Compelling Reasons to Be Optimistic About the Perth Economy
PERTH, Western Australia – There are many compelling reasons to be optimistic about the Perth economy . Cut through the doom and gloom generated by the media, and some short term thinking commentators, and think about the medium and long-term potential of Perth as a growing city. Here are some major arguments.
Sustainable Mining Investment
Gone are the days of explosive wage growth and ridiculous beer price inflation. The boom phase of the mining era is over, for now. In 2015, its all about exports and less about capital expenditure, however, this is not necessarily bad news in the medium to long term for Perth.
BHP Billiton and Rio Tinto are still pumping out ship loads of new ore. Their strategy is to decimate the local Chinese miners, small local and international players and take market share – in fact according to the Wall Street Journal, it appears to be working. While the BHPs and Rios may become slimmer operations and some jobs will go, overall there will likely be sustainable growth in the mining sector.
China now has to import more than 80% of its iron ore – meaning the country must continue to rely on Australia’s cost efficient supplies.
Secondly, the big three world iron ore miners are bluffing when it comes to more supply, according to US iron ore expert, Cliffs Resources Chief Executive Lourenco Goncalves: “None of the three majors (BHP, Rio, Vale) can continue to support their massive capex needs without allowing the iron ore price to increase,” he told Fairfax this week.
With these reports in mind, the iron ore price is unlikely to tank beyond its current correction of about 50% – in fact iron ore may well be a sustainable business for years to come. Some jobs may be lost, but overall exports in iron ore and other minerals are likely to sit at sustainable levels for some time to come, (perhaps around $50-$60 per ton) underpinning realistic and sustainable growth for Perth’s mining sector and government coffers.
Perth Billionaire Jack Bendat put it perfectly in a recent interview with PerthNow: “The term ‘commodities crash’ is an over simplification of the temporary downturn. I don’t believe it. One must take a broader position of the economy rather than have a narrow perspective. We are being too negative and hard on ourselves. We must not let negativity creep in ”
A New Growth Phase in Property
While the growth in Perth property prices has been subdued in recent months, Perth is likely to see significant long-term capital growth within the coming years. Some of these reasons are outlined below. One of the greatest reasons is the demand for housing and the shortage of options for the people of Perth.
If you do own land in Perth, and have thought about starting a property development, the time to strike is when the market is in a lower gear. This is because it’s easier and cheaper to develop a property into a multi-home site during a lower period of growth and activity.
You’ll not only save money on your development (property development firms are going to look after you) but you’ll also likely to be better prepared once the market really starts to get going again, which is inevitable. In slower times, you’re more likely to experience greater customer service and attention from a builder. Long-term optimist are sure to generate significant opportunities before the market starts to grow again.
Perth Population Growth
Another compelling reason to be positive about the Perth economy – the city is seeing strong population growth, despite the mining boom being over.
From a domestic perspective, Perth is seeing a number of migrants from the rest of Australia (particular areas like Sydney and Melbourne which are more crowded and more costly than Perth), along with less fortunate areas of Australia like Tasmania and South Australia, where professional and blue collar jobs are more scarce and pay lower. Secondary schools in Western Australia are some of the very best in Australia, especially the private and independent schools in established suburbs.
Perth is also a destination of choice for many international immigrants, particularly well educated and wealthy immigrants from countries like the United Kingdom, China, Singapore, South Africa, New Zealand, Malaysia and India. Perth’s incredible lifestyle, health and education systems (top Universities in particular) are extremely attractive to overseas immigrants – especially those who discover the extremely high cost of living and property prices in Sydney and to a lesser extent Melbourne.
Oil and Gas Investment
Western Australia has in recent times been described as the new world capital of oil and gas- in fact by 2017 Australia is expected to produce 87Mt of LNG, ranking it above Qatar as the world’s leading LNG exporter. Perth is the home-hub of this activity valued at almost $100 billion per year in exports to Australia. Currently there is $177 billion in projections under construction or committed.
As our oil and gas industry booms as Asia develops and LNG becomes an attractive product ahead of nuclear and ‘dirty’ energy like coal. There has been literally hundreds of billions in investment in the LNG sector in particular – with many more discoveries and developments in the north-west of WA in the pipeline. This will drive the local jobs market and demand for property in Perth in the medium to longer term.
Both the Federal and State Governments have billions dedicated to infrastructure projects in and around Perth – some of these are already underway, like the new Perth Stadium, Elizabeth Quay. Other projects kicking off are the extension of Freeways and highways, new light rail, Perth airport and other local projects.
See the projects injecting life into Perth at ‘Get the Bigger Picture’
Asia & Long-Term Economic Opportunity in Perth
Perth is closer to Singapore than Canberra or Sydney.
Agriculture, energy, minerals, education, high end manufacturing, legal and financial sectors all offer lucrative potential for Perth’s economy in the long-term.
The fact Perth is so close to Asia – where there is a rising ‘super middle class’ of hungry consumers – means Western Australia is going to develop huge wealth and growth over the coming decades in all sectors.
Perth too is home to a growing class of technology entrepreneurs, with the next generation of export industry just waiting to explode – Perth has earned the nickname from some Venture Capitalists visiting from China and the US as ‘Silicon Beach.’
Perth will need more government and private sector policy and vision to build the next generation of industry, but with the right strategy and leadership, Perth has huge potential. Biotechnology and scientific research is also a huge area of growth potential for Perth.
The New Real Estate Economy
There’s going to be a lot of wealth generated from Perth property development in the years ahead, especially as young people and older Australians look to find property closer to essential services and entertainment.
“That’s why you are seeing, particularly in the CBD and other areas such as City of Belmont, increased inner-urban living, rather than what occurred in the 70s, 80s and 90s where people just went to a greenfield site up in the northwest corridor,” West Australian Planning Commission chairman Eric Lumsden told The Sunday Times last year.
Demand for homes in established areas is going to increase dramatically in coming years, as attitudes change and urban sprawl creates congestion and social issues in the outer suburbs. High-rise and low rise, high density property developments will continue to generate significant interest and wealth for investors and developers.
The Low Interest Rate Environment
There is significant economic activity being generated by the building and construction industry in Western Australia – thanks for housing demand, investors and low borrowing costs. In fact, according to some analysis, Perth’s property market is still undervalued at current borrowing rates.
With inflation low across the country, we’re going to see historically low interest rates for some time – spurring growth and investment in Perth’s economy.
Perth is attracting ongoing, and growing foreign investment in many areas, especially in real estate, infrastructure, finance and business from China, Japan, Malaysia, Singapore, Canada, the US, UK and South Africa. In fact, investment from China increased 75% in the last year alone.
In 2014-15 China overtook the United States as Australia’s biggest foreign investor.
According to a recent Foreign Investment Review Board Report, for the first time in 2014, China ($27.7 billion) was the largest source country for approved proposed investment in 2013‑14, overtaking the United States ($17.5 billion). Other major source countries of approved proposed investment in 2013‑14 were Canada ($15.4 billion), Malaysia ($7.2 billion) and Singapore ($7.1 billion).
Investment from a newly wealthy China is going to generate significant new job opportunities and growth in Perth for years to come.
This post was prepared for Ventura iD – Perth’s Property Development Specialists.