It is a beautiful city with great amenities and an outstanding lifestyle. I could easily imagine myself living there, but I will not invest there.
From a property investor’s perspective, the available rental yields are more attractive than many other locations and, for the foreseeable future, it is my professional opinion that the outlook for Perth’s property market is better than average.
But an unhealthy dependence on one industry sector means that real estate values in Perth will always be vulnerable to the fluctuations in the State’s revenue from that key sector.
For anyone who is ever interested in investing in Australian real estate, the nation’s 4th largest city is a brilliant Case Study containing some incredibly valuable intel.
A 14-year period which produced record high population growth and zero house price growth is worth understanding.
A fascinating Case Study
Lots of heads would be nodding if a so-called ‘expert’ suggested a specific location was the best to invest in because it was a capital city, it had more infrastructure than most locations, a great lifestyle and very high population growth.
Perth ticks all those boxes, and more.
But there are ‘boxes’ and then there’s genuine understanding of property market drivers.
At the beginning of 2007, Perth had the highest median house value ($493,000) of Australia’s 8 capital cities.
The cost of a standard Perth house was more expensive than Sydney ($460,000), Canberra ($406,000), Melbourne and Darwin (both $360,000), and only slightly less than Byron Bay ($535,000).
Fast-forward 14-years to the end of 2020 and Perth’s median house value was $490,000, back where it started 168-months earlier.
This is not at all intended as criticism of all the wonderful things that Australia’s 4th largest city offers to its resident population of 2.1 million people.
Out of all the 400 townships across Australia, Perth is the best example to highlight the consequences of getting sucked into stereotypes, myths, biases and community features-and-benefits, as opposed to truly understanding property market drivers.
Over the 14-years to 2020, Perth’s population had increased by a whopping 34 percent. That’s significantly more than the national average (23 percent) and higher than every other capital city.
So what!
A 14-year comparison
As with literally every era, there were multiple moments of adversity during this particular 14-year period.
At different times between 2007 and 2020, the national headlines focused on a global financial crisis, an oil crisis, drought, floods, cyclones, housing affordability, a period when APRA squeezed credit to the B’ Jesus, rising interest rates, multiple changes of government and the worst ever health pandemic.
During the same period that Perth produced zero capital growth, property markets on the Gold Coast QLD (58 percent), Mount Barker SA (66 percent), Hobart TAS (86 percent), Canberra ACT (88 percent) and Castlemaine VIC (150 percent) all produced good growth.
Meanwhile, house values doubled in Newcastle, Sydney, Melbourne and Geelong.
From a property market perspective, ‘capital city’ is a nothing more than a useless term, it is not safety blanket. Real estate in Dubbo NSW, Mildura VIC, Sunshine Coast QLD and Ballina NSW each produced the same capital growth rate (65 percent) as Adelaide SA and Brisbane QLD.
Examples of regional locations with populations smaller than 50,000 and produced strong performances over the 14-years in question include Bairnsdale VIC (64 percent), Parkes NSW (69 percent), Burnie TAS, Traralgon VIC and Orange NSW (all 75 percent), Colac VIC (92 percent), Kiama NSW (100 percent) and Byron Bay NSW (120 percent).
Water does not make properties grow. Parcels of proof is contained in these inland gems: Swan Hill VIC (59 percent), Wangaratta VIC (70 percent), Mudgee NSW, Bega Valley NSW and Launceston TAS (all 77 percent), Bendigo VIC (86 percent), Ballarat VIC (107 percent), Goulburn NSW (116 percent), Bowral NSW (120% percent), Warragul VIC (123 percent) and Gisborne VIC (170 percent).
As for lifestyle, that will always be highly subjective. But one might consider Perth’s property market performance against that of Darwin NT (37 percent), Alice Springs NT (68 percent), Ararat VIC and Bathurst (both 75 percent), Lithgow NSW (82 percent) and Leongatha VIC (95 percent).
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The local economy
75 percent of the people in the state of Western Australia reside in Perth.
As I’ve previously explained in various other research reports, the biggest influence on the performance of a property market is the economy of that city.
The strength of Perth’s economy has an unhealthy dependence (30 percent of total revenue) on one industry sector.
More specifically, a whopping $12.7 billion revenue in 2022/23 was derived from the state government clipping the ticket of the mining industry sales of iron ore ($9.2 billion), gold, gas, oil and lithium.
Without that revenue, Western Australia’s strong budget surplus of $4.2 billion would have been a disastrous $8.5 billion deep hole.
Perth’s real estate values producing zero growth over the 14-years to 2020 was a consequence of an economy with unhealthy reliance on one customer – the second biggest country in the world, China, who buys more 60 percent of WA’s iron ore.
During times when the size of the orders from China for WA’s iron ore are very high, the significant revenue from mining royalties does wonders for Perth.
The rollercoaster runs both ways though. In 2012, when China swiftly turned the tap off, WA’s revenue dried up, the price of iron ore took a dive and the Perth economy was left to run off the sniff of an oily rag through to 2020.
The footprints of proof are etched in Perth real estate trends.
‘Perceived risk’ versus ‘real risk’
A lifetime of studies has provided me with indisputable evidence that property market performance and ‘risk’ are not connected to whether a location is a capital city or regional, coastal or inland, or whether its population is 20-thousand or 20-million.
Regardless of where a township is positioned on the map or how many people live there, the importance of a township’s economy having a wide spread of income streams is a valuable lesson that I learned in my early years of investing in real estate.
Perth itself is not a mining town.
While Australia’s fourth largest city offers employment opportunities in a broad cross-section of industry sectors, a 30 percent revenue dependency on one industry makes Perth vulnerable in multiple ways:
- Ability to invest in new infrastructure,
- Knock-on affect to other industries in the supply chain,
- General job creation,
- Funding of the public sector workforce,
- Local confidence, and
- Attracting migration.
Property market risk is best measured by the diversity of the township’s economy, along with the price of housing (the higher the cost of a standard house, the greater the risk).
A country with 400 individual townships means property investors are spoilt for choice.
With so many choices, Propertyology will always back its ability to identify opportunities. That said, it is (unapologetically) our policy to begin by eliminating locations whose characteristics include the two (2) aforementioned tangible risks.
The specific locations across Australia that Propertyology invests in varies from year to year.
Property investors who engage Propertyology’s services do so with the confidence that we respect these property investment principles.
Clarity on the primary object
The primary objective of investing is a future financial outcome, not an emotion or personal preference.
When done properly, investing parks the heart in the garage and focuses on giving the ‘the head’ the opportunity to realise its full potential.
Whether one can see and touch the property, or how one feels about a location will not influence the financial performance one iota.
Either get your head (fully) into the game or don’t even bother participating. Here’s how.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
