Perth Property Market Update June 2020

Corelogic recorded a 0.2 per cent price increase in the Perth median house price to $477,000 throughout April, indicating that values remained steady in the initial impact stages of COVID-19.The number of listings decreased five per cent compared to the previous month with 11,670 properties recorded for sale at the end of April, which is below historical numbers and indicates that the market is moving towards a period of undersupply – depending on where demand levels out.

When home open inspections were temporarily banned due to the Coronavirus restrictions, the Real Estate Institute of Western Australia (REIWA) recorded under 300 sales transactions per week during April compared to recording over 500 transactions per week over the same period last year. The week ending 10 May recorded a 32.7 per cent increase in sales activity with 527 sales recorded in the Perth region compared to the previous week. Confidence within the market is slowly beginning to recover which has been helped by home opens being reinstated with a maximum of 10 people allowed and a further maximum of 20 people allowed as of 18 May.

Within Perth, the REIWA recorded 5420 properties for rent as of 10 May, which is a four per cent decrease in comparison to four weeks before and 23 per cent lower than this time last year. Leasing activity has increased by 31.5 per cent from the end of April to the start of May.

Until recently, agents across south-west Western Australia were experiencing very few enquiries and were frustrated by the inability to interact with potential purchasers due to restrictions on home opens. As a result of the lack of sales transactions, it has been difficult to get any firm idea as to the effect on values. The easing of Coronavirus restrictions has seen a flurry of new enquiries however it is not yet back to the prepandemic levels.

Prior to the world pandemic, Western Australia’s property market was improving consistently with consecutive levels of growth being recorded. Senior Research Analyst for Domain, Nicola Powell, said that houses in Perth were being discounted at an average rate of 7.85 per cent during April, compared to 11.9 per cent recorded last year. One real estate agent reported that 60 per cent of their transactions were between one and three per cent of the original asking price. Many believe that Western Australia will perform stronger than other states given its stage of the property cycle before the impact of COVID-19, however many industry experts have stressed concern that the government incentives are only a short term solution and that we could be in for more pain in the long run. Renovations The Coronavirus pandemic has produced very few upsides, however one positive outcome has been the increased time spent with our families, friends and loved ones. The extended homestay period has brought boredom to a whole new level for some. The COVID-19 restrictions have given stir-crazy homeowners the chance to review their living spaces, with many people looking at ways to further improve their homes.

Renovating is well known for increasing the value of property as well as bringing new life to dated dwellings, however we do know that alterations almost never boost value at a one-to-one ratio with cost. With many experts tipping the Australian property market to plummet between one to twenty per cent over the coming year, renovating could look like a fine prospect to offset some of that damage for people with job security. Though solid statistics are sparse, one article by 9 News suggests that Australian renovation jobs were down 15.55 per cent in April 2020 compared to March, however this is not in line with the anecdotal evidence we are seeing on the ground. Commonwealth Bank of Australia economist, Gareth Aird, recently said that “there has been a 25 per cent increase in credit and debit spending on household furnishings and equipment compared to a year ago”.Simon Bligh, Chief Executive Officer of credit bureau Illion, said the average Australian spent 38 per cent more per week on home improvement compared to before the lockdown (Sydney Morning Herald, 2020). Although renovation work generally drops when there’s a dip in consumer confidence, this has never been combined with residents having spare time around the house, so it will be interesting to see which way the pendulum swings over the June quarter, especially since restrictions appear to be changing almost weekly.

In the early stages of the pandemic, much of the expectation was for renovation work to slow down as the supply chain for home improvement parts and equipment was halted and product availability from China was lacking. On top of this, looming social distancing restrictions posed a threat to tradespeople working in close quarters. Fortunately, as of 18 May, restrictions were relaxed to allow gatherings of up to 20 people. This should provide some relief to developers, builders and tradespeople alike, however applying the four square metre rule may still be tricky in some work sites.

Many building and renovation businesses have had to change the way they operate alongside the rest of the country by adding services such as video call consultations, where consultants take a virtual tour through the home as the owner shows them around. Small projects such as updating blinds and carpets, landscaping, gardening and painting have seen Bunnings and other outlets quickly run out of stock and many residents have become keen DIYers during long stretches at home.

