--- THE STATES • Western Austra lia

THE WLD WEST Looking for property investment love in all the wrong places? Unfortunately, you're not alone. Perth's vacancy rates have been on the rise. API locates the areas that are the pick of a rather Unappetising Crop. DINAH LEWIS BOUCHER [@DinahBoucher]

H igher vacancies of course indicate an increase of supply in the rental market, which ultimately shifts the balance of power from

landlords to tenants. So does this mean tenants in Perth's market hold the power? Experts say yes.

Louis Christopher, managing director of SQM Research, says the rental market remains sluggish with asking rents showing rises of just 1.2 per cent to 1. 7 per cent at the average capital city level.

"However, Perth rents have dragged down the overall result;' he says.

"It's quite clear rents in Western Australia are falling quicklY:'

Perth has recorded the highest yearly increase in vacancies according to figures released by SQM Research. Perth's vacancy rates have climbed 0.9 of a percentage point to 2.5 per cent since the corresponding period in July 2013.

And Christopher says Perth's vacancies will keep rising.

"I think it's going to continue on for a while;' he says.

"We're not seeing any signs that it's going to level off. So it's just speculation when it does finally bottom out. My impression is that it's going to get worse before it gets better at this point in time:'

• THE UNPALATABLE REALITY David Airey, president of the Real Estate Institute of Western Australia (REIWA), says there's been a huge rise in the number of properties hitting the rental market.

"In the past 18 months, we've seen a jump of around 130 per cent in the number of properties available for rent;' he says.

"Increasing from around 2500 to currently around 5900. At one point, we had over 60oo:'

So why has it gone up? Airey says it has been bought about by a number of factors.

94 • APIMAGAZINE.COM.AU • DECEMBER 2014

"The biggest single factor was the number of first homebuyers who moved out of rentals and into their own homes;' he says.

The positives of this move obviously saw a surge of first-timers into the market, particularly for new builds and cheaper properties, Airey says. The second factor was the downturn in the mining and resources industries which has resulted in the loss of a lot of jobs and has had a big effect on more expensive rentals with those corporate tenants leaving.

Christopher says the fly in, fly out workers who used Perth as their base have all but gone.

"They were about building the mines, building the infrastructure. So that part of the employment sector has really been smashed. They were using Perth as their base and given those jobs are gone the demand for rental accommodation has fallen awaY:'

• WHERE ARE THE LOWEST VACANCIES?

Christopher says he's noticed the closer you get to Perth's CBD the higher the vacancy rate becomes.

"So it's very much higher in the inner city ring. We're getting vacancy rates in excess of six per cent within a two-kilometre radius of the CBD. But it's less acute on the outer ring of Perth:'

Properties in outer suburbs also have lower vacancy rates managing director of Momentum Wealth Damian Collins says, suburbs with more housing stock and not as many units, villas and townhouses.

"So we're finding they rent a lot quicker;' he says.

To help sort the wheat from the chaff, API sifted through Perth's suburbs with the lowest vacancy rates to find the standout performers. But just because the vacancy rate for a particular area is

low, Collins warns it doesn't necessarily mean it suddenly makes a smart investment choice.

"All those suburbs are about 15-plus kilometres out of the city and in those lower-mid socio economic areas;' Collins says.

Despite having very low vacancy rates in Perth's current climate, location and lack of infrastructure or amenities means the likelihood of future capital growth is potentially less than other areas.

And Airey says rents for more expensive homes and apartments have dropped significantly.

"The cheaper rentals, not so much;' he says.

• HIGH WYCOMBE AND FORRESTFIELD

Located roughly 20 kilometres from Perth's CBD, the suburbs of High Wycombe and Forrestfield both have a vacancy rate as low as 0.9 per cent for July 2014.

Principal of Professionals Stirling, Brendan Clark; says Forrestfield is still affordable with a median house price well below the city average.

"The only housing type going in are high standard homes. This isn't a cheap area any more;' he says.

While there are still some older sections that are in original state housing standard, Clark says a resurgence has begun in the area.

"This originally kept people away and gave Forrestfield a lower rating, however in the past 20 years and especially very recently, people are building only high standard housing;' he says.

Data on reiwa.com has the 10-year annual growth for Forrestfield at 9.7 per cent, compared with Perth's average growth rate of 8.2 per cent.

And 90 per cent of dwelling stock is houses. It's this rental stock that's most in demand when tenants are looking in Forrestfield, according to Clark.

''Any three-bedroom home around $400 per week gets snapped up. Four-bedroom homes are still in demand up to $550 per week:'

Clark says the area has grown in its facilities and offerings for families. As a result the local schools have increased in size.

"No doubt when the train station connecting to the airport and city comes into the bordering suburb of High Wycombe within the next five years, Forrestfield will only benefit;' he says.

When it comes to rental vacancies and available stock such as villas, townhouses or units, Collins says these are taking a bit longer to be filled.

