- Perth's home values have seen the largest increase across all capital cities.
- Buyers agents warn against investing in lower grade property amidst market frenzy.
- Apartments are not ideal for investors.
Perth’s property market has seen a confluence of circumstances exert upward pressure on prices, including, but not limited to, population growth, a record low of listings, and high construction costs.
CoreLogic‘s Daily Home Value Index shows Perth in the lead, achieving a 14.6% year-on-year change.
Perth’s weekly asking prices
Unsurprisingly, the competition to snap up a property is fierce, and, according to Resolve Property Solutions buyers agent, Peter Gavalas, compelling desperate buyers to settle for low-quality properties that they may end up regretting.
“If they ever want to sell their home when the market is declining or even just growing moderately, they’ll struggle to find a buyer, which means they’ll probably have to take a big haircut on the price,” said Gavalas.
Property Powerhouse CEO, Garth Davis, agreed that once a market of equilibrium is reached, where there are an equal number of buyers and sellers, the lower grade properties will be the most difficult to sell.
Perth’s FOMO frenzy
“The bottom line is that, right now, the Perth property market doesn’t have enough supply to cater to all the demand,” said Gavalas.
“So buyers are reacting the same way they do in any boom – they’re compromising on quality by settling for less desirable homes, such as ones with structural problems, or less desirable locations, such as on noisy main roads, because they fear they’ll never enter the market any other way.
“We’re also seeing another phenomenon that plays out in booms, which is that these C grade properties, which are really hard to sell during normal markets, are currently finding buyers within weeks or even days of being listed for sale.”
Peter Gavalas, Resolve Property Solutions
Gavalas added that even if investors managed to sell a lower grade property during a future boom, they will have missed out on capital growth, due to these kinds of properties not accruing the same price appreciation as a higher price property.
“By contrast, good family homes in good streets are always in demand in any kind of market,” he said.
“Even though I understand a lot of buyers are experiencing FOMO right now, they’re likely to suffer a serious case of buyer’s remorse in the years ahead if they compromise on quality.
“A better option would be to buy a higher quality property with stronger resale value in a cheaper neighbouring suburb.”
Indeed, the fear of missing out has led to apartments garnering more attention from buyers.
Apartments as investments
However, Davis opined that apartments were not an ideal investment for investors, and that fact is masked in the current environment of intense competition among buyers due to price growth.
“When people are limited to purchasing, they buy apartments, and generally those don’t perform as well with capital growth.”
Garth Davis, Property Powerhouse
“Apartments work well for renters and owner-occupiers, but for investors, they just don’t work well in this country.”
Davis cited body corporate fees and strata fees as a couple of factors limiting the potential of an apartment’s capital growth.
Nevertheless, with Perth rents being so high, Davis said people, who are not investors but renters, are being forced to buy when they normally would not.
Perth’s weekly rents
“The reality now is that people are being driven by basic need,” he said.
“This is not an environment where there’s a lot of choice. A lot of people can’t afford to live with the unknown of ‘Will the owner decide to sell?”.