Understanding Perth: is there a future beyond mining?

The Blue Wealth Research Team embarked on a reconnaissance to Perth last week to determine whether there is more to the Perth economy than just mining. It doesn’t take too much strain to recall the slow-down in resources that caused problems of varying magnitude throughout the Australian economy. Now that we are on the other side of the boom with mixed opinions on the future of mining in Australia, how do things look for Perth?

There is a whole heap of justifiable excitement around the non-stop Qantas Dreamliner flight from Perth to London. It will be interesting to see if that increases the already high proportion of prisoners of mother England who make up almost one of every ten people in the western capital. In fact, the English are not only well represented in Perth, but there’s actually more English-born in Perth than in Australia’s most populous city: Sydney.

Hospitals, hospitality and education are the three highest employers in Greater Perth, but I always caution people who imply a diverse economy based on that. Hospitals, hospitality and education are reactive employers who provide essential and lifestyle services for a population that lives there for other reasons. Droves of people might live near Murdoch instead of Mandurah because of hospital employment, but not an entire city as opposed to another. As an example, IT geeks are attracted to San Francisco for Silicon Valley. Suits are attracted to London, New York, Sydney and Hong Kong for professional and financial services. In the past, tradespeople were attracted to Perth in droves for high-paying mining jobs.

Contrary to popular belief, Perth’s population has actually increased quite significantly. From 2011 (the peak of the mining boom and earlier census) to 2016 (the most recent census) Greater Perth’s head count increased by 214,991 people, a rate of over 12 per cent. This was higher than the three east coast capitals of Sydney, Melbourne and Brisbane.

Construction is an enormous influence in Perth at the moment, employing almost 78,000 people – from the ongoing expansion of the Murdoch health and education precincts in the south of Perth to the significant infrastructure changes closer to the city, and the world-class Perth (Optus) Stadium which is scheduled for an official opening on 21 January 2018.

Perth remains a long-term proposition for existing investors, albeit with some volatility, but challenges exist for new investors considering entering the market today, such as:

  1. greater analysis of the micro drivers, including an understanding of the suburb and property itself.
  2. relative value compared to where other primary markets are in the cycle as other markets are showing stronger signs at this stage of the property cycle.

Our current position is that there are other markets worthier of investment and capital allocation if making a purchase today. Remember, though, that our Research Team is continually keeping one ear to the ground.

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