Hedland & Newman

New Infrastructure Investment Signposts Continued Confidence in WA Mining Towns

Property buyers can get a good forward indicator of future trends in mining towns by looking at investment in key support infrastructure such as airports.

Airports are now the life blood for mining towns as they are used to transport people, equipment and supplies to these remote regional areas.

It was therefore very significant that Qantas has just announced a major multi million investment in its Perth terminal to cater for future demand resulting from the resources boom.

Qantas has invested heavily in regional WA, having expanded QantasLink and Qantas capacity over several years and is now operating more than 280 return flights with 75,000 seats to regional WA every week.

According to Qantas chief executive Alan Joyce, the airline recorded double digit growth annually over the last five years in WA and believes growth will continue at a rate of 10% for the foreseeable future due to the resources boom.

As a result of this growth, Qantas is enhancing facilities in Terminal 4, its dedicated terminal at Perth airport, and from February, Qantas will expand its operations into the adjacent Terminal 3.

Looking to long term trends, Mr Joyce supports the need for a third – and second parallel – runway at Perth to handle rising future air traffic demand flowing from the growth in the resource sector.

With major companies such as Qantas now investing for future growth flowing from the long term expansion of the resources sector, it only makes sense that property investors should take their lead by investing in housing which is also a major support service.

In late 2012, property investors were bombarded with negative news about the end of the mining boom based on a slump in iron ore prices.

However, this slump only proved to be a temporary phenomenon with the benchmark price of iron ore now above US$140 a tonne.

Strong commodity prices will see a rebound in investment in mining regions during 2013. This trend is already underway with Fortescue Metals announcing that it will recommence expansion of the Kings deposit at the Solomon mine hub after it was suspended late last year due to low iron ore prices.

This increasing investment comes at a time when exports of iron ore from the Pilbara are already at record levels. Some 25.999 million tonnes of iron ore was shipped from Port Hedland during last month – the highest monthly trade in its history.

Therefore, the outlook for the Pilbara real estate market in particular, looks very positive as we enter 2013 and property investors in the region can look forward to rising capital growth rates and returns based on continued new investment in the region and support services.

WA Resource Sector Bucks Trend & Grows By $12 Billion

The latter half of 2012 has seen an unprecedented amount of bad publicity surrounding the resource industry in Australia.

However, when one takes a closer look at the state of our country’s largest income stream, the Western Australian economy continues to show signs of strength and growth.

Of particular importance was the Deloitte Access Economics quarterly investment monitor for the September 2012 quarter which shows that total planned or existing investment in Western Australia stands at $281 billion – an increase of $12 billion over the past year.

These figures underline the fact WA’s resources sector is not a boom and bust economy but rather a growing sector which is often misunderstood.

Deloitte director David Rumbens said WA’s economic future based on these investment figures seemed assured for some time to come.

“Even with few new approvals, resources projects under way will keep construction activity in the West humming along at heightened levels for several years yet,” he said.

The reality is that short term fluctuations aside, the growing demand for our resources from both China and India will continue to power the WA economy for many decades to come. For example, The World Bank still foresees China overtaking the US as the world’s largest economy by 2030, if it maintains an annual growth rate of 8 per cent.

While a large amount of the recent negative publicity has focussed on the European economies, it is important to remember that Australia’s economic fortunes are tied to Asia.

One simple figure puts this into perspective – by 2025 or just over 10 years, it is estimated that there will be 221 cities in China with a population of over 1 million, whereas today in the whole of Europe there are just 35 cites with this population.

Overall, it is expected that 350 million Chinese will migrate into cities by 2025 with over 103 million having already made the move since 1990.  As a direct result of the expansion of Chinese cities, it is predicted that 50,000 skyscrapers (+30 stories) will be built – the equivalent of 2 Chicago’s every year during this period.

In addition it’s important to consider the continued industrialisation of India which has a population of 1.2 billion people. Over the next decade the demand for steel is expected to soar in India and this will help to underpin the demand for resources such as iron ore.

The Western Australian Iron ore region is already beginning to see increasing activity by Indian companies in the resources sector and this trend is set to increase over the coming decade.

The Pilbara Region offers more than the average mining town, with astute positive property investors gaining the opportunity to participate in what will become the counties greatest resources era experienced to date.