Perth land prices most affordable nationwide – but lack of variety is our downfall

Samantha Reece, Director of PropertyESP recently attended the UDIA lunch with Colin Keane of Research 4 and then participated with the panel discussion alongside David Cresp (Urbis) and Gavin Hegney.

Certainly Colin’s presentation was somewhat telling of Perth’s current status for land sales.

While Perth peaked in 2013 with 1078 lot sales per calendar month.  In 2016 our underlying demand for land is now 637 lots per calendar month and actual sales are 478.

However there are a number of reasons why we are having this reduced success rate – and it is primarily to do with population.

First of all, Perth’s demand for land is driven predominantly by employment.  For every 100 people employed there is the direct correlation of 38 lot sales.  This ratio in Sydney is 17 lots to every 100 people and in Melbourne 26 lots.

To broaden our market we therefore need to consider a number of options – including net migration with emphasis on education, temporary work visas and holiday visas.

Nationally 56% of land sales are non-local demand.  In Perth it is 16%.  This means that 84% of our land purchasers are based locally.

Perth therefore needs to emphasise our market and attractive lifestyle in order to trigger interstate and foreign investors and certainly consideration needs to be given to delaying the State Government’s foreign buyer’s tax, as this could further reduce demand.

Tourism is also a key player with our land sales growth.

Nationally 50% of short term visas are for holidays – in WA our rate is 11%.  As Colin stated we need to grow our portfolio of tourism experiences and hence concepts such as gondolas connecting Elizabeth Quay and Kings Park no longer seem so farfetched.

Perth has well recognised tourism sites such as Rottnest Island, Kings Park, Elizabeth Quay and Swan Valley.  But now what we need to do is make these experiences deeper and more impressive so as to drive tourism spend to our state in preference to others.

Immigration also catalysts further population growth and so attracting students to WA for education purposes will undoubtedly attract their families.  The same can be said for immigration as a whole.

But there were two final gems of knowledge.

Firstly that WA has the cheapest land in the nation at an average price of $225,000 compared to Melbourne $272,000 and Sydney $423,000.

But while this is positive news, it is our stagnation in the small block sizes ie 450sqm that is killing the market and hence we also need variety of lot sizes to cater to all demographics.

And secondly, WA needs variety across a number of realms – our economic basis, our population and our supply of housing options.

Undoubtedly WA needs to grow its global handshake.

While Government has reduced the FHOG and other such stimulants, what its core focus should now be, is to attract and then retain people.

As such, while the Government may be initially focused on servicing WA in regards to Metronet etc, its top priority should be to work with private enterprise, on ways to boost WA and its profile.

Major events, stimulating tourism sites and golden education opportunities are the ingredients that will return WA to a stronger population market – and one that will help the economy overall.

Perth is experiencing a period of disruption – and that is going to definitely also going to affect the land sector.  The question is – are you prepared?

 

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Would you invest $100 into WA’s future?

So at PropertyESP we are big fans of infrastructure and especially have been advocating that Metronet becomes a key priority with the newly elected Labor Government.

However contrary to our views, a number of developers have been reticent to endorse Metronet as they believe the development sector will be the ones forced to contribute with the value capture model.

Always focused on solutions, Samantha Reece Director of PropertyESP invited John Del Dosso from Colliers to present at the Property Council Residential Committee about other options that were also available to fast track Metronet.

John advised the Committee that if the Government was to charge a $100 levy/household per year they would raise $72 million.  If that same levy was placed on commercial businesses then this would add another $72 million per annum.  If you were to consider this as a perpetuating levy than in 5 years the Government would have raised over $600 million.

This is the exact model that Jeff Kennett applied in Victoria and as a result leap frogged that state into a growth phase (http://www.theage.com.au/victoria/regrets-only-a-few-20120928-26qme.html).

John went on further to recommend that a toll be placed on the Northern Freeway – which at the moment is one of the fastest growing corridors.  His reasoning was that the businesses travelling to work in this locale would be the ones paying the toll and residents – wishing to avoid this fee – would be more likely to catch the train (which would mean that this transport system may in fact become sustainable).

