Are Perth apartment prices about to take off?
In January this year, apartment sales accounted for 17.9% of Perth property transactions. This figure may seem somewhat normal for Perth where we tend to enjoy more space and urban sprawl. However, when comparing this against the long-term average of 20.6% of sales being attributed to apartments, the 2.7% decrease represents nearly a 15% reduction in apartment sales, now that’s a significant difference.
So why have buyers gravitated towards houses over apartments of late?
With Perth experiencing years of declining house values, purchasers are considering houses over apartments based on renewed affordability and value for money.
People are putting more value in space following the COVID-19 pandemic, with apartments being a less attractive proposition to those not wanting to live in high density areas.
And whilst more and more West Australians work from home, there has been an underlying requirement and desire for more indoor and outdoor space – while these arrangements allow for more people to live further away from the city.
Government incentives such as HomeBuilder and Building Bonus grants have encouraged much-needed new home construction. ABS data indicates that house build approvals were up 13.9% in the year to December 2020 compared with an -8.6% decline in apartment approvals – reflective of WA’s sparse developer participation.
These factors combined with a number of other considerations drove last year’s housing price increase. In fact, demand for houses is now so strong, major banks are now predicting prices to rise up to 20% in the next two years.
When we experience this significant increase, you can expect many house buyers become apartment buyers as purchasers are priced out of the housing market. And as we progress to a more pre-covid way of life, people are likely to gravitate towards the lifestyle urban living offers, with its proximity to shops, cafes, bars and eateries being an attractive lifestyle option.
Another major factor is rising rental costs. This, with low finance options, makes more sense for renters to purchase their own property then to rent.
As buyer demand inevitably refocuses itself back to apartments, you can expect prices to increase.
So what does the data tell us?
Data from CoreLogic showed that median prices for apartments started falling in Perth at the onset of lockdowns in April 2020. The median price continued to fall and reached the lowest point around July 2020. From this point, the median price started to recover and are now back at pre-covid levels. As of December 2020, Perth apartments’ median prices increased 4.5% from the low of July 2020. While apartments in East Perth increased 4.2% and those in West Perth increased 5%. All in a short six months.
This has been unique for Perth as we led a very Covid-free lifestyle. Other cities such as Sydney and Melbourne are still struggling. Sydney’s median apartment prices continue to drop, now at 15% below pre-Covid prices, while Melbourne prices have started to recover but are still below their pre-Covid median price.
This data suggests that the factors which drove down apartment prices are no longer an issue for the Perth market. In fact, the strong rebound in the last six months suggest that this is just the beginning and that Perth’s apartment prices could be starting to take off.
This rebound also happened over a period where the proportion of apartment sales were at historic low levels compared to house sales. So as we transition back to normal levels of apartment sales, I anticipate the increased demand will provide the momentum to drive prices up further. We could see apartment prices increase at the same rate as houses.
So if you are considering buying an apartment, I feel now is the time – as there are still plenty of choices out there, but the market could change very quickly and we could be in a situation like the housing market where there will be a shortage of apartments for sale.
As always if you would like to talk about property, please feel free to call me anytime.
Licensed Real Estate Agent
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