06/03/2019 - 14:14

Perth property to ride out slump on economic cycle

06/03/2019 - 14:14

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Perth’s property sector appears poised for gradual recovery after one of its most challenging downturns in recent history.

Perth property to ride out slump on economic cycle
Adrian Johnson says Perth’s residential sector has come through the worst of its biggest downturn in decades. Photo: Gabriel Oliveira

Residential and commercial property in Perth is firming as a value proposition compared with other states, with an expected uptick in resources sector investment activity fuelling positive sentiment around the prospects of capital growth over the next half decade.

While the consensus was that any recovery in Perth property in 2019 would be slow and gradual, the collective view from panellists at the inaugural Business News property sector briefing last month was that Perth property would soon provide better prospects for investment than any other state capital.

Summit Projects senior development consultant Adrian Johnson said the downturn in Perth’s residential sector for the past four years had given builders across the state a pretty good slap, but several factors indicated the industry was at a turning point.

“In the last six to eight months we’ve started to see a turnaround,” he said.

“We’ve seen the large developers come in and that’s usually a good indication; they time things right and know how to buy at the right time and make the most of it.

“Rentals have dropped considerably, and that’s normally an indication for us that the market is turning.

“The problem is those numbers are looking good, but if we kick off now and we all buy new properties, they are a year and a half away.

“But the key thing we are seeing is the market is getting a lot more positive and based on the numbers we are seeing there is good reason for that.”

Property Council of Australia WA executive director Sandra Brewer said residential property would likely come on the radar of eastern states investors as the broader Western Australian economy continued to improve.

 “In Sydney, Housing Industry Association data suggests you need more than 50 per cent of your income to repay a mortgage, in Melbourne it’s 44 per cent and in Perth it’s 26 per cent,” Ms Brewer told the forum.

“We need to shine a light on the proposition we have here for people who want to create a life for their family.”

In the commercial sector, JLL WA research manager Ronak Bhimjiani said white-collar employment forecasts, using data from Deloitte Access Economics, indicated prospects were firming for significant demand for office space in the Perth CBD over the next five years.

Mr Bhimjiani said forecasts showed around 2,400 people would be added to the 22,000 white-collar employees in Perth’s CBD in 2019. If that trend continued through to 2023, he added, between 120,000 square metres and 150,000sqm of office space would be needed.

“Rents are quite cheap in Perth’s office market and capital values have fallen by quite a bit,” Mr Bhimjiani said.

“Perth is in a position where you would be looking out for strategic opportunities to invest over the next couple of years.

“If you look at Sydney on the other hand, it’s expensive to get into the market and the rents are sky high.

“By 2020 we forecast that we’ll see Perth in a position to get maximum returns on investment, while Sydney will fall over.

“If you are looking at where to get the best bang for your buck, you’ll be looking at Perth and possibly Brisbane as well.”

However, Ms Brewer said the positive sentiment had not completely permeated the entire property sector.

Ms Brewer referred to the Property Council’s latest survey of its members’ confidence, which fell slightly in the December quarter, contradicting notions that the industry had entered the first phases of recovery.

“People are just uncertain as to where the market is going, but it’s just a bumpy ride. We’re on the way to economic recovery but we’re still bumping along,” she said.

“There have been some upticks, industrial is a real standout.

“There have been some good transactions in the industrial sector and people tell me they are getting cold calls now.

“There is an absolute lack of available land in industrial and a lot of competition to get in because returns are quite stable.

“That’s very telling because it indicates good demand for our resources; people need big warehouses and factories to service the mining industry so that’s really positive.”

 

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