In Western Australia’s turbo-charged economy, the property sector has been a standout performer, across the board – but the huge rises in values are not always good news.
In Western Australia’s turbo-charged economy, the property sector has been a standout performer, across the board – but the huge rises in values are not always good news.
During the past two years, the industry has been beset by a number of problems – land releases have dried up, affordability has become a major political issue, office vacancies have plummeted, skilled labour has gone north, building costs have multiplied, and new bureaucratic obstacles have arisen.
But, markets being markets, demand and supply try to find an equilibrium – which is being revealed in different ways across the property spectrum.
Speaking at a recent WA Business News boardroom forum, land developer Nigel Satterley said he believed the residential market had entered a consolidation phase, where listings were returning to more normal levels and buyers were emerging in search of good deals.
“The residential property boom is over in my opinion, but the fundamentals are sound,” said the chief executive of Satterley Property Group, which claims to develop more than 25 per cent of all new residential lots in Perth.
“Clearly it’s a buyer’s market and in most cases, buying existing property represents a more affordable option than buying new; affordability is an issue, but it will ease a bit.”
Mr Satterley said in many areas there was an oversupply of established properties on the market, which had led to a price correction of between 10 and 15 per cent.
“My agents are saying they are listing two properties for every one sale. The market is looking for high-quality product at good value, and now they can compare that value,” he said.
Nowhere is the word ‘value’ more subjective than in Perth’s commercial office sector, where vacancy levels have fallen to a 25-year low of 0.7 per cent in the CBD and 0.4 per cent in West Perth, translating to just 10,000 square metres of total space available.
The vacancy crunch has rewritten Perth’s leasing rulebook, blurring rent levels across different grades of stock and attracting premium rates of $650/sq m net.
‘Expect even higher’ was the warning from the CBD landlords at the roundtable.
Perron Group general manager Ian Armstrong said he had never witnessed a landlords’ market in Perth and was confident the market conditions would change little over the next few years.
The Property Council of Australia WA president believed commercial yields would continue to tighten because of the amount of money in the state chasing a home in property.
“The office market is going to be pretty tight for three years until a whole new load of stock comes on,” Mr Armstrong said.
“What’s happened now is the differentiation between A-grade and C-grade. While everything is going along smoothly, people are viewing lesser grade property as being as risk free as prime grade. That’s just not the case.”
Pivot Group chairman Peter Laurance said WA’s commercial market was experiencing the greatest boom he had seen in 40 years.
“When people say ‘you were lucky to get $600/sq m,’ I tell them I’ve been waiting 40 years; it’s a landlord’s dream,” he said.
The commercial developer is behind one of Perth’s largest retail and office towers, the $300 million Century City, under construction between St Georges Terrace and the Hay Street Mall.
Mr Laurance said the company last year foresaw some of the bottlenecks now plaguing the Perth construction scene, and brought in two cranes from Germany in preparation.
Pivot Group and partner ISPT also brokered a deal with construction giant Multiplex in November last year to work exclusively on Century City for a certain period.
“We share some of the problems that the whole state is suffering from, like a shortage of trades people, material supplies, equipment and labour,” Mr Laurance said.
“We made sure that Multiplex signed a contract that they would not do 140 William Street, Raine Square, and not commence development of City Square whilst they were on our project, as there’s just not enough people to go around.”
In WA’s regional centres, the challenge of finding builders and delivering projects on time is even more acute, according to Centro Property Group regional manager of WA, Bruce McCully.
The retail investment and development group owns and manages 18 shopping centres in WA, including one in Karratha.
“The north-west has taken a lot of the builders out of the market. When we go out to tender, we get very few back,” Mr McCully said.
“Yes, housing is happening, but you need infrastructure to actually support the population. The costs that are being generated in Karratha for us to operate a convenient facility for residents are basically out of control.”
Finding cleaners, security guards, maintenance staff, and delivery drivers, in particular, was proving so difficult that retailers had to pick up their own stock from the town depot, Mr McCully said.
Urban Development Institute of WA executive director Debra Goostrey said with the growth of fly-in-fly-out operations in the north-west, it was not just a case of local pressure on infrastructure.
“With the mining industry conducting more fly-in-fly-out from Geraldton and other places, it’s not just (local) demand, it’s the mining industry that’s adding to it as well,” she said.
LandCorp chief executive Ross Holt suggested the issue of land supply and infrastructure provision was made even more complex by the shortage of builders and places for them to live.
“The mining sector alone is forecasting 40,000 new jobs between 2005 and 2015, and that’s not counting the oil and gas sector, which will be a huge generator as well. A lot of people will live in Perth and a lot will live in the regions,” Mr Holt said.
“There is still very much a land shortage situation in regional centres, particularly in the north which we’re working incredibly hard to try to resolve.”
And with land and labour shortages comes higher prices.
Mr Satterley said the cost of living in regional areas often acted as a deterrent to potential permanent workers.
“The cost of land in the South West is Perth plus 25 per cent, Geraldton it’s plus 35 per cent and Broome it’s plus 60 per cent. And as consumers know, if you’re living in those areas, it costs 10 to 15 per cent more to run your home, petrol, food and items. So that’s a real issue for WA,” he said.
The vacuum of workers created by the resources sector in WA was a repeat theme raised by several of those at the forum, along with the perceived inefficiencies of local and state government planning regimes and the impact of the ageing baby boomer generation on housing stock.
While some believed the state planning system, while onerous, was just the nature of the beast, others called for reform of the approvals process by merging planning and environmental approvals into one clear system.
Port Bouvard Ltd chief executive Ross Neumann said the approvals process had to be streamlined and made clearer for the sake of agencies and developers.
“There should be clearer guidelines both from a planning perspective and an environmental perspective at a state level. What about 40 boxes to tick?”
Mr Satterley suggested environmental and planning processes must be combined and local and state government reviews of applications held in a timely manner.
“If the applications passed on to the Department of Planning and Infrastructure are not professional, then they must automatically be sent back, rather than be held back,” he said.
Finding an easier way through, according to Mr Neumann, could be found in the accreditation of experienced developers by the government.
“I say, as professional developers, if we have all the boxes ticked we should go straight through the system. We all know that the johnny come latelys who’ve got no experience and get through with their five acres and yet we get held up for years. We get zip out there and we should get credit for it,” Mr Neumann said.
Aside from accreditation, Ms Goostrey said reform of the planning system also had to involve a more consistent approach to planning between local, state and federal governments.
“We need to make sure that this levelling out in the market does not disguise the fact that we need substantial reform in the approvals process,” she said.
“This is about bringing together planning and environment, and different levels of local, state, and federal government so we don’t have reporting three ways on the same issue.”
