Tight rental markets make buying more practical for home seekers in Perth

Despite the rise in mortgage rates, it appears buying a house is still more practical for home seekers in some suburbs of Perth than renting, especially given how competitive the rental markets are.

Resolve Property Solutions buyers' agent Peter Gavalas said the local rental market is experiencing a substantial shortage in supply that continues to push rents to all-time highs. “As one of the most competitive capital cities for potential tenants, Perth experienced the highest annual rental increase over the 2022 calendar year, with house rents growing 15.2% year-on-year,” he said.

According to SQM Research, the median weekly rent for houses in Perth was $666 as of 4 March, indicating a 16.1% growth from last year. While rents continue to soar, Perth remains one of the most affordable cities in Australia to buy property. In fact, figures from CoreLogic showed that the median house price in Perth in February was $561,700.

With an assumption that a buyer would have a 20% deposit, applying for a 30-year loan term at an interest rate of 5.86% would result in weekly mortgage repayments of $640, $26 less than the median weekly rent.

“You’re paying down your mortgage, not your landlord’s, and building equity with every mortgage repayment. And if you buy well, your home’s value should appreciate over time – earning you a profit if you decide to sell,” Mr Gavalas said.“Owning a property gives you peace of mind and stability that renting can’t offer, as nobody can terminate your lease or increase your rent just because they feel like it.”

According to the Real Estate Institute of Western Australia (REIWA), the state needs 18,000 to 20,000 new rental properties to bring the market into balance. Perth’s vacancy rate is currently at 0.7%, far from the balanced levels of 2.5% to 3.5%. There are several factors driving the shortage of rental properties in the state and its capital city, including population growth and an investor exodus.

The last time Perth’s rental market had a vacancy rate of over 3.5% was in September 2018. Since then, the population has already grown by around 6.7%. Meanwhile, rental bonds data showed that in the past two years nearly 19,000 rental properties have been removed from the rental pool as investors exited the market either to take advantage of long-awaited capital growth, to use the properties for themselves, or to alleviate the risks of the rising interest rates.

REIWA CEO Cath Hart said there are no quick fixes for the rental shortage in the state. “WA simply needs a lot more properties — we need policy settings that encourage rather than discourage people from investing in rental properties,” she said. “This could be local planning policies, fair and equitable regulations on rentals, or tax settings for negative gearing or capital gains.” “We also need policies that support development in general so more houses can be built.”

*By Gerv Tacadena - Your Investment Property March 2023