WA will weather 2016 and succeed

Samantha Reece attended the Property Council’s Australian Property Index breakfast held at Lavan Legal’s offices on Thursday.

Speaker Anthony De Francesco of MSCI spoke about the overall Australian market before then breaking down to WA on the basis of residential, retail, industrial, commercial, healthcare and tourism growth.

What was interesting was that from December 2014 – December 2015 all these sectors posted growth across Australia.

In particular Anthony spoke about the increase in overseas investors that were fuelling large asset purchases. He explained that it was Australia’s yield plus the cost of capital, which all contributed towards ongoing overseas investment.

However, looking at a state by state analysis it is clear that WA and QLD are tailing the other states and in particular NSW and Victoria. But it was also noted that just two years ago, it was the reverse.

When the rest of the States were experiencing a GFC – WA was not – but our shortfall was that we didn’t highlight this fact and hence create a mini boom, as the likes of which we have just witnessed in Sydney.

In the commercial sectors Perth is certainly suffering an oversupply. With Prime CBD sites we are seeing vacancy rates sitting at 17% when the average is 7% and vacancies for Secondary CBD sites are sitting at 22% when the long term average is 12%.

However on the upside – the retail sector certainly is showing signs of growth in WA and that is because for so long there have been caps on floor sqm and these are now lifting. As a result the retail sector is playing catch up with the residential population growth we have witnessed over the last 4-5 years. And this population growth is anticipated to continue – albeit at a slower rate.

By far it is evident that residential property growth has significant flow on effects with other sectors – especially in retail with household and white goods – and in the East it is this activity which has propelled the rest of the economy.

In terms of what action can be taken here in WA – it simply is a matter of supply and demand.

As Anthony stated, if there is an oversupply of commercial offices, then consider turning some of these into residential. And that is the key for the next 12-18 months – being flexible so as to ride out this current cycle.

There are plenty of upsides to the WA market and this current status will allow for upgrading of old office stock, introduction of premium hotels (which should attract the overseas tourists) and an expansion of the overseas student market.

The fact is, private enterprise will need to invest, but this is in keeping with our current revitalisation and will certainly leverage Perth even further as a city which has finally found its vibrancy.

Perth and WA have benefited from unprecedented capital investment and now it is essential to keep this wave moving so as to counter balance the adjustments we are witnessing in the mining sector.

But if we all stay focused on action, then this should be an easy task to fulfil.

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Armadale Crime Hotspot Doesn’t Tell the Full Story

News like Armadale is Perth’s crime hot spot doesn’t really help the good people of Armadale when it comes to selling their property. Few people would want to buy in “the burglary capital of the area”.

But annual crime statistics do not tell the full story. In fact, it’s a little like comparing the annual road toll for Australia and the USA. We know there are many more cars on the road in the USA (after all, their population is much larger than ours), so we expect that they would have more car accidents. But you can’t draw the conclusion as a result, that it’s safer to drive on the road in Australia.

Perth’s crime hotspots included the suburbs of Armadale, Rockingham and Mandurah (based on data recently released by WA Police Force). These places also have a number of other things in common. They are all “regional centres”. They all have shopping centres / retail precincts. They also all have entertainment precincts. Both of these draw in people from surrounding areas which can influence the volume and types of crimes. And they also have reasonably-sized populations.

A fairer way to look at the crime statistics is to look at them on a per 1000 basis – per 1000 people, per 1000 dwellings, per 1000 cars.

Now the most accurate figures we have for all of these are almost five years old. And it’s quite likely that they have increased since the 2011 Census. But as this is a largely academic exercise, we’ll use the information we have to hand.

Assaults are carried out on people. 300 assaults a year looks very different in a suburb with a population of 10,000 compared to one where the population is 1000. The difference is a ratio of 30 assaults per 1000 people compared to 300 assaults per 1000 people. Suddenly, the smaller town doesn’t look as safe.

