The Perth market has been an interesting one over the last two decades, with housing prices not following the general trend of Australian property markets.
Throughout the commodities super cycle, which began in 2000, Perth house prices grew at a rate of 9.2% per annum. In this period, the Perth market outperformed Australia’s top two long-term performing markets in Sydney and Melbourne. What came after was a six-year period in which Perth house prices fell 17.5%. In 2020, Perth house prices turned the corner, and the market is well placed for the new cycle.
We can use the trendline as the fair value of the market. Prices have historically moved above and below the fair value, but they always tend to move back to it. If history repeats, we can expect the Perth market to continue to move up to the fair value line and eventually overshoot. Perth houses remain well undervalued, and we’re quite optimistic about the future of the market.
Source: BIS Oxford Economics, BWP
Western Australia accounts for 52% of the world’s lithium supply. Lithium is used to create batteries, and with 75% of global car sales expected to be electric vehicles by 2040, we’re confident another boom in commodities will drive employment and population growth in the west. It’s important not to invest based on a single factor, so we also need to consider the other drivers in the market.
The vacancy rate in Perth is currently 0.6%, making it the most undersupplied city in the country. With Perth expected to face a shortfall of around 24,000 houses over the next four years, we expect the vacancy rate to remain critically low. As a result of such low vacancies, weekly asking rents in Perth have increased by over 16% in just the last year. It’s expected that Perth houses will see the biggest increase in asking rents of any Australian city throughout the rest of 2023.
House yields in Perth are at their highest in a decade, sitting at 4.2%. History shows us that a peak in local yields generally marks the beginning of an upswing in property values.
All fundamental indicators are signaling that the Perth market is ready to explode even without the potential turbocharger of the battery materials resources boom. It’s an exciting time to invest in this great city, and we’re confident that once interest rates begin to fall again, the supply and demand imbalances will result in a substantial upswing in house prices.