Navigating the market boom

Source: The West Australian

The Commonwealth Bank recently reported that Australia is on the cusp of a housing boom, with a nine per cent rise in house prices predicted for 2021, but according to one industry expert, this growth might have already happened.

Blackburne Founder and Managing Director Paul Blackburne – speaking at Property Council of Australia’s WA Outlook Lunch 2021 event held on February 19 – said prices had been on the up in the apartment market.

“I think you will find in the next few months, the 10-12 per cent growth rate that the banks and economists are predicting have probably already happened,” he said. “Usually you find out about it three to four months too late.

“I think prices have already gone up 10 per cent roughly, which puts them back where they were two or three years ago.”

Mr Blackburne said despite the potential price rise, it wasn’t all good news for developers.

“For developers, that doesn’t mean if they were making a 15 per cent profit margin that they will suddenly double their margin, because the input cuts like construction will go up by the same or more than that,” he said.

“As everyone gets excited thinking the market and the economy is hot and there is cheap money everywhere, if you haven’t already bought the sites you probably have to pay a lot more next year.

“So most developers have financial trouble during a boom because they get the input costs wrong.”

It is not just prices going up, rents have and will continue to grow, Mr Blackburne said.

“The moratorium on rents is set to end in March. Rents will go up 15-25 per cent I would say in apartments, probably the same in houses,” he said. “That is only probably half of the properties – half have already been raised, as they were a lease renewal and you could already raise it.

“As a general rule, we property manage 1000 apartments around Perth, they have already gone up 10 per cent and we will be putting them up another 10-15 per cent next month when they are due.”

We are currently in an undersupply of apartments, according to Mr Blackburne, but this will only persist for the medium term.

“There is an undersupply at the moment – I think there is a structural short-to-medium term undersupply, but there is going to be an oversupply of apartments in the next 10-15 years and that is normal. That will be for two to three years, then there will be an undersupply,” he said.

Mr Blackburne said the long lead times in the apartment market made it hard to capitalise on hot markets, as you were making decisions now for something that would be settled in four or five years.

“We have to develop through the cycles in Perth – Perth has big ups and downs,” he said.

“Our principle is that the percentage of the population that live in apartments is going to double over the next 10-20 years, so population growth is irrelevant to us because our whole business model is based on a demographic shift.”

Keynote speaker for the event, The University of Western Australia School of Social Sciences Head of School Amanda Davies said despite international border closures, Western Australia’s population was not shrinking, but growth was happening at a slower rate than previously forecasted.

Despite talks of an exodus of city dwellers to the regions, Ms Davies said the data had not shown this to be true.

“The number of people moving between Perth and regional – more people moved into Perth in the last six years than into the regions,” she said. “This goes against that rhetoric about the mass outmigration from people in cities – it hasn’t been happening, it isn’t likely to happen.

“In terms of moving to the country, it is not really probable that we are going to have a massive amount of people pick up their laptops, move to the country and work from home.”

Ms Davies also said for the first time since 2013, WA was in a net gain for interstate migration.

The data Ms Davies presented showed that in 2020, WA gained 20 people per month from interstate migration, while in 2019 we were losing 690 per month, following on from a decade-long period of positive net interstate migration gain.

The skilled migration market is likely to pick up once borders open up, however the international student market will take some time to recover.