Armadale’s population of 12,800 back in 2011 gives us an incident of assaults of 44 per 1000 people. Rockingham and Mandurah had fewer assaults than Armadale, but Rockingham had the largest population of the three suburbs, indicating the incidence of assaults as 22 per 1000 people whilst Mandurah, with its much smaller population had a much higher incidence of assaults than both suburbs. Being regional centres, unfortunately a number of the assault victims could well include visitors to the retail and entertainment precincts.

Home burglaries are committed on dwellings. So the total number of home burglaries needs to be factored against the number of dwellings. Again, our Census figures are a little out of date, but these suburbs are fairly well established so the number of dwellings shouldn’t be too different to what there is today.

Armadale does indeed figure high on this measure. The 394 home burglaries factored against the 5800 dwellings gives an incidence of 67 burglaries per thousand dwellings. That is higher than Rockingham and Mandurah, but lower than other suburbs that did not rate a mention. And whilst Peppermint Grove was touted as one of the safest suburbs – only 24 home burglaries – at a rate of 41 per thousand dwellings you’re more likely to get burgled in Peppermint Grove than in Rockingham.

Back to our opening argument – that crime statistics can have an impact on the property market. Thankfully, most people don’t place this foremost in their mind when selecting where to live. And people choosing a regional centre or an inner city location do so knowing that there will be some negatives alongside the positives.

However, when reviewing crime statistics, they really do need to be looked at through the lens of incidence per thousand … people, or dwellings, or cars (for car thefts) … and grouped by types of location (regional centre, inner city, suburb, etc.).

If you are now faced with this negative perception due to the recent reporting from the WA Police, then maybe rephrasing this data, as we have done above may assist your cause. If you are interested in discussing this matter further than feel free to contact PropertyESP on info@propertyesp.com.au.

2016 Outlook lunch focuses on true opportunities

At the 2016 Property Council Outlook lunch that Samantha Reece moderated last week, our expert panel had some true words of wisdom.

Paige Walker, Residential Development Director for Mirvac, stated that the company was seeing a steady sales pattern and while the volume wasn’t overly high, it was at least consistent. She believed that 2016 was a year of stabilisation and normalisation and that we could expect to see green shoots by mid-2017.

Lloyd Jenkins, Senior Managing Director for CBRE, was also optimistic about the apartment market stating that the tightening of availability of greenfields land would create a stronger demand for higher density living. This coupled, with the ability for the universities to now directly engage with Asian based communities to entice students to WA, would also have a positive flow on effect, with overseas families tending to buy in WA so that they could visit their children as needed.

The office specialists, which included John Williams, Managing Director JLL; Imran Mohiuddin, State Chief Executive Officer Colliers; and John Corbett, Managing Director Knight Frank, all believed that now was the time to buy office and commercial properties, many at below replacement cost.

John Corbett cited the case of selling an office premise to a Singaporean buyer for $20 million in the 1990’s which was now worth $200 million. But as they all surmised, you needed to do your homework and pounce when the chance presented itself.

Finally, Jim Tsagalis Managing Director for Lease Equity stated that while we may have seen long standing chains such as Laura Ashley and Dick Smith fall over in recent times, he was aware that there were a number of European chains, including Aldi, who were keen to enter the WA market. The changes to deregulation had certainly hurt the mum and dad operators, but the bigger chains were embracing this new era with the introduction of self-serve checkouts, etc.

Overall, the panellists believed that the industry had seen far worse – and while there had been some adjustments with the mining sector, which had undoubtedly had its impact, Perth and WA needed to undergo a period of normalisation so that the market could once again become more affordable.

The consensus was that 2016 would be a tough year – but that meant having to be innovative and hard working – and we at PropertyESP have no doubt that we have all faced this challenge in the past and met it head on.

As the moderator, Samantha really enjoyed the dialogue at the lunch and came away feeling that there definitely was light at the end of the tunnel.

What’s your thoughts for 2016? We would be interested to hear your predictions!

Sales success will lead 2016

We have heard consistently that 2016 is the year where the WA property market will stabilise and normalise – which translates to the fact that we are going to have to work that bit harder to achieve our sales targets.

