Is The Mining Boom Masking a Major Problem for Commercial Property in Queensland and WA?

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Queensland & WA will have the greatest amount of Distressed PropertyTHIS RATHER pressing issue appears to be receiving little or no coverage at all.

But if you listen to the insolvency firms, Western Australia is about to become the “hot spot” for distressed property.

And as you can see from the chart, Queensland well and truly holds the the crown at the moment.

However, the Perth MD of Pitcher Partners recently confirmed that …

Higher costs and wages were putting many businesses, particularly retail, under pressure … and the drain of labour from the mining boom was being felt across all sectors.

Unlike the southern states of Victoria and South Australia, most commercial property investors in the mining states are somewhat heavily geared.

Therefore, should their tenants encounter any financial difficulties, that could quickly move their investments into the “distressed property” category.

The Media has mostly Adopted the Wrong Yardstick

Why is it that very few reporters bother to dig deep enough to reveal the true picture?

Last week, there was an article in the Reserve Bank Bulletin describing how State final demand for 2011 grew by:

  • 11% in Western Australia;
  • 10% in Queensland; and
  • 1.5% for the rest of Australia.

However, in a first-class article by Ross Gittens (BusinessAge: 17 March, page 12), he points out just how misleading these figures are.

To gain a more realistic picture, he says you need to focus upon Gross State Product (the equivalent of national GDP ) — which measures what is actually being “produced” on a state-by-state basis.

You see, if you simply rely upon the final demand figures … they show spending growth ranging from:

  • 1.4% in South Australia, to
  • 6.5% in Western Australia …

… being an overall spread of 5.1%.

However, the RBA estimates that around 50% of all mining investment relates to imported equipment.

GPS Figures show the true Growth on a state-by-state basisAnd so, you need to look at the Gross State Production (GSP) figures, to gain a true picture of what growth is truly going on.

As you can see from this table, the actual spread is just 3.5% … with the real surprise being Queensland.

Bottom Line: Victoria may lack a mining sector. But (contrary to popular belief) its exposure to manufacturing is actually only about 8 to 9% of GSP.

In reality, both Victoria and NSW rely more on the business services sector (at around 29% of their GSP ) — compared with 17% for the other states.

And unlike tourism and retail, this service sector is NOT affected by the high Australian dollar. Thus providing some welcome stability (and comfort) for investors owning Commercial property, in the non-mining states.

 

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