The mining boom ended not with a bang but a whimper. Since the peak in 2013, the prices of Australia’s key commodity exports declined gradually and finally bottom in 2016.
For Iron Ore, the worse looks to be over. The recovery in the Australian dollar confirms and its resilient performance post Covid reflect this however we do not expect a massive Chinese stimulus at pace we saw after the GFC.
The profitability of Rio Tinto, BHP and especially Fortescue Mineral has recovered marketly and the as result of the last crash the winnows, the future competitors were mostly been wiped out.
Perth is the heart of the Australian mining boom. It was where the idea of commodity super cycle started and where it unceremoniously dumped.
Property markets follows the performance of the business environment it is in. The Perth property market has been struggling since its peak in 2014 given it still is predominantly a mining town. The local economy was impacted severely from the end of mine and LNG construction and the job cuts that followed.
Before slow down experienced in 2017/18 in Sydney apartment market and Melbourne property markets. Perth was the only capital city in the last 10 years experienced a correction in house prices.
We think the boom in the house prices Sydney saw in the last 2 decade is over. The recent increase in supply and the drop off in students and immigration will have flow on impact on the property market. Rather than a sharp drop in prices Sydney will undergo similar slow fall in values overtime seen by Perth in post the mining boom years
The 2 charts below shows the struggles of the current market. We sourced the chart from Knight Frank Residential Research and REIWA.
Perth Property House Graph
Chart source: REIWA
The median house price in Perth experienced slow down throughout 2014 and it was only in 2015 that year on year change in property prices turned downwards. Apartments values are declining faster than houses due to the ability of bringing supply online easier than houses.
The year on year Perth house price fall did not stop before Covid.
This is a stark contrast to median Melbourne prices grew at the same time, albeit slower than Sydney.
We are cautiously optimistic on Perth going forward. We see the worst of the commodity slump to be over and big miners hesitant to commit to new projects in the current economic environment. As result we do not predict an upswing in the Perth market in the near future even as majority of job losses are over.
This is because the local economy will be hit again from a slow down in the broader Australian economy which is reaching its most challenging period in the last 30 years. The slowdown in employment growth and weak consumer confidence in other capital cities will continue to put pressure on the local market.
While prices are important driver for real estate transactions. Rent which ultimately determine the income for investment property is just as important for a majority of investors.
House and Apartment Vacancy
The graph shows the change in the median Perth house and apartment prices against vacancy over the last 3 years. The good news is it looks like vacancy look to be stabilizing as the fall in population and subsequent rebound look to absorb the oversupplied housing stock.
Depending which side of the ledger you site (landlord or renter), the fall in rents should be over for now.
Perth House Price Growth vs Other Capital Cities
The chart above shows the year on year house price increases for all of the Australian capital cities. It shows that Perth prior to the crisis has underpeformed the other major property markets.
An optimistic interpretation is any fall in perth house price is coming off a lower base. This could mean that any fall now as result of the current economic crisis will not be as much as the other capital cities.