From hot to not: Perth chases Asian buyers as home prices drop

[PERTH] 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 per cent 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 favoured 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.

"The market starts in the so-called nerve centre of Australia, being Sydney, and it works its way until yield compression gets to a point that it's not worth playing; then they move north to Queensland and then eventually they cross the Nullarbor," Jenkins said, referring to the flat desert plain that west-bound travellers cross to reach Western Australia.

Jenkins's optimism has yet to be reflected in a property market reeling from the end of the mining boom. Prices soared 18 per cent 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 per cent 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 per cent in January versus 3.4 per cent in Sydney and 3 per cent in Melbourne, according to CoreLogic.

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 per cent of the yet-to-be-built units worth A$260 million (S$264 million), according to Angus Murray, managing director at property broker PRD Nationwide, which is conducting the marketing campaign.

"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.

It may be an uphill battle as the apartment market in Perth has slowed. Finbar Group, another Perth-based apartment developer, reported a 43 per cent 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 per cent 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, according to Ruth Stroppiana, chief economist at Moody's Analytics.

"Perth still has a solid pace of population growth; we are still seeing migration into Perth. After the bottoming out of the commodity cycle and jobs starting to track up, we will see that supporting prices," Stroppiana said.

Jenkins at CBRE said there were a lot of mandates from China to buy Australian property and the hardest thing is finding the opportunities.

"Our international guys will say 'Hey Lloyd, we've got this group and they've got half a billion dollars.' There is heaps of that out there," he said.

BLOOMBERG