In terms of what we have experienced here in Western Australia, chatting with agents, property managers, investors and homeowners suggests that renovation work has in fact increased, particularly in the upper middle price bracket of circa $700,000 plus. This may be due to hierarchal employment and the fact that younger and older, lower income earners have (generally) been hit the hardest or are not in a financial position to be thinking of renovating. Historically low interest rates have clearly been enticing homeowners into refinancing to top up their borrowings. Historically low prices provide fantastic opportunities for anyone willing to tackle a new renovation here in Western Australia.

The Parkwood property shown in Figures 1 and 2 is under contract for $370,000.The circa 1974 build comprises four bedrooms, one bathroom and a single garage with an attached carport, built on a 713 square metre allotment. This shows exceptional value for money if you are willing to get your hands dirty and renovate, as the same block of land ten kilometres further from the CBD can cost substantially more – minus the house!

This Piara Waters property (Figures 3 and 4) sold in February 2020 for $810,000.The circa 2009 build comprises four bedrooms, two bathrooms and a double garage on a 713 square metre allotment. Despite the glaringly obvious difference in the quality of improvements, it really does demonstrate the value for money in older suburbs where you can give properties a new life. If you spent $350,000 demolishing and rebuilding the Parkwood property, or less on a smaller scale renovation, then you could have a similar quality build on the same amount of land for cheaper and ten kilometres closer to the city.

The cost of renovating during the Coronavirus pandemic has seemingly remained stable (though it is hard to tell as prices fluctuate significantly from builder to builder), only increasing if time is a major factor or if products aren’t available from the usual suppliers. We have however heard of projects being quoted with extended completion times due to social distancing restrictions. This should ease up as restrictions are loosened over coming months.

Generally, the cost of a major kitchen renovation starts from circa $20,000 and can increase upwards of $50,000 depending on the size of the kitchen, whether you are removing walls or choosing high quality, unique fixtures and finishes. For bathrooms, major renovations start at circa $15,000 and can carry on upwards of $30,000 (again depending on several factors). These costs can of course be lower if you are only completing minor works, spend wisely or assist in the works yourself. As noted in previous editions, Houzz Australia’s 2016 Houzz and Home Report states that homeowners spent an average of $31,000 on major renovations of a large kitchen (more than 12 square metres) where all appliances and cabinetry were replaced and $21,840 for a small kitchen (less than 12 square metres). The Houzz and Home Report also showed that the average spend on major bathroom renovations was $16,440 for a large bathroom (more than five square metres) and $14,770 for a small bathroom (less than five square metres) (Domain, 2017).

Entry prices for new dwellings come in at circa $190,000 plus for a completed product. If you add in the cost of a potential demolition ($15,000 to $25,000), then you’re looking at a minimum of $200,000 to $250,000 for a standard project style build. Consider renovating if your home is looking a little dated, but you love the area you live in. You can get a completely new look and fresh feel for easily under $100,000, or if you live in an older character home, finished renovations can look amazing and can be highly contested when put up on the market.

Suburbs such as Mount Hawthorn, Wembley, and Mount Lawley, all being within five kilometres of the CBD, have seen a flurry of action recently. Further out of central Perth, suburbs such as Canning Vale and Atwell are creeping towards the ripe renovation age of between 30 and 35 years old – this is the median dwelling age for renovations. Canning Vale was zoned rural under the Metropolitan Region Scheme until 1994, making the residential development’s age around 25 years old, so we should start to see an influx of renovation projects in these areas throughout the pandemic and beyond.

The main areas ripe for renovation in the southwest tend to be older character homes in South Bunbury and East Bunbury. A character home in need of renovation can be picked up for mid- $300,000s and once renovated, can sell for mid to high $500,000s, with higher values achievable after extensions or additions.

Other areas such as Busselton can see older homes renovated, usually as the front lot of a strata development however they are usually demolished to make way for modern units. The cost of renovations and additions are such that it is often just as affordable to construct a project style home as is the case in many of the smaller country towns.

In summary, there are many areas throughout Western Australia where renovation projects are a worthwhile exercise – however there are also areas that are ripe for gentrification, where the value add of a new dwelling easily outstrips the prospects of a renovation. Part of our service offering is the ability to offer before and after valuations based on your project plans. When weighing up where to spend your hard earned savings, it’s well worthwhile paying for some professional advice.

Speak with a Perth Mortgage Broker today.