The mining boom ended not with a bang but a whimper. Since the peak in 2013, the commodity prices declined in a gradual and steady pace until 2016.
Every step along the way the market questioned if the bear market in Iron Ore or Coal is over. For Iron Ore, the worse looks to be over. The recovery in the Aussie dollar confirms this. The big 3 Australian iron ore miners are still profitable even at these prices while the winnow miners on the other hand has mostly been wiped out.
Perth is the heart of the Australian mining boom. It was where the idea of commodity super cycle started and where it unceremoniously dumped.
The Perth property market has been struggling since it still is predominantly a mining town. The local economy was impacted severely from the end of major mining capital expenditure and operation job cuts.
It is the only capital city in the last 10 years experienced a correction in prices.
We think the house prices Sydney is seeing also will not last forever. The unstoppable supply is already felt by the market and Sydney will experience a similar price correction as Perth.
The 2 charts below shows the struggles of the current market. We sourced the chart from Knight Frank Residential Research.
Perth Median Real Estate Price
The median house price in Perth experienced slowdown throughout 2014 and it was only in 2015 that year on year change in property prices turned downwards. Apartments values are declining faster than houses due to the ability of bringing supply online easier than houses.
This is a stark contrast to median Melbourne prices which is growing, albeit slower than Sydney.
We are cautious on the market going forward. We see the worse of the commodity slump to be over. However we do not predict an upswing in the Perth market in the near future even as majority of job losses are over.
This is because the local economy will be hit again from a slow down in the broader Australian economy which is reaching its most challenging period in the last 25 years. The slowdown in employment growth and weak consumer confidence in other capital cities will continue to put pressure on the local market.
While prices are important driver for real estate transactions. Rent which ultimately determine the income for investment property is just as important for a majority of investors.
House and Apartment Rents
This chart shows the median Apartment and House rent in the Perth market which has declined over 10% in the last 24 months.
At best, the fall in rent should be over and rent going forward will tread water. The current high vacancy rate is capping any rental growth in the next 12 to 18 months.
The chart shows the demand is outpaced by the level of supply. This is not including those projects that have not yet coming online which will continue to put pressure on prices.