WESTERN Australia’s residential property sector will experience a period of modest growth in 2010, but despite a shortfall between construction starts and underlying demand, industry groups are not expecting a return to boom conditions.
WESTERN Australia’s residential property sector will experience a period of modest growth in 2010, but despite a shortfall between construction starts and underlying demand, industry groups are not expecting a return to boom conditions.
Preliminary figures from the Real Estate Institute of Western Australia, released last month, show strong sales turnover among more expensive homes lifted the metropolitan median price to $475,000, just $10,000 short of the record median house prices of 2008.
REIWA deputy president David Airey told WA Business News the median price growth was due to a combination of first homebuyers exiting the market, and trade-up buyers and investors increasing their presence, but he stopped short of predicting a return to boom conditions.
The latest figures from the Office of State Revenue indicate First Home Buyers Grant applications fell from 1,513 in September 2009 to 1,230 in November 2009.
“We have seen a lot of $300,000 to $600,000 homeowners trading up into newer property and more expensive property, and that’s a very good sign,” Mr Airey said.
“When the market is moving across all sectors, and not just a piece of it, it’s a very good sign for the overall strength of the market and the economy.”
He said underlying demand for new housing insulated the residential market from significant median price reductions throughout the global financial crisis.
“Western Australia has never recovered from the shortage that was built up during the 2000s from new homes, and that demand is continuing,” Mr Airey said.
“With all these new resource projects in WA, there is no reason for that to reduce at all, so that’s kept our median price quite strong.”
Housing Industry Association WA executive director John Dastlik said underlying demand for the Perth residential market was between 25,000 and 26,000 new dwellings per year.
Preliminary HIA research indicated there would be an increase in starts of 15 per cent to 21,570 in 2010, up from 18,680 in 2009.
Mr Dastlik said growth in construction starts would continue through 2011, with 8 per cent growth to 23,240 new homes constructed.
“We are confident that we’re seeing a turnaround in the fortunes of the new residential market, and there is some positive outlook there for the marketplace,” he said.
“But we are about five to six thousand short of what the underlying demand is.
“The problem we’ve got is that people are restricted in terms of their borrowing capacities, so that’s an issue for the industry.”
Mr Airey agreed that a combination of interest rate rises and the reduced availability of credit would ensure boom conditions would not return in 2010.
“Interest rates have already risen in round figures by about 1 per cent, and the talk is for another 1 per cent,” Mr Airey said.
“That’s sneaking up pretty significantly and that will affect the ability of a lot of people to borrow, and will certainly put a damper on the housing market.
“The supply of funds is a pretty critical factor.
“We really only have four major lenders doing about 80 per cent of the business, and I think that will, to some extent, stymie growth, especially for developers.
“We need property developers to be able to fund their land and housing developments, and that’s currently a real issue.
“The headline news is what’s happening to the interest rate, but the real news is ... the cost of sourcing funds for business and for property development is significantly higher.
“It’s close to 8.5-9 per cent and likely to worsen, and for short term debt it’s even higher than that, if you can get it, and I think that’s a big, big factor.”
