Property Blog

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.

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 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.

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. 

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.

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.