Perth rental market faces potential crisis

Stock image.
Stock image.

THE year ahead will be all about the rental market, according to property commentator Gavin Hegney.

Speaking at the Western Suburbs Business Association annual Property Market Update dinner, he said Perth faced a potential rental crisis in the next 12 to 18 months, with 14,000 people on the rental waiting list, 7000 properties available, a falling vacancy rate and the investment market yet to recover.

There would be further impact on the market if there was a change in the Federal Government and negative gearing was outlawed.

“Investors aren’t buying, they’re selling,” Mr Hegney said.

“Tenant demand is increasing; we’ve already seen the rental vacancy rate at 3.9 per cent, falling from 7 per cent, and we’ll see that continue to fall.

“At 3 per cent, we start to get rental growth and we’re already getting some breakout rents, so in the next 12 months (the market) could correct really strongly.”

Rental growth would then see the new-home market improve.

“The new-build market is yet to bottom, but it will follow the rental market,” Mr Hegney said.

“If rents go up considerably, people say ‘we may as well buy’. If rents are so cheap, they say ‘why would I buy?’ ”

Mr Hegney said a change in the finance industry would also affect the market, with the changes in household expenditure models reducing buyers’ borrowing capacity.

“Someone at $80,000 income used to be assessed as having $32,400 in their expenses and could borrow $337,000, but their new expense estimate is now $50,000 and the new borrowing limit is $195,000,” he said.

“Their borrowing capacity is down 42 per cent from this time last year.

“That runs through all income categories; at $500,000 the previous borrowing capacity was $3.1 million, now it’s $2.4 million, down 21 percent.”

Mr Hegney said if demand was assessed as relating to the amount of money people had in their hands, demand had dropped between 20 and 30 per cent as a result of the new modelling.

“That’s the headwind for the whole Australian market now until something changes,” he said.

“If it hurts us, what is it going to do to Sydney and Melbourne, which are coming off a really strong peak?

“Now more than ever you probably want to see a broker because you want to know who will lend you what.”

Mr Hegney identified several other factors to watch over the next 12 months: negative sentiment coming out of Sydney and Melbourne as they corrected could see more investment in Perth; prices in Karratha were rising with improvement in the mining sector; and rezoning.

“I really like rezoning because it’s an increase in value and rejuvenation of an area,” he said.

“If you’re looking to invest, watch the rezoning areas around Perth.”

He also suggested being aware of automation and artificial intelligence trends, as they could see building costs come down significantly over the next 10 years.

“We’ve got bricklaying machines that can build a home in 21 days, which would take a brickie team three months,” he said.

“There are robots that lay plaster and 3-D printers can print out complete panels and modules.

“That’s only the start.”