Why it might be a good time for real estate investment in WA

Commercial,ResidentialMonday 14 September 2015

According to the Australian Investors Sentiment Survey, released in August, investment in property rose by 1% (from 17% to 18%) from May to July, and the Investor Confidence Index increased by a substantial 3.9%, from 55% to 58.9%.

Investment in equities and cash however is down, with investors preferring to put their money into fixed interest deposits and property. This is most likely due to current market volatility – with contributing factors including Greece’s internal problems and current weakness in the Chinese share market.

Consumer confidence has also risen in recent weeks, with the current index reaching 99.5 – which is close to the ‘optimism’ level of 100.

Factors influencing the WA property market

In Perth, property prices have been on the low side of late, at least when compared to Melbourne and Sydney. Housing prices have fallen in recent years due to the glut of homes that resulted from the end of the mining boom, which saw many people leaving the state. This type of scenario is likely to lead to fewer new houses being built, which should in turn result in a steady rise in property values.

The lull in the Perth market means that it might be a good time to consider investing. Some commentators consider that while the Perth property market is not without risk (as is always the case with investments), the long-term outlook for the WA market is positive and values look set to rebound – especially in light of current low interest rates which are likely to remain for some time yet.

Why commercial investments may be better still

Some property market experts consider that house prices in Australia have become over-inflated, and as such it may make more sense to invest in commercial property than residential. Commercial investments might result not only in better capital growth, but are also likely to have higher rental yields.

For example, at the present time, housing rents are low, especially in light of property values, with rental yields sitting at around 3%. The result of this is that investors in residential property rely on strong capital growth to compensate, which in turn tends to lead to inflated values. This can also make the residential market vulnerable – especially if an interest rate hike does occur at some time in the future. For commercial property however, the rental yields are around 6% – which is a far better prospect, and capital growth appears steady.

Get expert advice

If you do wish to buy investment property in the WA commercial market to add to your property portfolio, it’s important to be aware of the influencing factors – which include interest rates, economic growth, local infrastructure development, and local population growth. It’s also important to understand lease terms and conditions, and to ensure the property is professionally managed, which is where a team of property consultants like those at Burgess Rawson can help.