Western Australia’s ongoing commodities boom is good news for the state’s residential property sector, which grew at 21.7 per cent last year, largely on the back of the strong resources performance.
The increase in house prices created $34 billion of wealth for Western Australians in the past 12 months, according to Hegney Property Group executive chairman Gavin Hegney, with WA rapidly becoming the leading residential market in the country.
Launching the Hegney Group’s 2006 Outlook Report, Mr Hegney said he expected a further increase of 10 to 15 per cent in the market, and wouldn’t be surprised by a 20 per cent rise.
He tempered this optimistic outlook with the warning that a downturn waits at the end of every boom, although he didn’t believe this would happen in the near future.
“People need to beware, because on the horizon there is a downturn, just not yet,” Mr Hegney said.
“The commodities boom has created a demand for labour and people have moved into the state – these people need somewhere to live.
“Put simply, this demand for housing has outstripped supply, and accor-dingly, prices have risen strongly.”
He said the market had been caught out by a lack of supply, and that any downturn in the market wouldn’t be caused by a lack of demand, but by oversupply.
“Developers reserves are a quarter of what they used to be as they better utilise their cash flow, and the market was caught short of supply the last year,” Mr Hegney said.
Urban Development Institute of Western Australia statistics show land supply in 2005 was 52 per cent own on the previous year, while land prices were up 34 per cent.
St George Bank WA state manager Martin Barrett said the average home loan application had increased from $240,000 to $300,000 during the past year, and that the increase in value of the market had an adverse effect on affordability.
“First home loan applications have been markedly down, but on the other hand the investor market has been up,” he said.
In the Outlook Report, St George Bank economist Adam Carr said that, while there was a risks the commodity price cycle would turn at some point, moderating the state’s housing market, there was little evidence to date to suggest this was an imminent threat.
“Therefore, against a backdrop of very low vacancy rates and rising rental values, the market looks well supported for further gains in 2006,” Mr Carr says.
“Indeed investors should take a significant degree of comfort from the fact that, according to the Real Estate Institute, 70 per cent of vacant rental properties were occupied within two weeks in the September quarter.”
Dale Alcock Homes managing director Dale Alcock also contributed to the report, saying that the WA building and construction industry had been at capacity for the past two years and was expected to stay that way through 2006.
“The continuing extreme levels of new home building activity, coupled with commercial construction, major infrastructure projects and resource projects have resulted in a severe skills shortage; this has, in turn, led to a blow-out in construction completion times in all construction areas and in all regions,” Mr Alcock says.
The delay in completing new homes has skewed the vacancy rate, he says, and the vacancy rate for homes has remained artificially low as people occupy rental properties while building.
“This artificial demand may well ultimately lead to an excess of investment homes for rental once the construction of homes catches up,” Mr Alcock says in the report.
