Despite going through a rough patch, investors would be wise not to dismiss the pockets of potential in the WA market
For the first time since 1996, Moody’s Investors Service has stripped WA of its AAA credit rating, and the state now shares the same rating as Tasmania.
The rating downgrade was triggered by the rapidly falling iron ore prices, which have already plunged by 30% this year alone. This also follows Standard & Poor’s move to downgrade the state’s AAA credit rating last September.
Nevertheless, mining royalties are continuing to soar and are forecast to rise over the next four years as the state transitions from an investment boom to a production boom.
In fact, Colin Barnett’s government has been on a bit of a spending spree lately (thanks largely to the royalties), with billions spent on a new sports stadium, hospitals, schools and the city waterfront, and plans to build a $2bn airport railway.
In addition, the recent repeal of the mining tax has lifted sentiment in the resources sector amid falling iron ore prices and rising competition from other energy-rich countries. There are also a number of mining projects still underway which should help the state cope with its pressures, according to the latest Deloitte Access Economics Investment Monitor report. These include:
- the $9.5bn Roy Hill project
- Aquila’s $7.4bn West Pilbara project
- Fortescue’s $4bn Solomon Hub
Heading for oversupply?
As the mining boom continues to unwind at the same time as population growth slows, some pundits are starting to worry that the current rate of building construction may lead to an oversupply of apartments in Perth. There are a significant number of apartments being built, which were originally planned during healthier economic times and may not necessarily be taken up.
“The risk of oversupply in the foreseeable future by 2015–16 is a real possibility as new supply is completed but demand, particularly for rental stock, is falling as population growth slows,” says Stewart Darby, executive manager, research, of the Real Estate Institute of WA.
“This, in turn, will limit demand for rental property at a time when rental markets across WA are haemorrhaging.”
Looking elsewhere for jobs
The latest ABS figures show that WA’s unemployment rate has increased from 5% to 5.2% and that population growth peaked in September 2012. This might have something to do with job growth
slowing in the resources sector; however, over the coming years employment in other industries looks very promising.
Indeed, some 300,000 workers in WA will have to be found in farming, teaching and nursing over the next decade, according to a recent report by the Bankwest Curtin Economics Centre. The farming sector in particular is predicted to grow faster than the mining sector, which is credited to the rising demand for WA food products.
These new jobs are most likely to be filled predominantly by West Australians, rather than interstate or international migrants.
SUBURB TO WATCH
Subiaco: Slower growth offers buying opportunities
Subiaco, or Subi (as it’s affectionately known), is located just 3km from the Perth CBD, yet the leafy,
relaxed and safe vibe gives it a strong feel of suburbia as well, not to mention the fact that it’s just 10 minutes from the pristine Indian Ocean.
The dining and nightlife are regarded as some of the best in Perth, which is very attractive for young professionals. Further evidence of this is the thriving cafe culture along Rokeby Road.
Even though the median unit price of $625,000 is above the median of the general area, gross yields are still a healthy 5%, and there are also opportunities for growth. Indeed, it has been a few years since this suburb has seen much capital growth, but as the Perth market continues to respond well to low interest rates, Subiaco’s median unit prices should catch up.
The suburb is also popular with retirees and the elderly looking to downsize, as everything is within walking distance (particularly shops and health services) and public transport options to the Perth CBD are excellent.
For units, the best streets include Coral Tree Avenue, Rokeby Road and Price Street, which are close to the best of what Subiaco has to offer. Cheaper areas include Hensman Road, Subiaco Road and Subiaco Square Road. Stylish and spacious two-bedroom apartments on the vibrant and popular Rokeby Road – which are low-maintenance investments – can be picked up for less than $650,000.
