Why Perth property investors are smiling

When you’re a property investor, one of the key metrics to consider is the ‘vacancy rate’.

The vacancy rate refers to the share of unoccupied rental properties in a particular market. As a general rule, when the vacancy rate is:

  • Above 3%, the rental market favours tenants
  • Between 2% and 3%, the market is balanced
  • Below 2%, the market favours landlords

In August, Perth’s vacancy rate was an astonishingly low 0.4%, according to SQM Research.

Vacancy Rates August 2022

Source: SQM Research

When the vacancy rate is so low, it’s hard for tenants to find somewhere to live but easy for landlords to find quality tenants (as they have lots of applicants to choose from).

What happens when demand outstrips supply? Well, in any market, whether it’s property or otherwise, prices rise. That’s why Perth rents are growing incredibly quickly right now. Over the year to 12 September, asking rents rose by 15.5%, according to SQM.

Why demand is outstripping supply

There are three reasons why demand is outstripping supply in the Perth rental market.

First, there’s been a shortage of new homebuilding activity over the past decade or so, which has contributed to an undersupply of investment properties.

In November 2014, a total of 3,165 homebuilding approvals were issued in Western Australia, according to the Australian Bureau of Statistics (ABS).

Approvals then steadily declined, before bottoming out at 1,044 in June 2020. They then sharply increased due to the federal government’s temporary HomeBuilder incentive, peaking at 2,906 in February 2021, before falling again to just 1,204 approvals in July 2022, the most recent month for which we have data.

Source: ABS

Second, anecdotal evidence suggests that during the recent property boom, some investors cashed in by selling their properties, thereby further reducing the supply of rental properties on the market.

Third, while supply has been falling, demand has been rising.

ABS data shows that Western Australia’s population grew 1.1% during the 2021 calendar year, the most recent period for which we have data. That was the second-highest growth rate in the country (behind Queensland) and double the national average of 0.5% growth.

Source: ABS

Why the future looks bright for Perth property investors

This landlord’s market is unlikely to end anytime soon, for two reasons.

First, on the supply front, it’s hard to see how Western Australia will end this property undersupply without a sustained increase in homebuilding activity – which doesn’t look like happening anytime soon.

Second, on the demand front, there’s a good chance our population growth will only further increase:

  • During 2019 (the last year before the pandemic), Australia’s population growth was 1.4%, so the 0.5% growth rate recorded in 2021 was abnormally low
  • The federal government recently announced it would increase immigrant numbers from 160,000 per year to 195,000
  • Many of those new arrivals will want to live in Western Australia given our strong economy – the state unemployment rate of 3.1% is below the national average of 3.5%
  • That strong economy is also leading to an increase in interstate migration
  • Foreign students are returning to Australia, and a significant number of those students will choose Perth universities

The moral to the story? Not only are Perth property investors smiling right now, but with vacancy rates likely to remain low for the foreseeable future, investors are set to keep smiling for some time to come.

If you want to buy a Perth investment property, it’s important you use a local buyer’s agent who knows which suburbs and even which streets are investment-grade – and which to avoid. Resolve Property Solutions is an expert Perth buyer’s agent. To discuss your options, book a free strategy call with Peter Gavalas.

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