Perth’s recent performance may not immediately inspire confidence, but the medium-to-long-term prospects for the market are bright.
Western Australia and Queensland may occupy opposite sides of the country, but their economic and property tales echo each other in several ways.
Both states have benefited from the resources boom – Queensland from coal and gas, Western Australia from iron ore – and both have suffered through the GFC and uncertainty over the federal government’s mining tax. Both have capital city property markets that have seen incredible boom times, but of late have been in the doldrums. Both are also now staring down the barrel of a new resources boom – and as a result, a resurgence in their property markets.
It’s about time, too. Perth saw its worst quarter for capital growth in years over the winter, with RP Data reporting median values falling by 5% in the September quarter. The picture was even worse for units, with median value down by 6.8% over the same period. Figures from the Real Estate Institute of Western Australia were just as pessimistic, with the industry body reporting that the median house price fell from $500,000 to $480,000 in the same period. The number of properties on the market was up by 7% compared to the June quarter – with a further 7% increase by October – and that nearly 70% of sellers were prepared to drop their asking price by 6% to find a buyer.
“Of course, this varies across the suburbs,” says REIWA president Alan Bourke. “In areas such as Butler, Clarkson and Quinns Rocks, only about half of the sellers were dropping prices and when they did it was by around 5.5%. By contrast, in the western suburbs such as Nedlands, Dalkeith and Cottesloe, 84% of sellers were dropping prices by around 8%. Clearly, there is more downwards price pressure at the premium end of the market.”
In fact, REIWA data revealed that the biggest proportion of sales were in the $450,000– 500,000 market segment, which measured 16% of total sales for the quarter. Sluggish population growth has also impacted the rental market, with vacancy rates hovering around 3.4%.
So, what about the recovery? Consulting firm Access Economics’ latest Business Outlook report reckons that mining – along with construction – will “turbocharge the national recovery”.
“Both are in the right place at the right time, with mining investment and output scrambling to catch up to a still galloping China and an India pregnant with potential mineral and energy demand,” it adds.
For WA in particular, it argues that “resource boom mark II will be even bigger than mark I (2006 to 2008) for Western Australia”.
BIS Shrapnel senior project manager Angie Zigomanis agrees.
“New projects are already getting into gear: the Gorgon offshore gas project has already started up, and we’re beginning to see an increase in investment by the resources industry.”
This new impetus will mean a significant upturn in the Perth market this year, says Zigomanis, with further growth in 2012 and 2013 as projects reach peak employment level. He stresses that this will be “high-single-digit growth rather than double-digit growth”, however, and suggests that the runaway mining resurgence will bring its own set of problems.
“We’re projecting that 2012/13 will be similar to 2006/07, when you had skills shortages and inflationary pressures become more acute.
“That will result in the RBA being more aggressive with rate rises – our forecast is for the standard variable mortgage rate to pass 9% sometime in 2013 – and that will hit both house prices and activity.”
While pockets of growth are springing up all over the state – with Broome, Bunbury and Geraldton all seeing growth – the star performing Pilbara region still stands out as the state’s top regional market, due to continuing house pressure.
The outlook’s even rosier over the next few years, too, with Rio Tinto pledging to plough a staggering $3.2bn into the region alongside the $3bn announced since last July. This latest round of spending will focus on paying for new port and rail infrastructure around Cape Lambert.
The company is also in discussions with the state government about providing supplemental water supplies to hot spot Karratha, following the announcement of a $370m desalination plant intended to provide six gigalitres of water to the city per year.
The proposals are part of a package to relieve pressure on Karratha’s housing supply, which now boasts a median house price of $874,000 (according to REIWA).
Zigomanis thinks that the combination of a second resources boom and attempts to make the area more liveable will boost growth in the region.
“The Pilbara will certainly benefit from employment growth, and both state and federal government are being proactive in building proper communities, and trying to encourage workers to live there rather than fly-in and fly-out,” he says.
“On that basis, there might be opportunities for developers; on the other hand you could argue though, that the Pilbara cities are fairly fully-priced anyway, so it’s difficult to see how any further price growth could be sustained.
“Saying that, would you have expected median house prices to be nudging $1m in the first place?”