Extended Stay Rates Are Dramatically Down In Perth

Perth Extended Stay Was  At A Massive Premium. Not Now.

Three years ago, if you could get extended stay accommodation in Perth at all, it would be at a heavy premium. The restaurants were full, taxis scarce and coffee could cost you $5. Airport lounges were bursting at the seams with Hi-Vis fly-in-fly-out workers. Property prices soared, especially in the iron ore rich Pilbara and fortunes were being made. The boom seemed unstoppable and many believed it was — to their cost.

A Tale Of Two Cities!

Meanwhile, Melbourne was in the doldrums. Perhaps even in a technical recession. It seems that the Australian economy is destined to be forever whip-lashed by the commodity cycle.

The mining and LNG investment wave in Western Australia, together with strong commodity volumes and prices, drove a high Australian dollar (A$1.10 = US$1.00). This choked-off tourism, and stifled manufacturing in the east. The outlook for Melbourne was very bleak. Not least in the extended stay sector, as projects were cancelled or postponed.

Three years later and the situation had reversed. The growth of the Chinese economy slowed and they didn’t need quite so much of our dirt any more. The mining capacity expansion phase was anyway over. The speed of the decline of the W.A. economy was dramatic and is still being felt.

Now, with the Australian dollar at a discount of more than 30% to those heady days, tourism has rebounded in the eastern states. There are even a few small islands of manufacturing growth in Victoria, despite the high profile departure of the car industry. With Telstra and NBN supporting the already active telecoms and IT industries, together with some major government-led infrastructure projects, Melbourne is starting to sparkle. Projects which had been on hold are getting the green light.

House prices in Melbourne and Sydney have defied pundits’ forecasts of a bust and continued their firm trends. Accommodation costs have done the same.

Extended Stay Impact Dramatic.

Indeed, across the accommodation industry, there has been a remarkable change of fortunes. In Melbourne vacancy is now low and prices firm. Meanwhile, in Perth, accommodation providers, such as ourselves are having to discount strongly to attract sparse demand.

Property Market Yo-Yo.

An oversupply of apartments in Melbourne has led to some price declines in that sector, with stalled rental values. Some of those weaker prices can also be attributed to some very poor quality builds, with tiny apartments, as small as 40 sqm. However, the suburban housing market remains strong, due to tight supply. Both factors are crimping rental yields, so it is not a great time for investors. That gravy train has probably left the station. The long-predicted peak has certainly arrived in some sectors.

It does seem that there is a decoupling of urban apartments from suburban dwellings in Melbourne. Apartments in decline with houses holding firm.

Population growth, primarily from immigration, underpins the Melbourne property market as a whole and while we see the market calming down, a collapse is not in prospect. At least not at these low interest rates.

In Western Australia, when the mining investment boom came to an end, the real estate market nose-dived after a period of crazy growth. House prices and rental values have continued to fall in Perth. In the mining-intensive area of The Pilbara, eye-watering price falls have been experienced. A property sold for $1 million 4 years ago has recently sold for $205,000. Ouch!

We are still seeing the two cities trending in different directions, Melbourne up and Perth down, but those trends are now moderating and this writer is predicting a turnaround in Perth’s fortunes.

Western Australia Recovery in Prospect?

Just as nobody predicted the end of the mining boom, few if any are predicting its return. But mines have to be maintained. New mines need to be started, as old ones are depleted. The iron ore price stands at $57 at the time of writing, up from a low of $38. With the Chinese economy picking up again, who knows where it might go. LNG prices have doubled from this year’s lows.

Melbourne and Perth Destined to Live in Different Realities?

If Western Australia is about to move into a recovery phase, which this writer believes it will let’s hope the lessons of history have been learned. Let’s hope that markets do not overshoot reality again. That we see measured growth and only a moderate rise in the value of the Australian dollar so that the renaissance in the east can be sustained. Mea,nwhile there are some bargains to be had in the west, at the expense of some people that have lost a lot of money.

Rent a Qualifying Property to Us.

If your property is vacant, or you are looking for a flexible, no commitment option, please consider renting your apartment to us.

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