With economic activity in Western Australia well below its ten year average and effective unemployment significantly above the ten year benchmark, the property market, particularly units, continue to experience weakness.
However, according to RiskWise Property Research Risks & Opportunities Report, buyer confidence is on the increase in the state, particularly Perth with housing finance increasing 15.1% since February 2019.
The table below displays some of the lowest-interest variable rate home loans currently available in Australia for owner-occupiers making principal and interest repayments.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
RiskWise CEO Doron Pelg said with low economic activity and high unemployment, Western Australia's annual population growth of 1% was the third lowest in the country.
“As a result, the housing market, particularly units, has experienced continued weakness in recent years," Mr Peleg said.
"According to CoreLogic, house and unit prices in Perth have declined by 8.6% and 9% in the past year, respectively.
“Western Australia is still in a long transition process from a mining-oriented economy and while unemployment has slightly improved from 6.1% in April to 5.7% in October, it is still projected to deliver low economic growth, a soft job market and low population growth."
Perth continues to buck the national trend of rising house prices, with median dwelling values in the WA capital falling 0.1% over the December quarter, according to CoreLogic.
In comparison, the national median dwelling price recorded its strongest quarterly growth in a decade, up 4.0% for the quarter, largely driven by Sydney and Melbourne, where prices increased 6.2% and 6.1% respectively.
In further worrying figures, Mr Peleg said that mortgage arrears in Perth are at an alarming level, with the delinquency rate sitting at 2.75%.
"While this has improved from 3.05 per cent as reported in August, this number has grown over the course of several years and is now well above the Australian average.
"The relatively high unemployment rate also increases the risk of credit defaults.
“Negative equity also remains a major risk especially for lenders who have a concentration of loans in this market. These risks are compounded by this high rate of arrears."
Limited number of suburbs delivering growth
Mr Peleg said while Perth was "very affordable", there were a small number of suburbs where houses delivered reasonable capital growth in recent years, but these were exceptions only.
Even with record low interest rates, an expected February cash rate cut and relaxed lending restrictions, houses still carried a medium level of risk due to Western Australia's economic conditions.
Some of the worst performing areas for houses in the past year include Perth - North East (-8.8% capital growth), Perth - Inner (-8.4%) and Perth - South West (-7.3%).
However, Mr Peleg said units were considered worse than houses, due to a massive oversupply, low demand and state government taxes.
“Also, units in some suburbs are subject to voluntary lending restrictions by the major lenders, such as lower loan-to-value ratio (i.e. higher deposit).
"In addition, the state government tax on overseas investors further decreases the demand for new units as investment properties.”
Mr Peleg said despite there being no unit construction defects reported in Perth, media coverage of incidents like Sydney's Opal Tower have caused consumer confidence in them to take a hit.
“The issues with construction defects in NSW and Victoria and the publicity they have received in the media mean this situation is unlikely to materially improve in the short term."
“While there have been no major construction defects reported in relation to high-rise buildings in Perth, the events in Sydney and Melbourne increase the risk of reputational damage and, consequently, lower demand for both existing and off-the-plan high-rise units.”
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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