In the midst of Western Australia’s escalating property prices, Jenelle Carter spoke to a number of prominent WA property figures to find out if and when the bubble will burst.
The issue of home affordability is the barbecue stopper of the month following revelations by Australian Property Monitors that Perth’s median house price reached $455,000 in June and was likely to rise a further 5 per cent within 18 months.
Figures released this week by the Housing Industry Association and the Commonwealth Bank are sobering, revealing that affordability has dropped by 9 per cent in the June quarter to be 18.8 per cent lower than the same period last year.
The affordability report estimates that first-home buyers will now have to commit about 28.8 per cent of their income towards mortgage payments.
Perth property pundits agree the outlook for housing affordability in the short to medium-term is not positive and that current growth levels are unsustainable.
Where they remain divided, however, is in predicting when the likely market price correction will occur and what form it will take.
Property Council of Australia (WA) executive director Joe Lenzo said without a major surplus occurring, there was sufficient pent-up demand in residential and commercial markets for high levels of demand to continue for another 12 months.
“Previous interest rate rises have not had any significant impact on demand, but we’re starting to see the residential investor market cool because capital growth is no longer as positive,” Mr Lenzo told WA Business News.
He expected the 20 per cent growth in the median price recorded last year to slow to 15 per cent this year as a result of investors taking pressure off the market, followed by a fall to between 8 per cent and 10 per cent in the next two years.
Prominent Perth home builder Dale Alcock believes investors have had a dream run in the residential market, to the detriment of first-home buyers, and are making gains that are clearly not sustainable.
“Investors have clouded the market, particularly those investors that are inexperienced and unsophisticated who are giving WA an over-inflated market view,” Mr Alcock said.
“They should be very cautious going forward in the next two to three years because WA may no longer be a good market to play in.”
He said some heat had already gone out of the market as investors reverted to Sydney, Melbourne and south-east Queensland in particular.
Mr Alcock also flagged land supply shortages and delays in approvals as having the most impact on WA’s growth and affordability, suggesting the volume of construction could come off by 10 per cent in 12 months.
Building starts have already eased this year with March quarter figures from the Australian Bureau of Statistics showing starts easing to 5,220, compared with 5,324 in the December quarter of 2005.
While these figures could contribute to the impression of an impending downturn, there are some in the property game who believe the indications are false and the cycle is not nearing its end.
Urban Development Institute of Australia (WA) executive director Marion Fulker said the cycle was certainly not over and demand for housing was as strong as ever.
Her group regularly meets with the state government and local councils to try to clear a path through the land approvals regime and find a way to free-up conditionally approved lots.
Ms Fulker said there was no easy answer to the problem and she remained concerned that titled lots could dry up within two years if something was not done to push the 40,000 conditionally approved lots through the system.
“All indications are that what developers are doing right now has already been sold,” she said.
“Developers were saying back in 2003 that there were no more lots to sell, but unfortunately this anecdotal evidence was never taken on board by the state government.”
Land supply remains the biggest challenge facing the state in the foreseeable future, with lobby groups working to encourage the state government to overcome delays in its planning approvals process, and to review the impost of taxes, charges and building regulations on buyers.
Satterley Property Group chief executive Nigel Satterley said builders were reporting a significant softening in the number of people visiting display homes.
He said the land shortage was caused by strained government agencies and suggested planning and environmental processes should be combined.
“Prices have gone up so much in a year that people are grabbing their heads, because it’s all too hard,” Mr Satterley said. “The market is reaching its peak and we believe the top of the tree will be reached by Christmas.”
Mr Satterley predicted properties within a 10-kilometre radius of Perth would drop 10 per cent in value after the New Year, and properties outside of this radius would fall by 15 per cent.
“Next year we will work into more of a sustainable cycle and the investor market will soften, meaning people won’t be able to make those quick elephant-sized profits,” he said.
Land shortages aside, most people who spoke with WA Business News believe August’s 0.25 per cent interest rate rise by the reserve bank has made little impact on the demand for WA housing. Predicting the fallout from a further interest rate rise this year was less clear.