Market Report Western Australia (August 2009)


Perth market cooking with gas

Oil and gas exploration will soon fire up the WA economy, driving another population and property boom.

Is there any light at the end of this long, dark tunnel that is the WA real estate market? "I think there is," says Residex's chief property analyst, John Lindeman, "because it's got the highest population growth rate in Australia. And though that's likely to go down because of the end of the minerals boom, you've still got other projects like the huge offshore petroleum gas fields being developed."

So it appears as though resources will once again save the market in the west. But for how long? Lindeman is concerned that the fundamentals for an extended recovery are just not there. "It's only really been during that mineral boom and the prior one that the Perth market has taken off, and it doesn't last long," he says. "[Perth] behaves more like a mineral boom town in that regard than it does a capital city."

The pattern, according to Lindeman, is one of boom and bust, rather than healthy, sustained growth. Not everyone agrees.

Angus Murray, a director at PRDnationwide WA, says that a steady recovery is well under way, even if that is not yet reflected in official statistics. "In the first quarter of this year we had a return of demand in the $350-450,000 price bracket," he notes. 

"That was first homebuyers and bargain hunters and their budgets were restricted. There's more movement now throughout all price brackets. Even the upper end of the market is moving quite reasonably."

With very little forced or distressed selling now occurring, stability has re-entered the capital city market. However, Murray says, "some markets which were oversupplied, such as the holiday home market, have been slower to recover. They're probably six months behind the residential markets in Perth and other major centres." Specifically, the southern coastal towns of Mandurah, Busselton and Dunsborough are still struggling to rise out of the slump.

The reason many investors are getting excited about Perth is the looming issue of undersupply. The market is simply not ready to house all the people who will be flocking to WA to take up employment in oil and gas and related industries.

"There's not much new stock being created and coming to the market, so the number of listings on the market has reduced by about 25% over the last six months," says Murray. 

"There's not a lot of new land development being done. Most of the developers are still licking their wounds from a couple of tough years and so are their bank managers, and that is going to make it difficult to bring new supply on quickly."

Murray recalls the heady days of 2005-6 when people would literally camp out to purchase land. Slow land-release policies and developer reticence in 2009-10 may cause history to repeat.

"The bureaucracy is still stuck in a mindset of greater density and greater infill rather than allowing greenfields," warns Murray. "The politicians realise that attitude may have to change, but I'm not sure whether that's going to filter down through the planning process in time to increase the available stock."

Taking a long-term view, Lindeman believes that, notwithstanding the occasional resources boom, Perth will eventually settle back into its historical place between Brisbane and Adelaide in terms of median price. 

"During the last mineral boom [Perth house prices] just went crazy," Lindeman says. "[They] went past Brisbane and Melbourne. It was too much growth too quickly. Over the next five years Brisbane will grow more than Perth, and Perth will sink back to that natural position that it's had."

The next 24 months, however, look very bright. Low interest rates, renewed confidence, massive resource investment and high population growth all provide the perfect platform for, if not sustained growth, certainly short- to medium-term profit.

And the fact that the oil and gas activity is occurring in the northwest of the state does not mean the benefits will be restricted to regional areas. In fact, the opposite is true.

"The biggest impact will be on Perth because a lot of the workers are fly-in/fly-out and also a lot of the fabrication and manufacturing spin-off for these projects will be in Perth," says Murray. "Sure, Karratha, Broome and Port Hedland will be major recipients of an influx of workers. But WA has 2.2m people and 1.75m of them live in Perth."

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