those [markets] is the corporate rent market, which is the three to six weeks type of rental.
“It can be quite cyclical, depending on what’s happening in the mining industry.”
Perth hadn’t seen the massive supply levels experienced in Sydney and Melbourne, he said.
“The city [here] is much more diverse. Four years ago the inner-city developments were aimed at investors and now almost half of it is aimed at owner occupiers,” Mr Cresp said.
While uncertainty in the stock market is driving some investment back into property, this can be a bit of a double-edged sword for the market.
“Following the last stock market crash there was a rush of funds into property,” Mr Cresp said.
“The investment in shares in 1987 was much lower. Now if people lose money in shares it means they have less to spend because it’s not just the wealthy who own shares.
“One lesson individuals learnt from that experience was, don’t sell [property] in the down.”