Stimulus brings opportunity in undervalued Perth market

COVID-19 had an immediate impact on the Perth property market, with the number of new land sales halving in the weeks either side of Easter, which coincided with the height of Western Australia’s lockdown.

Following several years of steady declines, with the price of both established housing and land falling around eight per cent during the five years to March 2020, the impact of COVID-19 was potentially disastrous for the industry. It was a huge relief when the state and federal governments responded by introducing critical market stimulus measures to mitigate the worst of the market downturn and support an industry that employs thousands of people and contributes significantly to the economy.

Following the introduction of the Federal HomeBuilder grant and WA Building Bonus, sales have picked up significantly in a matter of weeks, with developers and builders inundated with inquiries.

Given current increased activity, UDIA WA has investigated Perth property prices in relation to other states and determined that Perth remains well under ‘fair market value’.

In March 2010 the median Perth (detached) house price was $518,000, this compared to $583,000 for a house in Sydney, $468,000 in Melbourne and $460,000 in Brisbane.

In March 2020 the median house price in Sydney had risen to $900,000, $706,000 in Melbourne and $534,000 in Brisbane.

Meanwhile, the median price in Perth fell to $477,000.

If the Perth median house price had grown at the same rate as prices in Sydney, Melbourne and Brisbane, the median house price in Perth would currently be $696,500 (if following Sydney’s pattern of growth), $650,500 (if following Melbourne) and $543,000 (if following Brisbane’s growth).

These figures represent clearly that Perth house prices are significantly under the value of all three of those major capital cities and we can see a similar pattern emerging in the new land market.

The average lot price has fallen in Perth from $249,960 in March 2010 to $230,035 in March 2020.

Over this time, the average lot price has closely followed the pattern of Perth’s median house price growth, on average remaining 47 per cent of median house values.

Looking at activity in the last few weeks, our weekly land survey figures show the average price of lots sold over the first two weeks of the federal and state governments’ stimulus being operational was $225,367, remaining 47 per cent of the median house price.

Our evidence suggests that the price of land remains fair value in Perth and buyers have a fantastic opportunity to make the most of this situation with the current stimulus on offer.