Samantha thought that this was a brilliant concept – despite being somewhat radical.

But when she raised it with other colleagues, their first reaction was to state that they didn’t think they should be forced to donate $100 so that Ellenbrook could get the train.

This led Samantha to think – just when would we as ratepayers, start to believe and hence invest in our own state?

This “What’s in it for me” mentality is in fact preventing us as a State to bloom – but at the end of the day $2/ week is very little to give up, in order to gain so much.

Perth is definitely in a precarious position – destined to grow with the most recent infrastructure which has been created – but also facing potential failure if our mindset is not right.

What do you think – would you invest $100 a year to help Perth’s transport network grow?

PS the good news is that Mark McGowan announced the Federal financing commitment for Metronet in today’s press (http://www.perthnow.com.au/news/western-australia/23-billion-jobs-boost-for-wa/news-story/b53b044c6aa3848a4c809169a1ea7645)

Grass shoots for CBD office

Samantha Reece of PropertyESP attended the Property Council’s Office Breakfast for 2017 this week.

It was pleasing to note that the statistics and panellists were united in their views on the future for Perth’s CBD office vacancy rates.

While the overall vacancy rate is relatively high, in January the CBD showed its first positive sign of recovery in five years.

And while the current market has been touted as one of the worst, we were reminded that in the 1990s the office space vacancy peaked at 31%, considerably worse than the current 22.5% vacancy rate.

While the CBD is showing promising signs, the West Perth market in contrast is still experiencing some challenges with the vacancy rates growing by 3.1% since June 2016.

What is more interesting though is that the vacancy rates are worse for B, C and D grade properties, with vacancy rates peaking as high as 37.5%.  What we are seeing is a flight to quality as companies are able to secure Premium and A Grade at highly competitive prices.

The panellists also made it quite clear that now was the time to strike any deals for office leasing.

With major mining companies now removing their sublets from the market (30% reduction), the CBD is beginning to see a retraction in vacancy rates and a sense of optimism.

Predictions are that the vacancy rates will be at 17.6% in the CBD by 2020 with only one more building to come to market in the next four years.

There is a sense that by 2021 Prime office vacancy will be at 13.8% while secondary stock will be more like 23.6%.

With 20 major office refurbishments already in the pipeline and the proposed World Trade Centre, the face of Perth is about to undergo a transformation which will shape our City for the next 15-20 years.

And while mining has come off the boil somewhat, the CBD is now becoming the preferred location for second tier mining companies, legal and accounting firms who are relocating from the suburbs and, alas, West Perth.

There was a concession as well that the core investment that the State Government has made over the last 5-6 years with Elizabeth Quay, Waterbank and Northbridge Link, has set the City up for expansion in all these directions.

Perth is evolving and is now home to global companies such as Woodside, BHP, Wesfarmers and the soon World Trade Centre – and that is a fabulous advancement!

We keep talking about an era of disruption and we have certainly witnessed that on the global political level.  In regards to Perth, now is definitely the time to hang on, but also to think outside the box.

Old office will undergo upgrades, there will be an influx of workers into the CBD and perhaps West Perth will become more residential based?

Regardless – now is the ideal time for action!

2016 in review – commentary from Managing Director Samantha Reece

Well true to its predictions, 2016 did show some green shoots in Perth’s property recovery.

I remember hosting the 2016 Property Council Outlook lunch in February, where experts such as Paige Walker and Lloyd Jenkins stated that they felt that we had hit the bottom of the market and we were in a period of stabilisation.

And since then we have had these claims reconfirmed by the likes of Warwick Hemsley and REIWA President Hayden Groves.

As Lloyd also predicted, education has come to the fore with Curtin University’s plans to house 20,000 students in its own dedicated city well under way.

And the hospitality and retail sectors are also now playing a more pronounced role in the state’s economy.

