Safety-first strategy benefits Blackburne

Source: The Australian

Running his business on the assumption that “major shocks or black swan” events are likely every decade has left Perth property developer Paul Blackburne well-placed to ride out the COVID-19 storm.

Blackburne builds upmarket apartment projects in Perth, where he says unique conditions and Western Australia’s isolation make it “the best place in the world to do business right now”.

The global financial crisis in 2008 was a formative experience for Blackburne, who made the basis of his estimated $595m fortune on The List — Australia’s Richest 250 by buying up discounted project sites during the subsequent property downturn.

He has since been able to steadily build projects each year in a market relatively undersupplied for apartment projects compared to other cities around Australia, which has attracted the attention of investors in the eastern states.

Blackburne’s eponymous property group typically launches one project a year — in March alone it sold $26m worth of units at its One Subiaco project, where there are only a handful of off-the-plan apartments left to sell — and spends $50m-$75m annually on new sites around Perth.

Just as crucial, though, is a cautious mindset that focuses on cash flow and liquidity, as well as Perth’s lower construction costs, which have stood Blackburne in relatively good stead during the coronavirus pandemic.

“Events like this happen every 5-10 years and I run our company on the assumption major shocks (or) black swan events will happen,” Blackturne tells The Australian.

“As a result we always retain very high levels of liquidity. The best growth in a company is made during these times if you have cash. “We make less in the good times but a lot more in the bad times as we set up for next year. (So) we will not feel much effect from COVID and we operate as normal with no disruption to our business.”

Two other strategies have also helped, with Blackburne buying sites last year at what he believes were about half of their value now due to planning changes and timing his purchases at the bottom of the cycle. That in turn has meant being able to sell the apartments he subsequently builds at good prices for buyers but still at a profit for him.

“Construction prices are low so we can continue to ensure we provide very high-end apartments in prime suburbs of Perth for around $9000 per square metre. These would be averaging $13,000 in Sydney.

“We are able to pass these savings on to buyers to ensure quick sales with a high-end quality. We have sold the projects roughly 10-15 per cent below the prices of comparable projects so we don’t have any issues (with buyers defaulting).

“Prices in Perth were already very low after a four-year correction and most people understand that now is the best time to buy.

“There was a two-week period last month where sales were slower. However, this has now picked back up and people in WA are just getting on with life.”

Blackburne says Perth was already at the bottom of the market cycle and just about to enter a normal cyclical growth phase.

He says that for good properties with strong demand in undersupplied areas, the only effect of recent events will be that prices don’t increase as much as expected over the coming year.

“Then next year prices will increase due to low rates and lack of supply. We have three projects that are operating in areas of undersupply. We have sold out of almost everything we have and we are looking for new sites for projects to release in 2021.

“We are increasing prices at the end of May as most stock is sold and there is little supply coming on.”

The Blackburne Property Group also manages 5000 residential properties in WA for investors. Vacancy rates are lower there than the east coast, and rental yields 10-20 per cent ­higher.

“With low rates, property in WA is now mostly positively geared, which is the first time I have seen this in my life — and my father’s life!”