Tucked away, some would say isolated, on Australia’s west coast — at the very southern tip no less — is Perth, the capital of the state of Western Australia. Nearly two million people live in the country’s fourth largest and perhaps prettiest city, but Perth is inexplicably left off major discussions about investing in Australia.
Like dozens of cities colonised by the British, Perth began its urban life as a settlement designed to beat the French (or the Dutch) to it, but soon became a boom town on the back of a gold rush, a predecessor of sorts to the city’s current economic fortunes. The port at Fremantle made it a key strategic location during the World War II. Now, like all of Australia’s major cities, Perth ranks among the most liveable in the world. The globe’s largest urban park is in Perth (Kings Park), there’s a strong self-perpetuating arts scene, excellent educational, transport and healthcare infrastructure and, of course, some pretty spectacular Indian Ocean beaches nearby. Perth is also the terminus of one or the world’s great train journeys.
According to statistics from the Real Estate Institute of Western Australia, third quarter numbers for 2012 put home values in metropolitan Perth at 2.2 percent above what they were a year ago, and rental rates up nearly 14 percent. Median house prices hovered around AU$500,000, with flats sitting around AU$400,000 (HK$4 million and $3.2 million respectively). As IP Global notes in its fourth quarter Property Barometer, resource-rich Western Australia is positioning Perth as a city primed for considerable growth. As the beating heart of the mining industry and a beneficiary of a strong broader economy in general, Perth’s residential property market will continue on an upward trajectory. IP Global research indicates apartment sale prices have risen almost 13 percent, and rents are up over 20 percent.
What is it that’s drawing investor attention to Perth ahead of perennial favourites like Sydney and Melbourne? As with most strong investment locations, those factors are symptoms of key fundamental issues. “[Between] 2008 and 2012, Perth’s labour force participation rate saw the biggest growth among major capital cities in the country, according to recently published State of Australian Cities 2012 report. Meanwhile, despite the considerable capital and rental growth in the property market, home prices in Perth are still more affordable compared with Sydney and Melbourne,” begins Tim Murphy, founder and CEO of IP Global. “Perth is the capital city and transport hub of Western Australia. We see growth potential in this city as a result of its strong economic fundamentals. The mining sector continues to underpin GDP and employment growth of the state and the capital city,” he notes.
General growth in Australia and massive development in India and China are certainly going a long way to keeping Australia’s mining industry a healthy one. And as Murphy pointed out, employment rates in Perth are steady, providing a market that always needs homes, the core factor of strong rental yields. Better still, “The strong growth of home prices and rentals has primarily been driven by a shortage in housing supply especially in the multi-family sector,” Murphy explains. “Perth is now the fourth fastest growing city with annual population growth of 2.4 percent over the last decade. This is well above Sydney’s, Melbourne’s and the national growth rate.” The city has vacancy rate well below Sydney or Melbourne’s (under 1 percent as of September 2012) to go along with that supply shortage. Taken together, despite a 20 percent bump in rental rates over the last year, there is still room to grow. “In the past three years, the percentage of new multi-family developments in Perth has been the lowest among all major capital cities … The market is likely to remain undersupplied in the immediate future whilst construction levels remain low. As a result, we expect rental growth to remain strong in this market whilst supply remains constrained,” Murphy sums up.
Perth and Australia both have suffered significant public relations disasters over the last few years. The public transit harassment of French tourists in Melbourne and the 2005 race riots make international headlines and leave a poor impression on tourists and investors regardless of the facts of the matter. Australia is one of the most tolerant countries in the world, but do black marks like these hurt burgeoning investment? “From an investor’s perspective, the income and capital growth potential from the market remain the most important factors to consider,” Murphy theorises. “While incidents like these make the news and might create some minor short term economic disruption for the tourism or retail industries in these cities, real estate investors should be focused on the long term macroeconomic outlook and the overall supply and demand trends that will affect the market over that time period, which in both cases are still very bullish.”