15 Sep 2016
With an end to the resources era new markets must be found or existing ones improved. Agribusiness and Asian engagement are both new avenues and real estate markets are not struggling as much as it might seem.
"I do think in 2017 or 2018 we'll say 2016 was the bottom of the market."
Graham Postma, MD, Savills Perth
The boom is dead; long live the boom.
Mill Point Road has one of the most gorgeous views of any Australian city, looking across the wide Swan River from South Perth to the city skyline. It’s a well-heeled area with a median house price of over $A1.1 million. Still, many apartment blocks have ‘For Rent’ signs out the front.
It is not just South Perth. Since the beginning of 2016 the tables have turned in favour of renters; prices are lower, landlords newly accommodating and real estate agents will actually phone you back (more than once, in fact, in my own case). Even last year these things were rare.
Real estate agents too busy to take calls are now eager to open any flat, any time. Some may even tell potential tenants it’s their market now and they can set their own terms for leases.
“[The slowdown] is more buoyant than previous declines,” Perth City Mayor Lisa Scaffidi told BlueNotes from the ninth floor of the Council House building at the edge of the CBD. “But you definitely notice the changes, like the ‘For Lease’ signs.”
Scaffidi, beleaguered as she has been this year, remains a strong cheerleader for Perth. The downturn is more like a reset, she says, a way for a fast-changing city to catch its breath (and hopefully realise $A7 lattes are not sustainable) as it regroups.
“The commodity price change has slowed projects down,” she says, but hotels and retail are doing well. Retail remains a stronger property sector than residential, which has seen a downturn. Aldi has recently opened three supermarkets. Of course a budget chain will do well in bad times.
Are these bad times?
ANZ, CBA and ME Bank have all made recent comment on Western Australia. None are particular glowing.
“Economic growth in Western Australia remains at a significantly below-trend pace. The main drag… has been the labour market, although the contributions from both the housing market and the household sector have also been relatively weak,” ANZ said in its Stateometer in August. In September, it was worse.
CBA’s recent State of the States report echoed that sentiment.
“Western Australia is now seventh and near the bottom of the Australian economic performance table. In two years the mining state has gone from first to seventh.”
“WA is third on retail trade and is middle-ranked on construction work [but] struggles on unemployment (last) and is ranked seventh on business investment, population growth, and housing finance.”
In August ME Bank released a report detailing both demographics across Australia and a breakdown of the states. It’s a laundry list of problems.
Briefly: WA has the highest job insecurity at 41 per cent; the state continued to report the lowest level of household financial comfort and has the lowest comfort with income levels and cash savings (save Tasmania) and comfort levels fell to a record low of 5.02 out of ten. Perth is also one of the few places where residential property prices did not continue to rise.
Perth and Darwin both recorded negative movements in property prices, with Perth down 5.6 per cent and the median house price $A490,000. Prices dropped another 0.9 per cent in July.
Once-sleepy Perth became horribly expensive quickly. There is even a Downfall parody detailing the prices and problems, from 2013’s boom times (“I paid $4.80 for a babycino!”).
There are reports some places were charging up to $A7 for a coffee. Rents were high enough to begin forcing residents out of the rental market and businesses out of the CBD. None of it seemed particularly sustainable.
Graham Postma, managing director of Savills Perth told BlueNotes the correction “has been more than anticipated.” But both he and Scaffidi believe these things are cyclical.
“I’ve been doing this 24 years and this is not the worst I’ve ever seen...if you take out the peaks and trough it’s a good new story across the board” Postma says.
“At the peak of the boom rents were unsustainable. It became very selective in terms of who could play in that market... a number of groups moved out of the CBD into the suburbs. They’re coming back into the CBD.”
This in turn can help attract better personnel to a more central location, Postma says, with more amenities including Perth’s first vertical high school in St George’s.
“We’re at the bottom right now,” he says. “I do think in 2017 or 2018 we'll say 2016 was the bottom of the market.” The short term outlook is not necessarily good, but the medium term one strong.