PropertyESP often conducts phantom shops for our clients, because no matter how great your marketing strategy is, if your sale’s people can’t convert the buyers when they come in the door – the marketing spend is simply a waste of money.

Typically there are a number of poor practises that sales people employ that costs them the sale.

Firstly, I have seen some sales people show a total lack of interest in the incoming buyers.  Some have been so incompetent that they have stayed behind their desk and referred the buyers to the sales list without making any effort to engage in conversation.

Secondly, some sales people can be too scared to ask the tough questions such as:

  • So where else have you looked?
  • What do you like about our estate/property over the others?
  • What budget do you have in mind?
  • What’s stopping you from buying today?

Next a high percentage of sales people forget to brag about their project.  If your project or developer has some strong benefits then it is up to the sales person to sell these! But they also have to be different and unique, especially in highly competitive locations.

Lastly, very few of the sales people who I have phantom shopped actually ask for the sale.  They often let the prospect walk out the door armed with brochures galore – but they haven’t asked the vital question “So can you see yourself living here?”

The sales effort also shouldn’t end there.  Once the prospect has left the sales office, your team still need to follow up the prospect and maintain regular contact while they are still in the market.

I recently did an audit of a client’s sales list and determined that one third of buyers where no longer actively looking, one third had bought somewhere else and one third were still actively looking.  This meant that potentially out of every 100 registered leads, there were 60 who could still be converted.  Even if you only achieved a 50% success rate – in this market that would be a significant outcome.

If you believe that something is amiss with your sales team then contact PropertyESP on info@propertyesp.com.au and let us determine where the issues lay.  Once you identify the problem you can then work towards solving it!

So what is the outlook for 2016?

Many of you will be aware that Samantha Reece is moderating the 2016 Property Council Outlook Lunch on 19th February.

This should be an interesting session dealing with office, retail, industrial and residential.

2016 has already started with a mixed bag of emotions, with some banks predicting a 3-5% property price adjustment and even going as far as to use the word “recession.” On the other hand we are also hearing from some sectors of the property industry that sales have started well in 2016 (compared to YTD) while others are predicting this will be a year of stabilisation.

We recently received the latest edition of the Committee for Perth fact sheet and as always this does provide a great deal of clarity.

Sure in 2014/2015 the mining sector shed 12,900 jobs but our employment rate still grew 1.1%.

And while Western Australia has the fastest growing economy, it is the ranking on business investment (which was down by 12.3%) and unemployment (now at 6.3%) which appears to be our downfall. Overall WA was ranked 5th nationally by CommSec’s State of State Report.

And while population growth in 2013/14 fell from 2.6% to 1.9% it is still expected to recover to 2.2% in 2017/18.

But regardless of these stats, the State still accounted for 26% of Australia’s business investment in 2014-15. And furthermore in November 2015, WA accounted for 56% of the value of Australia’s resource projects under construction or committed, according to the Office of the Chief Economist.

And in September 2015, there was $171 billion worth of resource projects under construction or committed in Western Australia and a further $110.4 billion under consideration, according to the Western Australia Department of Mines and Petroleum.

This in turn is matched with $24 billion of State Government investment which includes Perth Stadium, Perth City Link, Elizabeth Quay and Perth Children’s Hospital, to name just a few.

However what is most concerning is that across a range of goods, Perth is still the most expensive city in Australia and New Zealand, ranking alongside Tokyo, New York and Paris in overall prices.

With the mining sector certainly reflecting a significant adjustment in 2014/15, WA has followed suit and it just demonstrates how lax we have been, as a state, to actually utilise the boom time to grow other industries so that we are more sustainable.

But this also indicates that WA is going to have to focus on business investment and think outside of the box in order to leverage ourselves into a more positive economic position over the forthcoming 12 months.

There are certainly still plenty of positive signs, but take heed, if you continue to do business as usual – despite these indicators – you will undoubtedly suffer. However as with all challenges, often companies that are innovative come to the fore and we are seeing that on a daily basis.

