Hedland & Newman

What re-elected govt means for property investors in WAs mining towns

Liberal government restores stability for WA Property Investors

The re-election of the Liberal government in WA appears to have garnered a positive response from the resources industry, suggesting that it is both content with the level of support it has been given over the past four years and satisfied with the policies the coalition will carry into its new term.

With government support remaining solid for the resources industry and the regional economies that are critical to its operation, the re-election should also provide a sense of comfort and stability for property investors in WA’s northwest mining towns.

The government will maintain its most significant policy affecting the region, the $1.1 billion Pilbara Cities Initiative, which will continue to transform Karratha, Port Hedland and Newman into regional cities.  Numerous civil infrastructure, health and education projects have been completed with many still in the pipeline:

Port Hedland
The state government, council and private developers (in partnership with the government) have committed $1.1 billion in civil infrastructure projects ranging from the redevelopment of the airport and main highway to the new waste water plan. Community development projects include the revitalisation of the South Hedland town centre, multi-purpose recreation centre and aquatic centre.

Karratha
As part of the government’s plan to revitalise Karratha as the City of the North, it will benefit from a massive $771 million in civic infrastructure projects with two projects at Karratha Airport underway and a proposed new hospital.

Newman
Newman has $70 million in planned civil infrastructure projects such as major sports upgrades.

Although the Pilbara Cities Initiative aims to leverage private investment for the development of new residential dwellings, development is proving slow due to the lengthy planning and application process created by the government’s 2012 Building Act. With the ongoing undersupply of housing in the towns, demand remains high.

The government has also pledged an additional $20 million to the resources industry with funds to be allocated to a variety of programs focused on supporting the sustainable growth of the industry.

It remains committed to its $138million Exploration Incentive Scheme which encourages further exploration for minerals and petroleum in WA and will continue to support the development of the state’s uranium resources.  The undeveloped Kintyre uranium project in the Pilbara is one of the world’s largest uranium deposits.

The development of WA’s vast reserves of shale and tight gas, including the onshore development of Woodside’s Browse LNG plant in the Kimberly have also received strong government backing. Woodside will make a Final Investment Decision on the project by June and it will have a major impact on the northwest economy.  An onshore facility will open up significant opportunities for property investors in Derby and Broome.

Aside from this ongoing support for resources and regional infrastructure, one of the potentially most valuable policy developments for property investors to have come out of the pre-election campaign is the proposed change to the ‘granny flat’ legislation.  The government has committed to changing the residential design codes to allow any tenant – not just family, as is currently the case – to occupy granny flats.  It has also increased the allowable floor space from 60m2 to 70m2.

Normal planning requirements around setbacks and density will continue to apply but the change will give investors the flexibility to add a granny flat to their property and increase their rental yield, enabling them to generate hundreds of dollars more each week.

The addition of new policies such as this and the ongoing implementation and enhancement of existing policies focused on supporting mining town economies mean, at the very least, property investors can expect more of the same from their positive properties in WA’s northwest – excellent yields and good capital growth.

National Spotlight Falls on WA Property Market

Over the last several months there has been growing activity by Eastern States investors in the Western Australia property market.

These investors are now beginning to understand that on a national basis, Western Australia now offers some of the best rental returns and potential capital growth rates in Australia.

The growing confidence in the Western Australian property market was underlined by new figures produced by Australian Property Monitors. These figures revealed that during the December 2012 quarter, the median house price in Perth jumped by 2.5% which was the highest capital growth rate of any capital city in Australia except for Darwin.

It is also significant that Perth house prices jumped at a much faster rate than the national increase of 1.9% during this three month period.

This surge in Perth house prices recorded by Australia Property Monitors mirrors the latest figures produced by the Real Estate Institute of Western Australia which showed that the median house price in Perth rose by 3.3% during the December 2012 quarter.

Overall, Perth is now attracting media headlines as one of the property hotspots in Australia and as a result the value of house prices are expected to return to record levels within months.

Investors however should pose the question why are Perth house prices now beginning to surge?

The answer is quite simple – the WA economy is a mining economy and the Perth property market is now benefiting from the impact of the massive investment in the resources sector.

This impact is very apparent in suburbs surrounding Perth airport where there is now a huge demand for rental accommodation from fly-in fly-out workers with the consequence that property values in these suburbs are now beginning to surge.

While the potential capital growth of the Perth real estate market is beginning to impress investors on a national level, it is still being dwarfed by major mining towns in the Pilbara region.

For example, the latest REIWA figures show that in Newman, the median price of a home during 2012 surged by a massive 22.3% to $840,000. This was nearly four times the annual growth for the entire Perth property market during the same period.

Therefore, investors who are focusing on Western Australia during the coming year should understand that the overall economy is being driven by the resources sector and the best way to harness the maximum benefits from the resources boom is to invest as close as possible to the centres of mining activity – namely the major mining towns in the Pilbara.

These major mining towns such as Newman and Port Hedland continue to deliver investors double digit rental returns as well as the potential for very strong capital growth moving forward.