The Queens Riverside was a recent resort-style apartment development built in Perth. (Supplied: Frasers Property Australia)
The McGowan Government’s stamp duty rebate announcement last week was an acknowledgement of just how badly the WA property market is performing.
After lobbying by the property industry, the Government has encouraged home buyers and investors to shift their focus to a small part of the market — off-the-plan apartment sales.
To entice them, they offered a 75 per cent discount on stamp duty for people buying off-the-plan apartments.
Will it work?
The general consensus among property experts is that the WA market is so depressed that anything which could stimulate construction activity and boost investor confidence is worth a try.
But as to whether the stamp duty rebate will boost off-the-plan apartment sales, no one can say for sure.
At best, Curtin University Associate Professor Steven Rowley said the rebate would not have a negative effect.
“Whether it’s a massive positive, I’m unsure,” he said. “Anything, frankly, that will help stimulate the market is welcome.
“But I don’t think we’re going to suddenly see a massive turnaround in construction activity.”
While acknowledging the rebate as a positive step, Real Estate Institute of WA deputy president Lisa Joyce said the rebate was unlikely to have a big impact.
She said buyers and investors were unlikely to be persuaded to buy an off-the-plan apartment if they could find a good deal which met their needs elsewhere — for example, an established house they could move into straight away.
Why target the apartment market?
The WA Government would be hoping an increased number of off-the-plan sales would allow more apartment developments to get finance for their projects.
ABS statistics show the number of units being built in WA has almost halved since 2014, as have building approvals.
In September, the number of dwelling approvals in WA dropped about 25 per cent compared to the previous month in seasonally adjusted figures.
Master Builders Australia chief economist Shane Garrett said this represented a continuing declining trend in homes, particularly units and apartments, being built.
“What these figures mean is that a low level of activity is pretty much locked in for the WA market over the coming number of months, up until probably February or March of next year at the very earliest,” he said.
REIWA’s data shows that apartments make up about 16 per cent of property sales.
In 2019 so far there have been about 6,400 apartments listed for sale — including established units as well as those under construction — which is about half the number on the market at the peak of the boom in 2014.
But only about 3,500 have been sold in the first three quarters of this year, compared to 7815 in the whole of 2014.
Prices have also dropped significantly since then.
One issue is that apartments in Perth are competing for buyers with houses which, according to property monitoring firm CoreLogic, are the most affordable in the nation.
Property lobbyists like the Property Council of WA and Master Builders Australia have long pushed for the rebate in the hope it would boost investor confidence and help get the property market out of its slump.
“The most important ingredient for achieving turnaround in the market is confidence and, unfortunately, that isn’t in place in WA just yet,” Mr Garrett said.
So who will benefit from the rebate?
Consumers, obviously, as they will be paying less stamp duty even if they don’t receive it until after the construction is completed.
If the rebate encourages more people to buy more apartments off the plan, then this in turn will help developers to get finance for their projects and generate construction jobs, which in turn benefit the broader economy.
Foreign investors also benefit because they receive both the stamp duty concession as well as a 75 per cent rebate on the foreign property tax — another announcement welcomed by the property industry.
Arguably, the flow-on effects of increasing the number of projects will also help the WA Government.
If the rebate does boost demand, the WA Government would get a return on its investment of $29 million over two years, not only in increased stamp duty revenue, even after the rebate is paid.
“If you do stimulate more activity, the potential economic impact of that activity goes a long way to offsetting that lost revenue,” Dr Rowley said.
The Government also needs investment in higher density developments for its Metronet plan to create medium to high-density residential hubs around public transport.
Metronet upgrades to the train network will also include substantial housing development. (Supplied: Public Transport Authority)
Dr Rowley said this could be difficult to achieve in locations not traditionally known for high-rise living.
“You’ve really got to create a market for high-density apartments in those Metronet locations,” he said.
“If you look at the price difference between a high-rise apartment and a house in a local market, it’s got to be quite significant otherwise you’d just buy an established house.”
Will it be enough to get buyers to open their wallets?
Western Australia has not embraced high-rise apartment living with the same gusto as those in Sydney or Melbourne.
To help change this and promote apartments to local governments dealing with resident discontent over high-rise development proposals, Perth marketer Samantha Reece has set up WA Apartment Advocacy.
Ms Reece said WA needed a greater diversity of housing options as it had less than 5 per cent of the nation’s apartments.
A small market operating in some of the weakest conditions in years was making it even tougher for developers to get their expensive and complex projects off the ground.
To get finance and start building, developers need to secure a minimum number of off-the-plan sales — and this is where the WA Government hopes its intervention will bite.
The goal is that the rebate will help many locals overcome their reluctance to live in high-rise developments.
“It’s not like Sydney where you can get pre-sales on a 350-unit apartment,” Dr Rowley said.
“In Perth you’re struggling to get pre-sales on something as small as 100 units or 50 units.”
Long-time Perth real estate agent Greg Rossen said off-the-plan apartments were popular with many people aged 55 and older who lived in affluent areas.
Although Perth’s apartment market may be still limited, developments in attractive locations — near the ocean, with river views or near a vibrant community hub — had been successful.
But apartments in less desirable locations, for example remote suburbs like Alkimos or those on big arterial roads like Great Eastern Highway, were struggling.
What are the pros and cons in buying off the plan?
Ms Reece said her interviews with 1,100 Western Australians had found only 14 per cent were comfortable with buying off the plan.
Many had concerns about long-term strata and building maintenance fees, as well uncertainty around construction start and finish dates.
The vast majority of buyers in Perth prefer established houses to off-the-plan apartments. (ABC News: Elicia Kennedy)
But Ms Reece said the benefits of buying this way included having first pick of the apartments with the best views and the ability to customise features.
Mr Rossen said he knew many people who had been badly burnt when they invested in off-the-plan apartments only to see their value plummet when the property market fell.
While admitting the rebate could be helpful, Mr Rossen said buyers needed to be careful with these investments, realising they are speculative. He suggested a recently completed apartment could be a better buy.
“People need to be aware that when they are buying off the plan, they are buying property futures,” he said.