Bottom to bullish
2012 could be a good year for Perth as a second resources boom jet sets the state economy
The relationship between the Western Australian economy and its property market of late has been an interesting one.
On many measures Western Australia has been judged to have the strongest economy in the country, with the resources sector treble charging commercial construction, exports and overall economic growth. The problem is that this isn’t filtering down to the property market – at least not yet. The housing market remains soft with falling house prices and sales activity at close to historic lows.
“There’s been significant activity in the resources sector but a major slowdown in the real estate sector,” says REIWA president David Airey. “Activity is especially low in the prestige market, where prices have remained flat for quite some time. Houses around the $500,000 mark are also only seeing little price rises, which won’t change unless demand picks up.”
State government forecasts don’t paint the best of pictures either. In handing down the government’s mid-year review, Treasurer Christian Porter predicted Perth house prices would fall by 2.2% over the first half of this year. This was on the back of increased stock levels and financial market uncertainty.
Airey says that it is only by fast forwarding to the next six months that the outlook starts to look good. An impending second resources boom points to Perth and a number of other areas performing well. Global economic fundamentals are still in favour of WA and a number of infrastructure projects are either underway or being considered. This should see high demand for accommodation as mining related activities pick up speed.
Things look especially rosy for Perth, which offers a lifestyle factor not present in many of WA’s regional mining towns. Resource workers would rather fly in and out of their place of work and bring their families up in Perth than move to the regions, where services and amenities are not always as good.
Terry Ryder of hotspotting.com points out that Perth is already the leading capital city in the office, industrial and hotel markets and expects that this year residential property will follow. “Everything now points to a significant upturn,” he says. “Perth is poised to return to growth after three years of generally declining markets.”
One indicator that Ryder believes especially telling is data on fly-in, fly-out workers passing through Perth Airport: 2.2 million passengers related to the resources sector moved through the airport over 2010 and 2011 – considerably higher than in 2007–08, the peak of the previous mining boom.
First homebuyers return
Airey adds that increased activity from first homebuyers will also bode well for the Perth market. “The WA rental market has seen some rent increases and this has pushed a lot of people into buying their first property.”
Liz Sterzel, managing director of Property Wizards, believes that many first homebuyers are taking advantage of lower priced homes that were previously on the market for some time. This is a sign that first homebuyers are no longer sitting on the fence waiting for market conditions to improve and are gradually becoming active.
Airey cites the latest interest rate cut as also having an effect. “It’s allowed a lot of people to afford loans they might not have been able to before. That said, I think we’d need to see a further cut of about 0.5% to see a major impact.”
Few will be surprised to see that seven of Western Australia’s prime suburbs are in western Perth, on the peninsula of land between the Swan River and the Indian Ocean coast.
Frequently topping annual lists of Australia’s most affluent suburbs, Peppermint Grove continues to have the highest median price in the state. The suburb has long been associated with Western Australia’s wealthiest and oldest families, but neighbouring suburbs Cottesloe, Mosman Park, Claremont, Swanbourne, Dalkeith and Nedlands also feature in the list. This is perhaps an indication of the high priority Perth residents place on being close to the city’s best beaches.
It is also no coincidence that this area has a high concentration of golf courses and parks, with plenty of nature reserves and hospitals in the mix. Clearly, lifestyle plays a key feature in the appeal here: although close to the beach, these suburbs are all within a maximum 8km of the CBD.
Considering the high buy-in of these suburbs, yields are typically low: none of these suburbs post rental returns above 3%. Capital growth levels among these suburbs have also been mixed of late, though all clearly suffered from the GFC, with every suburb, save Claremont, posting negative 5-year growth.
City Beach, 10km north-west of the CBD, and North Coogee, 14km south-west of the Perth CBD, are also beach suburbs where residential property prices are among the highest in the state. In the case of North Coogee, it has the highest unit prices in Perth with annual price growth of 20% to match, thanks to its prominence within the south beach coastal community – one of the most popular swimming areas in the city.
The only suburb not within a 2km radius of beaches is Applecross. Prices here tumbled over the GFC period, but could be in line for recovery, posting 6% annual growth.