‘You’ll regret it’: boom city home buyers told to avoid

Australia’s most profitable property market over the past 18 months is now a location investors should avoid, a new report warns.

Perth has become the biggest magnet in the country for property investors over the past year but there are growing signs the WA capital’s property market may be running out of puff.

And the result is that would-be investors may get a better return and capital growth in many other locations, including much of the east coast, Hotspotting’s latest Price Predictor Index has revealed.

The research group examined trends across all the major markets in Australia and found that more than half the 50 areas with the sharpest rise in sales – a precursor to price growth – were in NSW.

A fifth of the suburbs with a notable bump in sales volumes over the past four quarters or more were in Victoria, with most of the remaining suburbs in SA and Queensland.

Suburbs in Western Australia failed to appear on the list.

The prospect of a rate rise has affected the general mood in the property market. Picture: Thomas Lisson

This was despite the state accounting for most of the ascendant suburbs in last year’s index – a period just before Perth home values surged by 21 per cent annually, the fastest rise among the capitals.

“History shows that there is a correlation between sales volumes and price movements: the number of sales changes first and then prices react – with a time lag,” Hotspotting Director Terry Ryder said.

“(It) means investors can buy ahead of price growth, by finding locations where sales volumes are rising but prices have not yet moved.”

Mr Ryder added that investors should be careful when considering Perth, despite the city’s impressive price growth in recent months.

The Perth market has been booming over the past year.

“We continue to warn investors to be cautious in approaching the Perth market,” he said. “Too many buyers are acting in haste, paying well above the asking price to beat the competition without regard to quality or location. Many will regret decisions made in haste amid the frenzy.”

Mr Ryder said Hotspotting’s Price Predictor Index showed Perth had passed its peak in terms of buyer activity and was unlikely to continue leading the nation on price growth in coming months.

Sales volumes in the city were not only falling but it was taking longer for properties to sell and homes at the top end of the Perth market were beginning to fall, Mr Ryder said.

National buyer’s agent Eddie Dilleen, himself an investor who owns over 100 properties, said Perth was still a strong market but the best opportunities to make “big money” may have passed.

Surry Hills in inner Sydney has been heating up.

“I think (Perth) has still got a lot left in it, but it’s not like it was two years ago because the properties have gone up so much already.

“The properties that were $400,000 two years are now $700,000 … I was getting properties that were so far undervalue.”

Ray White chief economist Nerida Conisbee, one of the analysts to correctly predict the current Perth property boom, said many of the forces that sparked the boom were subsiding.

Perth saw “high levels of migration” due to its affordable housing but the affordability has not been as strong a draw now that prices have lifted, Ms Conisbee noted in a weekly letter to buyer clients.

The overall expectation was still that the market would perform well, she said.

The WA housing market is more erratic than other states because of the influence of the mining sector. Picture: Getty Images

Hotspotting’s research suggested investors seeking strong capital growth shouldn’t dismiss NSW or Victoria, despite both falling out of favour with investors in recent years, especially the latter.

“We believe the top supercharged suburb in the nation is currently Surry Hills in (inner) Sydney,” said Hotspotting general manager Tim Graham.

“Surry Hills is a market dominated by apartments, where demand has been rising in keeping with an emerging national phenomenon … Sales numbers have been trending sharply upwards.”

Mr Ryder said contrary to the negative market narrative currently prevalent about Melbourne, the Victorian capital city had a number of suburbs with rising sales activity and plenty of upside potential, including Deer Park.

“The Melbourne market is poised for better price growth in 2024 than the previous two years,” he said.

Mr Graham said Adelaide and regional South Australia continued to be two of the nation’s most promising markets, including Glenelg.

“Generally, the Adelaide market is displaying the consistency that has made it a national leader on price growth, with 31 per cent of its suburbs recording positive ratings in our latest research.

“Glenelg has recorded five consecutive quarters of rising sales volumes, with the suburb home to Adelaide’s most popular beach.”

Property investment expert James Fitzgerald of Custodian said investors seeking property over winter may have an advantage.

“Winter is traditionally a softer buying/selling season with spring and summer the most robust, but the truth is you can generally find better opportunities when there are less buyers active,” he said.

Those who were still keen on Perth should consider the city’s north, Mr Fitzgerald said.

“The new rail and road extensions in the north of Perth have opened areas like Eglinton and Yanchep which are forecast to see their populations grow from 40,000 to nearly 120,000 and triple inside of the next 10 years,” he said.

“This is a significant amount of demand that will be generated for housing in and around those areas.

“To the south of Perth, you have got Bertram and Wellard which have seen a significant amount of growth in recent times but are also set to see their populations nearly double in the next 10 years, benefiting from significant infrastructure investment from the West Australian Government.”