Commercial property is on the rebound after a quiet period, and the experts believe Perth’s residential market must surely follow suit
An April property snapshot report by the ANZ has predicted a considerable upside to a currently flat housing market in Western Australia.
Report contributor and head of property researcher Paul Braddick says that while the state’s economy continues to benefit from the post-GFC commodity boom, housing has been suffering a hangover from an excessive pre-GFC price rising binge.
“House prices and sales at the moment are indicating the market is still pretty depressed,” says Braddick. “We think that’s a temporary factor and, sometime during 2012, we think the market will find the floor again. Prices should stabilise by the middle of the year and start moving strongly up thereafter.”
Braddick believes WA was one of the hardest hit by the GFC and that it didn’t help that in the three years leading up to the crisis, the state’s house prices increased by 20% pa on average, compared to just 6% nationwide. Since then, prices have fallen and are currently around 8% below their March 2008 peak, but there are signs of a recovery.
“It’s fairly clear that we are glimpsing another big mining resources investment boom and I suspect we are still at the early stages of that boom,” says Braddick.
“In most areas of the economy, compared to the rest of the country, retail sales are doing well and the commercial property market has benefited dramatically over the past 18 months. Looking at the data, the only area that is yet to benefit is the housing market.”
Perth’s commercial market has seen an impressive turnaround in fortunes over the past 12 months, according to Braddick. A year ago, rents in prime CBD office space had fallen to around $500 per sqm and are now tracking back towards $700.
“To secure office space at the prime end is extremely tight right now,” says Braddick. “Remember that this is Perth. All the mining investment is happening a thousand miles away. It is trickling all the way down to the Perth market and impacting across the board, when you look at what’s happening with employment, retail sales and household incomes. The data we’re getting suggests it’s well and truly back in boomtown mode.
“Perth holds the head offices of mining companies, associated engineering, legal firms, accounting firms… a mining boom requires much more than just mining workers. The projects are huge.”
US (work) forces
A new federal government scheme to combat a growing skills shortage has been jointly announced by Skills Minister Chris Evans, Immigration Minister Chris Bowen and US Ambassador to Australia Jeffrey Bleich. Under the plan, US workers from licensed occupations, such as electricians and plumbers, would be granted immediate access to provisional Australian licences on arrival in the country. Minister Evans says demand for skilled construction workers is likely to peak over the next three to five years, while 75% of Australian construction companies recently surveyed indicated they are expecting major hiring difficulties over the next six months.
Braddick believes the plan will have a positive effect on the WA economy, which has been rivalling NSW and Victoria in migrant numbers of late.
“Western Australia’s share of net overseas migration is already at a record high and we’re expecting that to continue over the next few years,” he says. “We’re at the very early stages of the investment boom, so if there is a skills shortage now, we’re going to need a lot more of those workers over the next few years.
“WA had 35,000 migrants over the last year, while NSW had 50,000 and Victoria had 44,000. It’s growing rapidly in WA and will probably approach those 40,000–50,000 levels soon.”
Rental market tightens
The Real Estate Institute of Western Australia (REIWA) has reported a 2.3% rental vacancy rate in the Perth metropolitan area over the three months to February. This is down from the 2.8% recorded for 2011. For February alone, REIWA recorded a rate of just 1.6%, the lowest since December 2007 (though one-month figures are volatile).
REIWA President David Airey says the lower rate coincides with a drop in the volume of property listed for rent, but adds that the upturn of migrants flowing into WA is putting upwards pressure on demand.
Braddick believes previously higher vacancy rates were largely due to a halt to developments caused by the 2008 financial meltdown.
“There was quite a bit of development going on prior to the GFC,” he says. “Once the music stopped, the stock gradually hit the market but there were no buyers, so a lot of it was put on the rental market. The last couple of years has seen the gradual working off of a lot of that stock.
“I think the market is now getting back to levels that are quite tight again.”
Further afield, the vacancy rates in areas surrounding mining towns will be non-existent as projects move ahead.
“The areas around mining developments are not going to be able to supply enough housing,” Braddick says. “They are far behind the eight ball in terms of dealing with the increase of construction workforces flying in and flying out, because the infrastructure just isn’t there to accommodate all the people. Areas as far away as Perth are therefore getting the flow-on effect.”