Investors size up WA property

Source: Business News | Written by: Claire Tyrell

A flood of east coast investment in WA housing has reignited the debate about foreign buyers.

Matthew Hughes says about 60 per cent of his business comes from eastern states investors.

The capital growth potential of Western Australia’s undersupplied residential sector, coupled with its relative affordability compared with other states, is proving attractive for an increasing number of investors.

WA has experienced an influx of eastern states capital into its housing market during the past few years, and investment from that cohort has remained strong.

Australian Bureau of Statistics data shows the value of home loans to investors grew by 2 per cent in September this year, when the value of owner-occupier loans dropped by 0.1 per cent.

A recent report from national group MCG Quantity Surveyors shows the distance between where landlords lived and the dwellings they purchased has increased significantly in the past 12 months.

In 2022, the average distance between a landlord and the property they invested in was 857 kilometres. This year it was more than 1,500km.

The latest data from the Urban Development Institute of Australia WA showed the proportion of investors in WA’s housing market has ballooned to 62 per cent of all residential land sales in Perth’s greater metropolitan area.

This compares with 28 per cent this time last year.

As UDIA WA chief executive Tanya Steinbeck put it, the state’s record low rental vacancy rates, strong population growth, low unemployment rate and and solid economic growth all made it an attractive place to invest.

“Combine all these factors with a housing supply crunch and investors are seeing the writing on the wall; the Perth market is going to experience some serious price growth in the next twelve to eighteen months,” she said.

Real Estate Institute of Western Australia figures show that WA’s rental vacancy rate is at 0.7 per cent and property listings were at 4,921.

A normalised market for each of those figures is about 3 per cent and 13,000.

For Matte Black Real Estate, a Subiaco-based buyers’ agency, business is booming.

“Since early 2021 we saw an uptick and the investment appetite generally has been climbing throughout that period,” Matte Black real estate managing director Matthew Hughes said.

“But the east coast really piled on during 2022.”

Mr Hughes told Business News his company primarily dealt with interstate investors, having historically dealt with local buyers.

About 60 per cent of Matte Black’s business comes from interstate buyers, mostly from Sydney and Melbourne.

“Investors often look interstate for the market that is paying the best short- to medium-term growth,” he said.

“WA has the highest rate of population growth and the lowest stock levels.”

Recent ABS data showed that WA had 2.8 per cent population growth in the year to March, or 78,000 people.

This was the highest rate of growth of any state during that period.

CoreLogic’s latest home value index reported Perth’s median dwelling price at $631,195.

This represented a 1.6 per cent growth on the previous month and more than 10 per cent in the year to October, but Perth remains well below the national median of $747,424.

According to Property Powerhouse founder and chief executive Garth Davis, the value equation is stacking up for buyers outside of WA.

“Most of the sales we are facilitating in the Perth market are coming from outside of WA, the majority are coming from Sydney,” Mr Davis said.

“There’s a little bit of investor activity coming from people based in Brisbane and Melbourne.

“They come in because the price is good [and] because they can see very strong capital growth coming over the next two to three years.”

Mr Davis added that strong rental yields were also a drawcard in Perth, with a return of about 6 per cent common for WA residential property.

As the state’s housing prices continue to lift, however, investment appetite for WA property may dwindle.

“It all works in cycles,” Mr Davis said.

“Once the price has moved to a higher point, the yields won’t be able to keep up. We’ve had 13 interest rate hikes, but you haven’t been able to move your rent up 13 times over 18 months.

“As the properties cost more and the rents can’t go up, your yields start to drop and it looks less attractive.”

The Agency property partner Rashvir Dhanjal, who mainly sells detached homes around metropolitan Perth, said the nature of his client base had shifted dramatically in recent years.

“In 2018, we were only selling to about 5 per cent investors, and now we are close to 50 per cent or more in some months,” he said.

“There’s a big push from east [coast] investors to come across to Perth, and they’re really trying to get as much leverage [as they can] on the market because it is value for money at the moment.”

Overseas story

Industry experts say the strong demand from interstate buyers could translate to international investors, but WA’s foreign-buyer surcharge is deterring offshore investment.

Introduced in 2019 as a measure to help reduce competition for first homebuyers, the surcharge requires overseas purchasers to pay an additional 7 per cent duty on residential transactions.

Given this applies in tandem with stamp duty provisions, foreign purchasers pay about 12 per cent in duties if they buy a WA property.

Speaking at a recent Housing Industry Association of Australia event, Strategic Property Group managing director Trent Fleskens said that, if the government could do one thing to bolster supply, it would be to eliminate this levy.

Mr Fleskens echoed the sentiment of many within the industry when he said the surcharge was deterring investment in apartments.

“Foreign buyers are used to apartments because they’ve been living in them for decades, they are the ballast of the demand … developers need to get their finance approved,” he said.

“We are impinging on the ability for foreign buyers to assist with that demand for apartments.

“If you take away that foreign buyer surcharge … and actually incentivise foreign buyers to come in and be the ballast and demand for an apartment off the plan, you might … get these apartment buildings off the ground.”

Recent research by the Property Council of Australia, provided exclusively to Business News, estimated the introduction of the foreign-buyer surcharge had prevented up to 3,000 new apartments from entering WA’s housing market.

This equates to about 800 fewer dwellings each year, the research claimed.

Property Council of Australia WA Division executive director Sandra Brewer called for apartments marketed to overseas buyers to be exempted from the surcharge.

She said this would help drive investment into the state’s housing market and expedite the delivery of dwellings.

“Foreign buyers are far more likely to purchase properties before construction begins than citizens already living in Australia, making them a vital piece in getting apartment projects off the ground,” Ms Brewer said.

Property Council members reported that about 70 per cent of apartments purchased by foreign owners entered the rental market.

Treasurer Rita Saffioti said the government did not intend to remove the surcharge and referred to WA’s relatively low transfer duty compared with other states.

“There’s currently no plan to change the foreign buyer surcharge,” she said.

“It should be noted foreign buyers pay considerably less in WA than any other state in the country, due to our generous transfer duty concessions for off-the-plan apartments.”

Ms Saffioti said for every price point up to $1 million, WA provided foreign buyers with the lowest transfer duty out of every state.

“For example, the transfer duty for a foreign buyer on a $600,000 off-the-plan apartment in WA is around $14,000. In every other state it is more than $50,000,” she said.

Ms Saffioti added the foreign buyer surcharge was waived in circumstances where foreign buyers were purchasing property with the intent of redeveloping a site with multiple dwellings.