02 May The lessons from WA
Next we go to Western Australia where Damien Collins says the market there continues to suffer from the downturn in mining and the over building for first home buyers. Lots of lessons coming from that part of the country.
Kevin: One of the markets in Australia that is suffering a little bit is Western Australia. Let’s take a visit there now with Damien Collins from Momentum Wealth and find out exactly what is happening.
Damien, thanks for joining us in the show.
Damien: Pleasure, Kevin.
Kevin: Now, we have heard that your state, South Australia, and Northern Territory are not faring all that well, but tell us about Western Australia.
Damien: Kevin, we’re still suffering from the downturn in the mining sector and also the over-building that happened with the first-home owners grant. As everyone would know, obviously, the mining sector has had a downturn, and that certainly affected job security and the wages paid, so people are less confident, and that’s flowing through into real estate transactions.
The other big thing has been the first-home-owners grant, a lot of people went and built, so that’s [0:51 inaudible] tenants and so our vacancy rate has gone up to about 6%, so rents have come back because of that. Coupled with the other factor that the interstate and overseas migration has slowed down quite a bit.
Look, we’re definitely in an oversupplied territory, not substantially. We’re at about 15,000 properties for sale; a balanced market is about 13,000. The rental vacancy rate is 6%, but having said that, 94% of properties are leased.
Overall, the Pearth market is a bit soft, but what we’ve noticed in the last couple of months is that it seems to be bottoming out, if it hasn’t bottomed already, so expect we won’t see any runaway market this year, but certainly we’re at the bottom or close to it anyway.
Kevin: What’s the sentiment amongst investors right now?
Damien: Still very cautious. Certainly, we have seen some east-coast investors come into our market and have appointed us as buyers agents, so they’re, I guess, seeing from a bit further away, seeing the longer-term prospects, not looking at just what’s happening short term in the market. But local investors are still cautious. There is activity but the headline in the press is the high vacancy rate, rent reductions, etc. Confidence is pretty low, so investors are quite thin on the ground overall generally.
Kevin: What about developers? Are they pretty nervous about the market?
Damien: Developers are bringing stock to market. Again, with the lack of confidence, they’re finding that people aren’t easily committing to off-the-plan purchases because, again, people think prices may not be much more when they settle in two years. Developers are struggling, and anyone bringing the properties to market at the moment is having a hard time getting them away.
Some projects are going better than others, but there’s still activity for development sites. We do buy development sites for clients, and we find that we are often competing because people are looking at projects they buy now and they wouldn’t bring them to market for at least 12 months and the likelihood is in 12 months when they are to market, with all of the approvals and everything else in place, that the market will be a little bit better.
Kevin: What sort of projects are popular or most popular? What size of development are you looking at?
Damien: Generally, the most popular ones are more the boutique level, so anywhere from your 10- to 40-apartment in the suburban areas, in the areas near the amenities, so near the train stations, the café districts, in close within that sort of 10 K radius of the city, and where there’s not a lot of other competition and where it blends in well with its surroundings. That’s what people are looking to buy, and certainly, from a rental proposition point of view, they’re the ones that people like to get.
Now, we certainly do have a lot of development in around the CBD area, but as you’ve seen with Brisbane at the moment, as we’ve seen in the past in Melbourne, at the moment, and particularly around that Docklands/Southbank area, it is a lot riskier because of the big risk of significant oversupply when there’s lots of 30-story buildings going up. So generally, most investors who are savvy are targeting the more boutique projects where they’re keeping away from the big areas of oversupply.
Kevin: Damien, where’s the best buying right now in the capital, in Perth itself?
Damien: A couple of areas that we like, Kevin, are around South Lake, which is on the south side of the river. It’s near Bibra Lake. It’s an area that’s about 18 K south, but it is near the freeway and the train line. It’s generally been considering a lower socioeconomic area. The prices are in the $400,000s for a house, but it’s an area that’s getting rezoning happening that we’re seeing in the market, people looking to redevelop in the area.
And as Perth grows… Perth is likely to grow from 2 million now to anywhere between 4 million and 5 million over the next 35 years, so areas like with the amenity there will rejuvenate. It won’t go to a premium suburb, but we expect it’ll move from that lower socioeconomic into something more middle class, and that re-rating we expect would see some good, solid long-term capital growth in an area like that.
We certainly still are buying in Forrestfield with the train line. The market there has come back a little bit, but certainly the longer-term prospects, once that train station’s in place and that whole catchment area in the foothills and into the hills now has a train line, that’ll certainly increase the value of properties around that. We’ve seen in Melbourne and Sydney that properties close to train stations do increase in value quite substantially.
Kevin: Before I let you go, Damien, what about the regions?
Damien: We’re seeing, Kevin, the Pilbara and the mining towns up north suffering significantly. Prices are down nearly 50% in Karratha, 30% in Port Hedland, and rents are down more than half. It’s pretty tough up there. In the southwest, the market’s doing okay in Bunbury/Busselton areas, but certainly most people focus in WA on the mining areas, and they’ve come back a long way, but it’s going to be a long time, I think, before they recover.
Kevin: Wonderful insight there, Damien. Damien Collins from Momentum Wealth in Western Australia. That’s the wrap on WA.
Damien, thanks for your time.
Damien: Thanks, Kevin.