There is no doubt that this will be the year to invest, and as our data shows if you choose close to a major piece of infrastructure your capital returns will defy the overall Perth median – and let’s face it, there are plenty of infrastructure projects to choose from thanks to State Government and private investment.

Perth is evolving and as they say – no pain no gain. Just make sure that you are prepared to maximise on these changing economic conditions so that you can be ahead of the pack!

For a full copy of the Committee for Perth fact sheet click here: https://www.committeeforperth.com.au/assets/documents/FACT-Sheet-8-Key-Facts-About-Perth-and-WA-February-2016.pdf

NIMBY needs to be shelved

It is with great interest and dismay that we have watched the evolution of the South Perth planning laws over the past few months.

As many of you are aware, the Council, after many years of public consultation, waived the height restrictions in 2013 which gave way to a number of high profile projects proceeding, including the Civic Heart precinct.

But now with lobbying efforts of local residents the Council is reneging on this agreement and are looking to scale back these developments by 15% which will reflect 1000 apartments and $240 million of potential investment.

Why? The pro-lobby group say it’s because current apartment owners don’t want to lose their views and while the anti-development group denies this claim – what is very accurate is that this is a true case of NIMBY (Not In My Back Yard).

The fact is – the development proposed for South Perth is long overdue and with the high take up rate, demonstrates that there is pent up demand for new living opportunities in this suburb.

But once again we are faced with the 1% who say nay and because no-one else is ranting and raving – this is the only voice that Council hears.

I remember when we worked on the Gidgegannup project, which was a highly contentious land development, that there was the same level of resistance which then influenced the City of Swan.

But after two years of consultation, when the matter went to Council for planning approval – we had uncovered the “silent majority” who were prepared to be vocal in their support and once the Councillors were aware of this sentiment, they approved the development.

The fact is, most Councillors socialise in the suburb which they represent and can quite often be hounded or socially ostracised if they endorse projects that their peers feel are not in keeping with their area.

And that is the issue. These Councillors focus on what is good for them and not necessarily their City/Town.

At the end of the day you want to encourage investment in your locale. This generates a higher level of population, greater economic activity and greater prosperity all round. Let’s face it South Perth really does need a rejuvenation.

But despite lobby groups efforts, what they effectively need to do is ensure that the positive voice outweighs the negative and this can only be done by engaging and motivating these residents to be vocal, despite the social repercussions.

I for one hope that the City of South Perth understands that their initial decision, while bold, was appropriate and will continue in the same vein. Perth is moving into a new era and if you are not on board you will undoubtedly miss out!

For more news on this story log onto http://www.domain.com.au/news/antihighrise-lobby-will-derail-south-perth-train-station-prodevelopers-say-20160130-gmhf4p/

 

What is the optimum block size for WA for 2016?

We are hearing around the market that Perth’s lot sizes are growing smaller and smaller and there is even talk now of microlots at just 80sqm.

We know for a fact that these smaller lots are not everyone’s cup of tea and they have to be applied in the correct context.

Several years ago our team was appointed by a developer in the Baldivis area, because their 500sqm lots (and smaller) were not selling, despite numerous marketing efforts.

Once we had conducted the research we understood the reasons why.

It appeared that the buyers looking to buy in Baldivis, perceived the area as a rural setting and they did not believe that 500sqm blocks were fitting for this location.

Once the developer understood the fine line between block size and the buyer’s budget, they released another stage of larger lots and these sold as soon as they hit the market.

In this competitive setting you can no longer take the approach “build it and they will come”.

Nor can you have a plethora of small lots if all your competitors are also offering the same choice.

Rather, it is best to understand your buyers and then customise accordingly and the likelihood of then having stock on the market for a long time, is diminished.

The same principal can be applied to apartments and commercial precincts as well.

If you have lots sitting at the moment and you cannot move them – instead of reducing prices we recommend that you chat to your buyers – what they tell you may help in turning your release from a loss to a success.

If you would like to discuss this concept further then contact the team at PropertyESP on info@propertyesp.com.au.