A SUMMARY FROM THE INSTITUTE’S LATEST ECONOMIC AND PROPERTY MARKET UPDATE.
WA economy
Expenditure, as measured by state final demand, has fallen for the past two quarters in Western Australia. In the March quarter, expenditure fell a seasonally adjusted 3.9 per cent, or around $2b, with the decline in spending almost all contributable to a fall in private non-dwelling investment (i.e. mining construction), which has been a key driver of economic activity in the state.
Export volumes declined marginally, but remain at historical highs and are expected to increase further as a number of mining project expansions finish construction in the next few years. Meanwhile, dwelling investment picked up pace and is likely to continue to increase throughout the year.
State Final Demand is, however, just one measure of economic conditions. More palpable measures like unemployment and population growth are more important to the urban development industry, but unfortunately both of these are likely to head in the wrong direction in 2013.
The trend unemployment rate in Western Australia increased for the twelfth consecutive month to 5.1 per cent in May – its highest level in three years – and job advertisements are down and applications are up as well. And with the decline in investment and thus labour demand, population growth slowed in the December quarter and is likely to continue slowing in 2013.
Residential property market
After 30 per cent more residential properties (exc. vacant land) changed hands in 2012 compared to 2011 (with all regions except the Pilbara experiencing higher turnover), turnover has continued to increase in WA in 2013.
Banks and lenders have been issuing more and more loans in the first four months of the year.
The number of new loans for owner occupation in Western Australia (exc. refinancing) increased 1.5 per cent in April and 20 per cent over the year. On a dollar basis, April levels were the second highest on record in Western Australia, and are up 25.6 per cent – or $3.71 billion – over the year, with a larger number of properties in the $800k bracket changing hands more often in 2013.
Investors and existing home owners are becoming somewhat more active in the market, but first home buyer activity continues to lead the way. Declining mortgage rates encouraged a 22 per cent lift in interest rate sensitive FHB activity in May. There were 34 per cent, or 5,384, more FHOG applications over the year to May, and nearly double as many application as two years ago. Meanwhile, investor loan levels in WA are up 14 per cent and upgrader loan levels are up 16 per cent over the year.
The combination of more FHBs becoming home owners and exiting the rental market and higher levels of housing investment has led to easing pressure in the Perth rental market. The number of rental listings has risen throughout the year, lifting the vacancy rate to an average of 2.7 per cent over the three months to May 31, which is well up on 2012 levels of 1.8-1.9 per cent. Three per cent is considered a ‘normal’ market.
Residential construction
Low interest rates have continued to encourage a cyclical upswing in residential construction activity in WA. Dwelling approvals reached rare territory in April, increasing 4.3 per cent to 2,240 dwellings. April’s result brought annual levels to 22,915 dwellings, which represents an 18 per cent increase on levels 12 months prior. Multi-unit construction has led the rebound (up 51 per cent year-on-year compared to houses at 11 per cent) with apartment construction strengthening in particular.
Loan levels for new dwellings increased a strong 7.3 per cent in April to 1,793 loans, which is the sixth highest monthly amount since records began in 1975 – over the year to April, new dwelling loans increased 26.3 per cent compared to 17.7 per cent for established dwellings.
Meanwhile, low levels of stock in the sub-$550k bracket has encouraged an increasing number of FHBs to purchase new rather than established, with FHOG applications for new dwellings up 57 per cent over the year to May.
So far the dwelling construction industry has been able to accommodate large increases in workloads in 12/13, but questions remain as to whether these industries will be able to ratchet up their workloads once more in 13/14.
Residential land development
The Institute’s research shows land sales declined from February/March highs in April, but increased in the second half of May and in early June following the RBA rate cut. The eight largest developers sold an average of 187 lots per week in Perth and Peel in the first half of June, which is well above the 2012 average of 130 lots per week.
Sales volumes in Perth have increased significantly throughout the last 18 months, with sales volumes over the last 12 months just 2.2 per cent below peak levels recorded over the year-to-March 2006. After experiencing deeper troughs than the metropolitan land market, the Peel and South West regions experienced the largest increase in sales over the March quarter.
For the sixth consecutive quarter land developers have increased the number of lots brought onto the market, bringing on an average of over 200 lots in Perth each week during the March quarter. However, many of these land releases brought forward are being snapped up quickly, with the volume of lots on the market as of March 31 declining 8.8 per cent over the quarter and 41 per cent over the year. The majority of lots in Perth are being pre-sold, some 6-9 months out from titles.