"Because there's more competition;' he says.

So areas with a higher percentage 0fhousing stock generally have lower vacancy rates than areas of higher density dwelling.

9.9°/o Craigie has experienced 9.9 per cent annual growth over the past 10 years.

ALL ABOUT PADBURY1

Median price July 14 $570,125 $427,500

12-month growth 8.6 % 3.3%

Median rent July 14 $455 $405

Rent growth July 14 -3.2% -6.7% (YoY)

Gross rental yield 4.2% SNR Julyl4

Properties sold July 14 144 35

Properties sold July 13 165 37

Average vendor 3.3% 2.2% discount Mar 14

Average vendor 4.1% 7.4% discount Mar 13

PADBURY MEDIAN SALE PRICES'

$,000

400

200 /

o 05 06 07 08 09 10 11 12 13

And generally available houses will be more attractive to families.

"What you find with families, they tend to become invested in the area, particularly if they've got kids in school;' Collins says.

"You often find fewer turnovers in houses tenanted by families:'

When he's buying property for his clients Collins says the rental yield is an

Western Austral ia • THE STATES ---

PADBURY FACT SHEET

Padbury has a mixed supply to demand situation. There are adequate rental properties available to tenants, however there's an undersupply of for-sa le listings. Discounting is at normal levels. Incomes in Pad bury are growing slower than the Western Australia average. The proportion of renters to owner-occupiers is below average for Western Australia. Rental vacancy rates are a moderate three per cent. Stock for sale levels are up by 4 .9 per cent year on year. Source: SQM Resea1ch, www.sqmresearch.com.au (accurate to July, 2014)

OCCUPANT TYPE'

• Owner-occupiers • Mortgage holders •Renters

• Separate house (292B) • Semi-detached

row or terrace house, townhouse etc (148)

• Flat. unit or (3)

VACANCY RATES'

apartment

•Other dwelling (0) i g

PADBURY PERTH

10-YEAR AVERAGE ANNUAL GROWTH5

9.4°/o HOUSES UNITS

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j " KEY DRIVERS POPULATION4 r

• Padbury is located in the northern suburbs.

• 18 ki lometres to Perth 's CBD.

8366

•Transport includes the Whitford train station and bus service.

•The suburb contains one high school and four primary schools.

•Middle ring family suburb.

; j ; j ~ ~ ffi !

WALK SCORE6: 30 j

Padbury has a walk score of 30 out of 100. J " g

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DECEMBER 2014 • APIMAGAZINE.COM.AU • 95

--- THE STATES • Western Austral ia

important component. "But it's certainly not the only component to consider;' he says.

• NORTHERN EXPOSURE Other areas Collins services are along the northern suburbs.

"Padbury and Craigie are areas we've bought a lot of properties for clients;' he says.

''And they've always done quite well:' Again for the same reasons, being

family areas, with not a lot of investment properties, so not a lot of rental stock for lease.

''And when people do rent they stay there for a long time;' he says

Located about 18 kilometres north from Perth's CBD is Padbury. API data has the vacancy rate of this suburb at 2.3 per cent for the month ofJuly. Its annual median house price is in the mid-$500,000s and annual growth is 8.6 per cent, with about 95 per cent of its dwelling stock consisting of houses, according to SQM data.

The nearby suburb of Craigie is located 22 kilometres from the CBD. It's experienced 9.9 per cent annual growth and 9.8 per cent growth over the past 10 years. Housing stock is 93. 7 per cent of all dwellings, according to reiwa.com data.

Airey says low vacancies in these outer suburbs are probably due to the fact that rentals in the areas are down around the median price.

"They're attractive rentals and they're very popular;' he says.

"But they really would be sought-after because of the cheaper opportunities:'

• OPEN FOR OPPORTUNITY Most recently REIWA has noticed tightening vacancy rates identified in the cities of Belmont and Vincent, Jarrahdale-Serpentine, the western part of City of Stirling and the western suburbs generally, which includes Perth's sea/riverside wealth belt.

"Once you leave the coast areas on the northside, people tend to favour established suburbs that have infrastructure in place;' Airey says.

New areas in Perth that are on the outskirts of the metropolitan area are the least favourite for investment, according to Airey, because there's just too little there.

"Most investors want to see what the city is going to look like now. They don't

96 • APIMAGAZINE.COM.AU • DECEMBER 2014

INVESTOR SNAPSHOT

Looking to the future Glen and Emily Newland have been married for seven years and have just welcomed their third bundle of joy into the world.

The family of five live and invest in Forrestfield, and Glen says there's nowhere else he'd rather be.

"I love the suburb and the neighbourhood I live in," he says.

Glen, 34, purchased his first property in 2005 during Perth's property boom. He knew he'd be hooked on property for the long haul after discovering his first investment had increased by $150,000 in equity after only two years.

"I've never been an academic student so I knew I was going to need another avenue to wealth,'' he says.

