Stock shortage stalls enthusiastic investors

SPURRED on by the poor performance of the stock market, low interest rates and government incentives, investors have been spending up big on property. The down side of this enthusiasm, however, is that the market is now experiencing a supply shortage.

The limited selection of properties on the market is frustrating prospective home owners and complicating life for investors trying to decide on ‘wise investments’ in the peak period of the property cycle.

Real Estate Institute of WA February indicators reveal that the stock of residential properties fell by 8.4 per cent over the past 12 months and by 2.7 per cent over the January period.

The institute’s president, Jim Henneberry, said the shortage in stocks of properties for sale in Perth was continuing.

“At the close of 2002 there were 8,999 established properties available for sale in Perth, which is 25 per cent less than the five-year average stock of homes for Perth,” he said.

“The higher number of sales to investors following on from the first home buyer last year has contributed to run-down in stocks.”

Mr Henneberry said the low stock level was also a sign that the building boom had not resulted in an oversupply of housing.

“This is important because it is more evidence that the real estate market will face a soft landing when the property market eventually slows,” he said.

Property Council of WA executive director Joe Lenzo said the feeling among property investors was that there was not a lot of good quality stock on the market.

“Investors now have to be more wary and sophisticated when choosing a property,” he said.

“Good deals and good buys are more difficult to find and people have to be careful that they are not buying a property at an inflated price.”

Mr Lenzo said there were still good buys available but they were longer-term investments, and finding them required a lot more research.

“The market has reached a level where there is not a lot of stock around and, of what is available, the short to medium term is probably not the way to go,” he said.

Mr Lenzo said suburbs that were a 20 to 30-minute drive to the CBD were yielding good investment properties.

“The CBD fringes have picked up in price. Belmont and the like are suddenly very popular,” he said.

Herron Todd White managing director Garrick Smith said he did not agree there was a lack of good product on the market, but rather that there was a lack of good quality tenants, particularly in the apartment market.

“The demand for rentals has been overmatched by product in South Perth, East Perth, Victoria Park and Subiaco where rental returns have diminished some-what,” he said.

Mr Smith said the need for investment properties to have tenants to satisfy borrowings was driving rentals down in some areas.

Houses located 10 to 20 kilometres out from the Perth CBD are worth looking at, according to Mr Smith.

“There is still a firm demand from families for three or four-bedroom houses,” he said.

“These houses are older and don’t have the depreciation benefits or status but can still give good returns.”

Roy Weston chief executive Geoff Baldwin said investors needed to look at suburbs that were likely to improve in value rather than in suburbs that had already moved.

Mr Baldwin said for the past 10 to 12 months the market had been at its peak and investors had to move quickly, and be well informed, to get the good buys.

“Historically the Perth market follows the Sydney market by about six to 12 months,” he said.

“The Sydney market has not come off the boil, it is still moving along well.”

Mr Baldwin said it did not matter at what point in the property cycle investors purchased if they were smart about what their investment properties were actually worth and they were buying for the long haul.