Sydney investors chasing Perth apartments after decade hiatus, says Paul Blackburne

Source: AFR

Sydney property investors are looking to buy Perth apartments for the first time in a decade, prominent apartment developer Paul Blackburne says.

Mr Blackburne, ranked No. 3 on the BRW Young Rich List, with an estimated $536 million fortune, said inquiries from Sydney-based investors began in March.

“For the first time in 10 years we are seeing investors from Sydney,” Mr Blackburne said.

Paul Blackburne says for the first time in a decade Sydney investors are looking to buy Perth apartments.  Philip Gostelow

“About 25 per cent of sales inquiries are coming from Sydney investors.”

Mr Blackburne has hit back at critics, including housing estate developer and BRW Rich Lister Nigel Satterley, who have warned about a glut of apartments that would push down prices.

“There’s six to seven years of [apartment] supply,” Mr Satterley told The Australian Financial Review.

“When you look at the product, most of it is investment product. If you can’t rent it you sell it.”

Price plunge

Figures from Perth-based Real Estate Institute of Western Australia show the median unit price in Perth has dropped 6.6 per cent since peaking at $452,000 in June 2014.

In February, REIWA put the median unit price at $422,000, the lowest since December 2012.

Property consultant Urbis estimates there are another 33 apartment projects, representing about 4220 apartments, planned for Perth over the next two years.

But Mr Blackburne said Perth had suffered from an under-supply of apartments and the recent influx was simply playing catch-up, in part because of better planning rules and increased population.

He rejected suggestions about an impeding apartment glut.

“How can there be? When you look at Sydney and Melbourne, apartments are 30 to 40 per cent of the residential market. It’s about 16 per cent in Perth.

“Perth has only just hit 2 million people. It’s only just become a scaled city. We are evolving from a small city to a big city. We can’t continue buying farms to chop them up. It isn’t viable.”

Prices hit bottom

Mr Blackburne said Perth apartment prices had found a floor but conceded any price increases over the next one to two years would be “very small”.

“I think we are at the bottom of the market now,” he said.

“There will be some short-term slowdown but it is temporary. Property prices have doubled in the past 12 years. If they come back 5 per cent, who cares? That is not a big problem. It’s just part of the cycle.”

Investors were attracted by gross rental yields higher than those offered in Sydney or Melbourne, he said.

Figures prepared for Blackburne Property Group by Urbis show based on the average median unit of $440,000, Perth apartments were generating a gross rental yield of 5 per cent, compared with 4.2 per cent in Melbourne ($455,000 median) and 4.3 per cent in Sydney ($595,650 median).

Truth lies in between

Independent property valuer Gavin Hegney, from Hegney Property Group, said the truth about the outlook for Perth’s apartment market was “somewhere in the middle” of what Mr Satterley and Mr Blackburne believed.

“There are pockets within the market where there are significantly more than enough apartments,” Mr Hegney said.

“The interesting thing about the apartment market is that projects don’t go ahead unless they get a pre-sale level. So there’s a natural self-adjusting mechanism built in. What is built will mostly be sold.”

Mr Blackburne, who built much of his wealth buying distressed development sites during the global financial crisis, said he was looking for development sites in 2015 to build new projects.

“There are development sites that are coming to market that we think are good value and we are looking at opportunities to acquire as many as we can,” he said.