Population growing, interest rates dropping

In 2005, just eight years ago, less than 11,500 people lived in central Perth, a number which more than doubled to 28,000 by 2011 and continues to grow today. Now it’s no big secret that with more people we need more houses, so as Perth’s population has continued to grow so has the demand for new (and existing) homes, driving up property prices and drawing investor interest in Perth’s promising residential property investment opportunities.

Coupled to this increasing demand for homes in Perth is the Reserve Bank’s August 6th decision to cut official interest rates by 25 basis points, lowering the cash rate to 2.5 per cent, the lowest level enjoyed by Australian borrowers in 54 years. With this latest interest rate cut investors looking to purchase their first property or add to their residential investment portfolio in Western Australia will save $90 per month on a $600,000 mortgage, adding up to a not insignificant $1,080 per year.

Although there has been some talk around the proverbial water cooler that the slowdown in the resources sector will negatively impact Perth’s residential investment markets, with a few even muttering that Perth may be looking at a bursting property bubble, this outcome is highly unlikely. Given Perth’s strong economic situation, with the mining boom slowing but certainly continuing to deliver high paying jobs and plenty of wealth, and Perth’s continued population growth, Perth actually has the best economic outlook in Australia. And this translates directly to the housing market.

Though an end to double-digit housing price growth is indeed at hand this is not a bad thing for new investors seeking to enter the market, or even those who have already purchased, as this level of growth was never sustainable in the long run. Looking ahead to the end of the year and through 2014 we can expect housing price growth in excess of 3% in most areas with investors armed with the proper strategies and knowledge likely to reap even higher returns.

The time may also be ripe for property renters to take the plunge and become real estate owners. Perth’s current median weekly rental for homes stands at $490 per week, meaning that mortgage repayments are often less than rents paid by tenants. Apartments are the most likely assets to see rental values exceeding mortgage payments and thus we would expect apartments to draw particular attention from savvy investors seeking wealth creation in 2013 and beyond.

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