27/02/2008 - 22:00

Correction not over

27/02/2008 - 22:00

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The state’s property market is likely to experience continued growth in 2008, although performance in the residential sector is likely to be mixed, according to the Hegney Property Group’s outlook report.

Correction not over

The state’s property market is likely to experience continued growth in 2008, although performance in the residential sector is likely to be mixed, according to the Hegney Property Group’s outlook report.

While low supply in some suburbs will ensure there is growth, an oversupply of stock is expected to trigger a fall in prices.

For the first half of 2008, the gap between the asking and selling price of a property is expected to widen, from about 3 per cent to between 5 per cent and 10 per cent in some suburbs.

Hegney Property Group executive chairman Gavin Hegney said this would be driven by speculators looking to relinquish stock.

“We’re probably three-quarters of the way through the correction, which has been about 10 per cent, and we may have another 5 per cent to go,” he said.

“But at the same time, places like Trigg, Beaconsfield and Fremantle have had growth of 30 per cent in the past year, so there’s a real divergence.”

Based on high availability of stock, fringe suburbs such as Ridgewood, Tapping and Dawesville are likely to have a downturn or price correction in 2008.

More established suburbs likely to have an upswing due to low supply include Mt Hawthorn and Brentwood.

In the office market, breakout prices are expected to continue to drive rental prices up, with $1,000 per square metre a possibility, according to Mr Hegney.

However, while capital and rental growth is expected to continue, there is a risk that further development may be creating an oversupply down the track.

“Our office market has traditionally gone on a bit of a roller coaster and we’ve tended to get a bit of oversupply,” Mr Hegney said.

“Four years ago, everybody wanted to be a residential developer and now we’re facing an oversupply of land. Today, everyone wants to be an office developer, and if that does prevail we could see some oversupply in years to come.” 

According to the report, WA is on the verge of becoming a two-tiered office market, where pre-committed tenants will be paying below-market rents when they move in to new supply.

In terms of investment in the commercial market, there are similarities with residential trends, according to Mr Hegney.

“Investors are carrying the residential investor’s philosophy into the commercial market. They’re investing as much for capital growth as yield,” he said.

However, interest rate rises and share market volatility are expected to have an impact.

“We’re already seeing some speculators under pressure at an institutional level, as a result of the increasing cost of funds and the sub prime issue,” he said.

“But at a lower level, investor demand is far outstripping supply, and that pressure will continue.”

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