The construction of 5 star hotels such as the Ritz Carlton, the 50,000sqm expansion of Carousel Shopping Centre and the $250 million Kings Square redevelopment all spell positive outcomes for Perth.

Add to this the construction of Perth Stadium, the Swan River Pedestrian Bridge and the train line to Perth Airport and on to Forrestfield, and I am beginning to wonder what else we need to see to demonstrate that Perth is far from faltering.

We have several precincts also undergoing revitalisation including Scarborough, Canning Bridge, Murdoch and Canning City Centre which will densify the CBD ring and apartment living.

When you consider all these developments, it is quite evident that Perth is going through a period of disruption and, despite what some may protest, this is a good thing.

At PropertyESP, we have seen some areas such as Fremantle, Scarborough and The Springs hold their own and even grow in property value over the past five years. And where there are improvements to infrastructure, our research shows that there are positive flow on effects to property values.

And as we stare ahead to 2017 we can expect to see some interesting twists, with of course the State Election in March.  Any change in government will be followed by a period of adjustment, with major projects in the pipeline of works, the legacy of the Barnett Government will continue for several years yet regardless of the election outcome.

Despite what faction you may favour, it is clear that Perth needs this wave of investment to continue and the injection by the State Government to date of Elizabeth Quay, Northbridge Link and Perth Stadium has given the private sector the confidence to also invest and that has been a major sustaining factor to our ability to ride out the mining downturn with some robustness.

So as we say adieu to 2016 – we have to do so with some mixed feelings.  We have seen some green shoots but other sectors such as the office sector are certainly feeling the pinch.

But as they say – no pain – no gain?

And so maybe these tough times in the office sector will spur some other investment wave?

Regardless, I am looking forward to 2017 and the ongoing evolution of Perth!

To all our readers and their families – may you celebrate the conclusion of 2016 with great gusto! Regards the team at PropertyESP.

Dare to change

PropertyESP attended the Committee for Perth lunch last week which was delving into the topic of density.

The guest speakers were Emma Booth from North Sydney Council and Associate Professor Julian Bolleter from the Australian Urban Design Research Centre at The University of Western Australia.

North Sydney Council has just undertaken a significant town planning exercise to commence urban renewal in St Leonards, which is just a ten minute train ride from Sydney CBD.  Currently the St Leonards area has a mix of high rise options ranging from 2 through to 16 storeys.

I thought one of the most interesting points raised by Ms Booth was that the Council had been so fearful of community backlash over density during the 1980/1990’s that the area in fact had stood still, to the point that the current community perception was that this locale was slightly dirty and dull.

When a neighbouring council approved a 34 storey redevelopment on the St Leonards boundary, this catalysed the Council into action and they identified potential sites for renewal which were outdated and felt to be an eyesore.

The resulting urban rejuvenation identified 3ha of land and the Council took a bold step by agreeing to a design which saw the infill start at 3-6 storeys before then stepping up to 12-16 storeys and then finally 18-40 storeys.

The Council was keen to ensure that these developments were a mix of residential and commercial so there would be sufficient population to sustain the businesses.

In conjunction with this increased density, the Council undertook to upgrade parks and community infrastructure, and introduce other elements such as innovation hubs and day care centres.

There is no doubt that there were many WA Councils in the room hanging onto Ms Booth’s words because they too are about to undergo urban rejuvenation as a result of Colin Barnett’s mandate.

And we can all identify areas, such as Scarborough, that are long overdue for urban rejuvenation but which have stood still because of the fear of community backlash.

Infill is part of WA’s future – and at some stage we are going to have to be bold about how we move forward otherwise our communities will turn on us – in part because they feel their areas are outdated and dull!

As the saying goes, you can’t make an omelette without breaking some eggs.  The question is – are our Councils or Government prepared to get in the kitchen and start cooking?

Perth now steps into new era

PropertyESP attended the Property Council lunch with The Lord Mayor Scaffidi this week where the topic of discussion was the newly introduced City of Perth Act.

