WA, a two sphere economy?

It’s fair to say the Western Australian property market is facing some pretty tough challenges right now even though there is renewed strength in the State’s economy.

We often hear the term ‘two-speed economy’ whereby the resources sector continues to flourish while other industries struggle.

Investors may well feel there are two spheres inside WA itself and these concerns stem from mining projects that fail to provide a broad flow-on effect to other sectors. The property market is one obvious area where this is not occurring.

If the mining and resources industries are doing so well then wouldn’t property, our major personal asset, reflect this? There is not one single factor but rather a number of related reasons that are driving the WA property cycle.

What we can say is that the market is currently still in the midst of a correction from liberal lending practices that overly stimulated the local market for a protracted period. The resulting post GFC fall out and the multiple government interventions into the market throughout both periods have also caused various market distortions. Right now we are going through a necessary period of stabilisation and realignment.

The good news is that this stabilisation is steadily occurring which is evidenced in the renewed activity by first home buyers, improvements in the rental market and positive activity from investors. Affordability is increasingly coming back to the property market which is a good thing. Stock levels currently outweigh demand but sellers are increasingly realising that price adjustment is a reality and if buying in the same period then it is all relative. Something positive is happening and it’s this positive economic force being driven by the mining industry which is continuing to build momentum and will progressively touch ground into the broader economy.

However, despite a lack lustre market place, opportunity is awaiting. The economic momentum being generated in the mining and resource sector will progressively begin to filter into the property market. Besides the shift in wealth into WA there will also be a considerable growth in population estimated at about 50,000 per annum. So despite immediate oversupply in the residential market right now, it is very likely we will see demand outweigh supply again in the medium term. Demand will increase, capital growth will adjust accordingly and rental returns will strengthen.

Another structural shift in the property market that will generate new opportunities is the concerted efforts by both industry and government in building property capacity in the major regional centres, especially Port Hedland and Karratha. Through the ‘Royalty for Regions’ scheme the WA Government has an ever increasing capacity to inject a lot of cash into infrastructure that will turn these areas into connected, meaningful and growing communities.

Banks have also shown more confidence in the WA property market after being very cautious in the sector for a long time. Lending criteria is becoming more favourable, and this is a key element in any positive change to the property cycle.

We are in a very unique position because we can literally see the positive fundamentals lining up for the future and although many projects are yet to fully ramp up, this is an ideal position to be in for a buyer. Right now, we have good value and choice in the market place, strong employment, growing population, massive economic build up with reasonable interest rates and increasingly favourable lending criteria. The time is ripe to focus on purchasing a home or investment.

The true impact of this next period are yet to be fully seen, but with WA being something of an economic powerhouse it seems it’s a sure thing. If you wait until everyone else is thinking of purchasing you will probably be too late to maximise your advantage.

My advice? Do the research and act with confidence ahead of the curve.