A Tax Depreciation blog by Paul Bennion.
Over the coming year there will still be opportunities for astute investment property buyers to achieve significant wealth creation in the Perth property market.
The latest figures produced by REIWA indicate that property prices in Perth are nearly at rock bottom with the median price of house in the city falling by 1.4% during the June 2016 quarter.
Even in a weak property market, there will be a number of suburbs which will continue to achieve higher than average levels of capital growth.
For example, during the June 2016 quarter, Perth suburbs such as Kallaroo achieved a median house price growth of 9.5% and 17.4% over the past year which compares very favourably with boom areas in Sydney and Melbourne.
The main challenge for property buyers wanting to achieve high levels of capital growth is to find suburbs that are about to boom.
With experience this can be done and your search should start by identifying the truly undervalued properties. An undervalued house is not the one across the road that will cost $50,000 less than your place because it needs rewiring and a new roof.
The litmus test is sustainability – almost any property, anywhere will increase in value in a rising market as has been the case for most properties in Perth over the past decade. However, only a small handful of properties locations will actually hold their value beyond the initial growth and heightened demand.
This capital growth should be the primary goal. A potential to grow in value in the short to medium term (and for property, that’s 3-7 years) and outstrip the wider market’s growth pattern.
The financial benefits of this strategy are highlighted by the fact that if you bought a property for $500,000 and it achieved an annual capital growth of 2% above the market average, this could equate to more than $70,000 in additional equity over a 7 year period.
Astute investors begin to reap the rewards when you can distinguish between a “one hit wonder” and a true “sleeping beauty.” Certain factors have to be changing within the identified area, surrounding suburbs and wider marketplace.
One of the best ways to identify undervalued pockets is to watch which areas investors and first and second homebuyers begin moving into once prices in the immediately adjoining prime areas go beyond their reach.
Another good tip is to find suburbs that have underperformed compared to their long term average price growth rate. For example, last year the median price of a home in the prime riverside Perth of Bateman fell over the past year by 5.4% which was below its long term average growth rate of more than 6%. It is important to remember that house prices do not move in a uniform rate across the Perth metropolitan area.
Finally, homebuyers should look for new infrastructure projects that might boost long term property values in a suburb. For example, major new private and public sector investment in the Scarborough ocean front area will help boost the values of properties which are within walking distance to beach. Other areas in Perth that should benefit from major new infrastructure include Burswood which is close the new stadium under construction and Northbridge where hundreds of millions of dollars in being invested in sinking the nearby railway line and redeveloping the land above it.