Despite the lack of direction with Council amalgamations, it is pleasing to see that the City of Perth has at least been able to place itself strategically.

The City of Perth now includes UWA, QEII Medical Centre and Royal Perth Yacht Club, providing the City with the opportunity to develop a Medical Research Campus on par with the Texas Hospital Campus (which includes 21 specialist hospitals).

The Mayor also spoke about strengthening relations with Sister Cities as part of a tourism strategy and the desire to attract campuses such as the Curtin Business School to the CBD. The recent LNG 18 Conference attracted 3500 delegates and it is these kinds of events that WA needs to continue to secure.

It was also recognised by the panel that most uni students now prefer to live in the City rather than on campus and this evolving trend will provide increased opportunities for business.  With this in mind the Mayor is keen to promote Perth first and then education second- in order to further build this economic base.

Attracting overseas students no doubt also attracts their families and it is this leverage that both the Mayor and Premier wish to maximise in the near future.

The panel also discussed that with Perth office rents at highly attractive rates, there was a movement of businesses from the suburbs into the City.  This flight to quality will undoubtedly have a trickle-down effect for other office sectors.

The Mayor also emphasised the need to increase the population within the CBD to attract overseas businesses that were seeking a critical vitality.   Eight of the nine sites at Elizabeth Quay have been taken up and this will further add to the new infrastructure investment that we have witnessed over the last couple of years.

There is a sense of purpose and plan with the City and this is further echoed by the current Government.

We at PropertyESP are hopeful that with the focus on the same outcomes, that this transition and vision will in fact become a reality for Perth and greater WA.

The Premier has a vision for WA

Samantha Reece of PropertyESP attended the Premier’s lunch last week with the UDIA and it was clear from the outset that Colin Barnett is definitely on the campaign trail 12 months out from WA’s next State Election.

Appearing both frank and succinct, the Premier reminded the audience that the State had just come out of an unprecedented period, which had allowed Perth to bloom.   He talked about the gold rush in the 1890’s and post war construction of Japan in the 1960’s and now the 2000’s which had created the State that we live in today.

And as Barnett reiterated, Perth has now become a vibrant city with the Perth Link, Elizabeth Quay as well as Brookfield Plaza, the State Treasury Building and the St George’s Cathedral precinct.

But with WA coming out of that boom, it is now time to consider new areas of opportunity.

As would be expected, tourism, agriculture and science were the three areas that the Liberals will be focused on as they head into the next election and beyond.

But as Barnett stated, there is now a focus on making Perth even more liveable and that can primarily be achieved by increasing density.

In a bold move, he stated that Donna Faragher’s first role as the newly appointed Planning Minister would be to visit all 29 metropolitan LGA’s and ask them to identify locations for high density and if the LGA did not comply, then the State Government would mandate locations.

The Premier also indicated that there was quite a strong focus on relocating Government departments to the outer suburbs, including Joondalup, Fremantle, and Cockburn, to assist these areas with their economic growth.

And he spoke about capitalising on the location of QE2 to UWA by creating a centre of innovation on par with the Texas Medical Centre.

However, next on the Government’s hit list is public transport and the Premier gave an indication that the contracts for the underground rail to the airport and Forrestfield would be signed off in the next couple of weeks.

It is quite clear through these kinds of actions that infrastructure within greenfields development is certainly not on the Government’s priority list.

The Premier also spoke about expanding tourism opportunities in Kalgoorlie, Albany, Bunbury and the Coral Coastline.

And he indicated that the State Government would be happy to consider abolishing stamp duty and instead increase personal and company taxes by 1%.

There is no doubt that the current Government has hit some home runs in the past eight years, delivering a suite of new experiences to Perth which has transformed our everyday lives.

In the post boom economy, it is fitting to remind ourselves that WA has already received tangible benefits from those years of economic growth. But as we head into the future, the State still needs a plan to meet the needs of our growing state.  The Premier has shared his vision for that future.

The next 12 months will certainly be an interesting time for the State in the run up to the election, and we at PropertyESP will be watching avidly!