"Investing in real estate was the obvious choice since I already had strong equity in a property and a secure job. That's all you really need to get started."

He purchased his first two Forrestfield investments in 2012.

"The proximity to the city was the main draw card plus the large blocks,'' he says.

"I've lived in the Kalamunda Shire my whole life and I feel the suburb has always been undervalued."

After doing his due diligence Glen realised the future potential of the local area.

"After doing research of surrounding suburbs on the recent growth (in Belmont, Queens Park and Maida Vale) and the terrific proximity to the airport and city, meant the large blocks were always going to be rezoned at some stage,'' he says.

"I had a 20-year plan so I had time to wait."

Glen says during his time as a landlord he's never had a vacant rental.

"And my tenants have been quite good,'' he says. "I attribute this to the proximity to the airport and main roads. The proposed train line, due in 2017, will only increase the area's accessibility."

want to wait 20 years to find it turns out to be a dud;' he says.

And Collins says now is not the time to be testing the market or trying to get the higher rental return for your investment with so many properties available for lease.

"Because tenants are becoming very price sensitive and they've got too much choice:'

Airey says any rental properties priced up to $500 a week are popular.

''And have been least affected by the downturn in the investment market;' he says.

Forrestfield is divided into an old and a new side, Glen explains. And he lives with his family on the new side surrounded by other young families who are at the same life stage.

"The older part of Forrestfield has larger blocks and a few more rentals but it's a little more affordable and obviously the big blocks make it ideal for future growth."

Both investment properties were purchased for around $380,000 in 2012. Today the same properties in the area have been selling for around $450,000 to $480,000. So conservatively, Glen says, he's already seen an increase of at least $140,000 in equity.

"The subdivision and rezoning plans hadn 't been released at the time I purchased my investment properties, but as soon as the Kalamunda Shire announced the rezoning proposal the land prices started increasing ," he says.

Glen says the highlight of his property investment journey so far is knowing his financial future is secure.

"And I really haven't had to do much to get to that place,'' he says.

"My children have always been the driving force behind wanting to own investment properties and do subdivisions."

While the housing market looks as if it could be slipping out of reach for many first homebuyers, Glen says he and Emily have plans in place for the future.

"If we can secure some large blocks and hold onto some properties for the next 20 years we hope to be able to help our three children secure a home each," he says.

"Vacancy rates wax and wane in all areas and for investors the issue is not so much the suburb, but the amenities:'

You've got to look at other factors when purchasing an investment property. The golden rules apply no matter where you buy.

Airey says the three key issues to consider when purchasing an investment property include good public transport, such as rail or bus transport and access to freeway; infrastructure that's built not just planned, such as access to shops, community facilities and cafes; and most importantly education facilities.

Western Australia • THE STATES ---

''Most investors want to see what the city is going to look like now. They don't want to wait 20 years.'' DAVIDAIREY

"They're the three main factors;' Airey says. ''As metro Perth expands, the train line is increasingly being sought after by families in the outer suburbs and by commuters:'

And he says the factors for an investor to consider are very different than for an owner-occupier.

''A person buying a house to live in is probably going to buy with the heart, but a person buying an investment property should buy with their head;' he says.

• THE ROAD AHEAD Between 2009 and 2012 the market saw a 40 per cent rise in weekly rental returns, which underpinned the market.

"So although rents have come back a little bit, it's still significantly higher than it was.

"Perth's average annual capital growth is still sitting around six to seven per cent;' Airey says.

"It's still a good market to buy in, but ·like anything you've got to be selective and you've got to do plenty of research rather than just looldng for bargains:'

And at the end of the day property markets should be looked at long-term.

"If you own an investment property, an owner currently shouldn't be panicked into a short-term decision to sell but neither should they put off a long-term decision to buy because

there's still a lot of value in the market;' Airey says.

"Yields on residential investment properties are still good value around four to five per cent, and that's still quite attractive:'

We all know the property market goes in cycles. So generally what goes up does come down and vice versa. Collins says the vacancy rates probably won't change a whole lot in the next six to 12 months.

"But after that you know, it goes in cycles;' he says.

"We'll start to see more tenants come into the market, vacancy rates come down, and prices move again as it always does. It goes in cycles:' llm

YOU ASKED US FOR MORE DAI SO HERE IT IS, JUST FOR YOU! OUR MONTHLY DIGITAL DATA SUPPLEMENT IS AVAILABLE EXCLUSIVELY TO API READERS.

TOP 10 lowest vacancy rates Australia-wide.

TOP 10 suburbs for houses and units Australia-wide: ,. Median quarterly, yearly and five-yearly capital growth. .. Median up-to-date monthly asking estimated rental yields. .. Average up-to-date monthly lowest days on market.

BOTTOM 10 suburbs for houses and units Australia-wide: ,. Median quarterly, yearly and five-yearly capital growth.

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DECEMBER2014 • APIMAGAZINE.COM.AU • 97