ABC News has run an interesting article on West Perth, which was once the mecca for junior miners and engineering outfits during the resources boom, but now has become somewhat of a ghost town:
Almost a fifth of West Perth offices are now lying empty and property expert Gavin Hegney believes it is set to worsen.
“It’s almost like a ghost town at different times, there’s been a massive turnaround in the West Perth market,” he said.
“We’re probably seeing a vacancy rate around 15 to 16 per cent and trending up so, we’re probably going to head over 20 per cent within the next 12 months”…
It is taking a toll on local businesses now facing fewer customers each day.
Food Store Cafe manager Annette Carone said business had completely changed since she and her partner took over the cafe three years ago.
“It’s really unpredictable at the moment and we just do what we can to stay afloat really,” she said.
“You’ve just got to try and pay your bills and wages and just get by each week basically.
“We’ve had whole office buildings that were regular customers leave. They’ve either moved out of West Perth because their office has gotten smaller or they’ve moved somewhere else or complete shutdowns”…
The scary thing for Perth property is that the mining bust has barely even begun. As revealed in last week’s capital expenditures survey, Western Australian capex remains stuck in the clouds thanks to large LNG (Gorgon and Wheatstone) and iron ore (Roy Hill) projects still under construction (see next chart).
Once these projects are completed progressively over the next two years, Western Australian capex will literally collapse back to early 2000 levels, driving a big hole through the Perth economy and property markets.
What makes the situation even more dangerous is that Western Australians are some of the biggest buyers of negatively geared property investments. According to the most recent Australian Tax Office (ATO) Statistics for 2012-13, 11.4% of Western Australians owned a negatively geared (loss-making) property losing on average $10,555 in 2012-13 (see below charts).
As capex plummets, we could reasonably expect large scale job losses across the state, making it impossible for many investors to service their negative carry trade, and potentially prompting heavy sales of distressed properties.
The situation is made worse for these investors by the fact that dwelling construction is booming just as population growth is sliding:
And rents are already falling:
As vacancy rates rocket:
It’s fair to say that these are incredibly dangerous times to be a negatively geared Perth landlord, or a home buyer looking to leverage-up into their first home.
If you are an investor, you should consider selling-out while you can, and before a horde of negatively geared mining-exposed workers hit the panic button.
