Perth looks up to Asian buyers as home prices drop

Bloomberg

As forest fires shrouded Singapore in a blanket haze last year, CBRE Group Inc.’s Lloyd Jenkins, sat down with a group of high-level property investors at the city state’s five-star Fullerton Hotel and showed them pictures of white beaches and clear, blue skies. This is Perth, he said, and there’s a lot of opportunity.
Jenkins, managing director at CBRE in Perth, and property developers are trying to drum up investment in the Western Australia capital, where housing values as measured by CoreLogic Inc. dropped 3.7 percent last year, the worst performance among the nation’s capital cities, as a mining boom dissipated.
While a recovery may be some way off, Perth property is cheap now relative to the record prices on the east coast of Australia. This is the right time for cashed-up Chinese investors that have favored the overheated markets of Sydney and Melbourne to snap up deals, according to Jenkins, a nearly 30-year veteran of the real-estate industry. He’s establishing a residential marketing division for Perth this month ahead of what he expects will be a pickup in interest.

China Slowdown
Jenkins’s optimism has yet to be reflected in a property market reeling from the end of the mining boom. Prices soared 18 percent from the end of 2008 to a peak in December 2014 as the resources-rich state attracted a flood of workers to mines in the Pilbara region, one of the world’s biggest sources of iron ore, to meet Chinese demand for commodities.
A slowdown in China has since depressed oil and iron ore prices, and mining and energy companies from the giants of BHP Billiton Ltd. to the juniors of BC Iron Ltd. are cutting jobs. Perth dwelling values in October dropped to the lowest since June 2013, according to research firm CoreLogic, while rents have decreased 9 percent in the past 12 months and vacancy rates are the worst across the nation, according to Reiwa, the real estate institute of Western Australia.
Still, returns for investors in Perth are higher than in Sydney and Melbourne. The rental yield in Perth was 3.8 percent in January versus 3.4 percent in Sydney and 3 percent in Melbourne, according to CoreLogic.

Asian Buyers’
That spells opportunity for some property developers like Hong Kong-based Far East Consortium International Ltd., which plans a 379 apartment building in Perth’s newly created Elizabeth Quay on the Swan River. It opened sales at the start of the year and has sold 60 percent of the yet-to-be-built units worth A$260 million.
“We have seen a lot of Asian buyers,” said Murray, noting many of the investors had connections to Perth such as residency permits or relatives. “We are not seeing those mass numbers of foreign investors yet, but my view is that is coming. It will be a significant part of the market in Perth.”
Psaros, a Perth-based property developer with a Chinese-language website, was seeing strong interest from Asia for its more than 1,500 apartments either delivered, under construction or proposed, managing director Mike Enslin said.
“They see the untapped potential of a relatively young, growing city they previously didn’t have access to and there is significant pent-up demand,” Enslin said.

Uphill Battle
It may be an uphill battle as the apartment market in Perth has slowed. Finbar Group, another Perth-based apartment developer, reported a 43 percent drop in first-half profit on Feb. 23 and said it has experienced softer pre-sales activity this financial year. Finbar has about 776 apartments under construction and more than 1,180 with development applications approved. Still, Perth prices are forecast to rise 5.08 percent in 2017, snapping two years of declines, according to a maiden index compiled by CoreLogic and Moody’s Analytics. That expectation is based on commodity prices starting to bottom out this year and recovering into 2017 and 2018, and population growth.