Another area after residential which has tailed off is the luxury or higher end of the market. Many of those spending up during the past few years have moved on elsewhere and those left are being more careful with money.
The cosmopolitan tastes which drove a revitalisation of the hospitality sector, from multi venue Brookfield Place to the fit out of the new Treasury building or even food truck events have had a more lasting impact.
The hospitality sector has had to “rebase their price points as there is not as much corporate spent” and they’ve had to be “more discerning in terms of what they’re offering to the market,” Postma says.
“You can't just dig stuff out of the ground and sell it for ludicrously high prices forever,” the BBC said last year it a story on Asia’s 2016 economic trends. It’s something senior economists like Ross Garnaut have been saying for some time (in his book-length lament Dog Days and elsewhere).
Commodities will continue to be one of WA’s main revenue streams for the short and medium term.
The Chamber of Commerce and Industry’s CEO Deidre Willmott says “the value of WA exports will continue to grow on the back of the resources sector” especially given 60 percent of the state’s economy comes from exports.
“As the sector continues to move into its operations phase, the volume and value of resources exports will continue to increase despite uncertainty in commodity prices,” she says. Might we dig agricultural goods from the ground instead?
The hope is the growing Asian economies and other Indian Ocean rim countries will give the state opportunities for export of goods and higher quality agricultural produce as food scares plague Asia and also services, the obvious ones being tourism and education. Western Australia does lag compared to the eastern states.
However given the issuing of Certificates of Origin (which prove goods’ origin and can provide tariff discounts to buyers outside Australia) issuing went up ten per cent last year there is proven increasing demand. Most of these are for mineral commodities and agricultural products.
Robert Sills of AsiaLink Business in Western Australia (headquartered at the University of Melbourne) told BlueNotes mining will continue to deliver export income to WA but future investment is likely to focus on sectors of a higher priority to our Asian neighbours.
“The major driver for China is food security which presents excellent opportunities for the WA agribusiness sector,” he says.
Whilst good news the problem is not one of supply but demand: it is too great, and good investment in infrastructure is needed before scalability becomes possible.
“WA is always likely to fulfil the role of niche supplier for premium food products rather than high volume staples,” Sills says.
One of those might be wines. Vasse Felix, one of Margaret River’s better known does well in China, as well as Vietnam, Cambodia and Laos.
One thing Western Australia (or at least sections of its policymakers and businesspeople) would like to sell the state on is its location: so close to Asia with an Asian timezone.
Sills says Asian investment has always been important to the state (rather than the idea the boom is a recent one of Chinese buying commodities or cattle farms).
“Following the conclusion of WWII Asia has become the second source of FDI in Australia,” he says. “Barely 12 years after the end of WWII, Australia’s wartime enemy Japan began to establish itself as major investor and proponent of the development of the WA’s iron ore assets in the Pilbara region.”
South Korea and China followed Japan, and Indian FDI is likely in the future.
Last year we wrote on whether Australia was really prepared for the Asian Century. The conclusion was hesitant: a bit, but could do better. Scaffidi certainly agrees.
“[Western Australians] share a time zone with 60 percent of the world’s population,” she says. “When we’re at business the rest of the world is [as well].”
“I don't think we're evolving policy at the rate we need to.”
There is some will to do, best illustrated by Perth’s USAsia Centre, part of the University of Western Australia. The Centre, only two years old, holds many events from discussions on the possibilities of Korean unification, to speeches by Bob Carr. Recently returned ambassador to the United States, Kim Beazley, is on the board of directors.
When ANU’s Asian programmes and studies are struggling (which we documented last year) it is good to see at least one institution engaging in discussion of Asia.
What does all of this say about Western Australia? Things right now are not great, but not as bleak as state rankings make out. The view from Mill Point Road is still pretty good. The cycle will turn.
Helen Clark is a freelance journalist and former Asian correspondent
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
15 Sep 2016
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