WA excerpt from the September 2010 Market Report

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Spooked by the proposed mining tax and rising interest rates, WA markets grind to a halt.
 
Investors who are waiting for a buying opportunity in the west may find the current slump is a rare chance to buy low in this market, which is ripe with growth potential. To determine what has driven the once-bustling real estate markets of Perth into the ground, and why this situation is just temporary, cast your mind back to the beginning of the year.
 
Western Australia was in the midst of a population boom. The global financial crisis was a distant memory as massive resources projects steamed ahead, with many more in the pipeline. In March, BHP secured a significant victory on iron ore pricing. Sure, interest rates were creeping up, but only to ‘normal’ settings.
 
Then in May, then-Prime Minister Kevin Rudd said “super profits tax.” Interest rates went up another 0.25% and investment in the state collapsed like a pile of warm jelly.
 
The fundamentals of the market, however, remain remarkably strong. Population is still booming, there is a looming skills shortage, there is still an undersupply of property and the resources are right there in the ground where the mining companies left them.
 
We now have a new prime minister and a compromise appears to have been reached. Therefore, property investors who jump in now, while the market is soft, will reap the financial rewards very soon.
Huge impact
“In Western Australia, we’re seeing a huge impact from the [proposed mining tax]. Massive. There’s a lot of talk about that,” says Rob Fitzgerald, director of independent property advisor Herron Todd White in Perth. “While we had good growth and good volume of sales reducing the stock levels back in late 2009/early 2010, we’re starting to see the stock levels rise on the back of these things. It’s becoming a buyer’s market again.”
 
Prestige property in suburbs like Cottesloe, City Beach, Dalkeith and Nedlands is hardly moving at all. Even the $500,000–$1m market has stalled. “The shine has come off this price bracket,” says Fitzgerald. “That market was really cranking. In good areas like Como and South Perth, even over $1m was really firing. There’s certainly not the demand now.”
Units in short supply
The inner-city unit market is undersupplied but still relatively affordable. Brendan Aylmore, branch director of WBP Property Group in WA, reports that a number of sites remain undeveloped due to tightening lending conditions and sluggish off-the-plan sales. “This resulted from a lack of confidence from purchasers and it may have some repercussions for supply in the short term,” he says.
 
Fitzgerald says this lack of supply has led to brisk sales of existing stock. “We’ve done a lot of purchase price valuations for our bank clients [on apartments close to the city] and they seem to be ticking over quite well,” he says. “They’re secure, they’re modern. What you get in there is still a pretty good rate of return.”
 
Aylmore’s hot tip is the emerging suburb of Alkimos, near Yanchep, about 50km north of Perth. “[It] is a vibrant coastal community currently under development,” he notes. “New vacant lots are selling off the plan with ease, and following the completion of further infrastructure and retail development to accommodate population growth and improve accessibility, Alkimos and surrounding suburbs will be in high demand.”
 
Regional areas of the state are the worst-performing in the country. The median price for country WA fell more than 5% in the last three months, according to Residex. “At the moment there’s still a bit of an oversupply in the southwest in areas like Bunbury and Busselton,” says Fitzgerald.
 
Port Hedland, Karratha, Kalgoorlie and other resources towns are highly volatile and are suffering from the same negative sentiment as the Perth market. However, with the imminent launch of the $43bn Gorgon gas project just off the coast of Karratha, markets are expected to roar back to life. Gorgon will create 10,000 new jobs in Perth and the Pilbara region during peak construction.
 
Overall, the future is bright for the state. “We believe that once we get this election out of the road and we see the sun begin to come out again – in spring and summer – we’re going to start to see a recovery,” says Fitzgerald.
“It can happen that quickly. That was certainly evident in the recovery after the GFC. The resurgence came back pretty quickly back then. And I think this little six-month lull will really be just that,” he adds.

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