Investing in property is a big step – one that becomes a lot easier when you understand the market and where it’s heading. Right now, 2024 is shaping up as a promising year.
There’s no doubt that residential property is a remarkable investment.
The past few years have dished up a barrage of factors which, by any reasonable measure, should have dampened property values.
Yet despite a pandemic, a cost of living crunch and a string of rate hikes, property values have soared. And Perth takes the gong for being one of the best performing state capitals.
As Table 1 shows, since the start of the pandemic, Perth values have skyrocketed 56%, rising in value by around $252,624.
Table 1: Increase in housing values since onset of COVID-19 to March 2024
Source: CoreLogic
3 factors likely to support Perth property values
Of course, past returns are no guide for the future. However, three key indicators suggest plenty of scope for Perth property values to climb higher:
1. Affordability
Despite tremendous capital growth over the past four years, Western Australia continues to be one of Australia’s most affordable capital city markets, with the average family contributing 36.7% of their income towards mortgage repayments.
Graph 1 illustrates how Western Australia provides greater value for an investor’s money than more expensive states such as New South Wales, Victoria and Queensland.
Source: REIA
2. Australia’s lowest vacancy rate, biggest rent rises
Rental markets around the country are experiencing record-low vacancy rates. Nationally, the vacancy rate is just 1.0%.
Perth’s market, however, is exceptionally tight. REIWA reported only 1,963 properties were available for rent in the week ending 7 April 2024 and Table 2 confirms that WA’s capital has a vacancy rate of 0.4% – the lowest Australia-wide.
To put this in perspective, SQM Research reports that in February, just 776 properties were available for new tenants in Perth – a city of over 2 million people. This has seen rents rise by an exceptional 17.3% over the past year, the biggest increase nationally.
Source: SQM Research.
*SQM’s calculations of vacancies are based on online rental listings that have been advertised for three weeks or more compared to the total number of established rental properties.
3. Population growth coupled with tight supply
Population growth is a key driver of property markets, and Damian Collins, Managing Director at Momentum Wealth, says ongoing strong demand for homes in Perth continues to put upward pressure on prices.
The latest population figures released by the ABS show that Western Australia’s population grew at an astonishing rate of 3.3% in the year to 30 September 2023 – the fastest growth rate in Australia. In response, Mr Collins said, “93,600 people equate to a need for an additional 37,000 dwellings. However, we only completed around 17,000 dwellings during this same time, which falls well short of that number.”
He adds “Population growth is remaining at very high levels so unfortunately, any hope of relief in the housing and rental market is simply not even on the horizon.”
This is creating strong competition for homes across most capital cities, which in turn is pushing up prices.
Key steps to take before you take the plunge
As we’ve seen, the Perth property market is very attractive to investors.
Even so, buying an investment property is a major step. Here are several steps aspiring investors should take before embarking on their personal property journey.
Identify the right investment strategy for you
Property investment isn’t a one-size-fits-all approach. Each investor’s strategy will differ based on individual factors including their unique goals, risk profile and current circumstances.
The most common strategy for investors starting out is a buy and hold approach that looks to target long term capital growth.
By purchasing a property in an investment-grade location and with strong land content, investors can look to benefit from the uplift in value that this property will experience across its lifetime.
Another consideration for first-time investors is which property type they choose to invest in. Traditionally, houses have proved a popular choice for property investors who value the land component and freedom that comes with them.
Units on the other hand are generally cheaper, offering a lower cost of entry which may allow first-time investors to enter the market sooner. However, they will typically offer lower long term growth due to their weaker underlying land component.
Get your finance structures right to maximise flexibility
Proper structuring of your finances is critical for new investors.
Not all mortgage brokers have a strong understanding of property investment, and poor loan structuring can have serious implications on your ability to move forward with your property plans in the future.
Having a strong understanding of your current financial position and any planned changes to income in the future is essential to create a scalable finance structure. We discuss these strategies in more detail in our eBook on leveraging equity to finance your investment property.
Market research is key
Local market research is critical when purchasing an investment property, and this is even more important for first-time investors who are looking to set a strong foundation for future growth.
Market drivers such as location, nearby infrastructure, local planning policies, oncoming supply and local amenities are all critical factors that can impact the future growth of an investment property.
Nonetheless, new property investors need to be aware that markets don’t act in unison. Some suburbs will inevitably enjoy higher rates of capital growth than others.
While most suburbs in Perth are experiencing rising values at present, what matters is that you retain that growth by buying in a neighbourhood that will deliver capital gains over the long term. That doesn’t always mean buying in today’s top growth location.
The trick is to narrow down your research to specific sub-sections of the market to identify the best investment opportunities.
Professional help here can make a valuable difference.
Professional buyer’s agents offer investors local area expertise, as well as being instrumental during price negotiations. A buyer’s agent can ensure investors don’t pay more than necessary while also negotiating contract terms that can support a successful investment.
Don’t overlook the importance of good management
Purchasing an investment property is only one part of the equation; this asset now must be managed to help it perform to its full potential.
Property management is often an afterthought, with many people believing the process just involves collecting the rent.
This couldn’t be further from the truth.
A good property manager actively focusses on adding value to an investor’s portfolio with proactive strategies that enhance rentability, and therefore potential rental returns, while also minimising the risk to the landlord.
If you’re looking to start your own property portfolio, it is important to lay strong foundations for your future.
Momentum Wealth’s property consultants can help tailor an investment strategy to your unique circumstances and risk profile. Get in touch with us here for a complimentary consultation and to launch your property investment journey.