Perth apartment market correction a warning for East Coast

Perth apartments - 2 April 2016[2]

Perth apartments started to correct a few years back.

By Larry Schlesinger   2 April 2016  AFR

In Melbourne the prices investors are getting for apartments in the secondary market are beginning to cool.

People who bought off-the-plan in anticipation of a decent profit to be made by selling a year or two later are suddenly seeing prices weaken.

In one case last week an investor reported a 29 per cent discount to the off-the-plan price. More typically investors are walking away with losses of a few thousand dollars. Not much of a loss, but a long way off the outcome many expected.

The situation in Melbourne is being watched closely by investors and apartment dwellers in other capital cities.

Property valuer Gavin Hegney says a 20 per cent fall in Perth apartment values and rents was precipitated by exactly the same conditions now occurring in Sydney, Melbourne and Brisbane.

Hegney, founding director of the Hegney Property Group, said Perth apartment values and asking rents tumbled two to three years ago following a boom in apartment construction based on a high percentage of sales to investors, which ramped up prices and resulted in too many apartments flooding the rental market.

The end result, he said was a gap between sign-up prices and valuations, meaning buyers had to find more money when it came time to settle.

“What we saw happen in Perth, we are now seeing happen in Melbourne and Sydney,” he said.

The end result, he said was a cancelling of a number of projects, with demand being recycled into established property. Hegney said investor participation in the market has also tumbled, falling from as high as 80 per cent post-GFC to under 20 per cent currently.

Darren Pateman, managing director of listed WA developer Finbar which has a $2.1 billion pipeline of projects and $465 million in pre-sales said he did not expect any further correction in values with valuations “fairly consistent” with sales prices.

“I would suggest the declines seen last year and the relative flatness in our Perth apartment market seen for several years now, is Perth’s correction.

“There are no developers in Perth developing projects on pure speculation and there has been no bullish speculation from buyers, so the market self regulates,” he said.

Pateman said about one in five Finbar contracts fail to settle and required legal action, in line with historical performance. 

A November report by research firm Y Research recorded 3500 apartments due for completion in the Perth metropolitan area this year with the apartment vacancy rate and the number of apartments for sale falling, bucking rising vacancy rates and listings across the wider Perth property market.

Original article here

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