Much has been written about the mining industry in Western Australia and how it impacts the overall economy, and by extension, the property market. Chinese demand for iron ore has slowed, leading to a drop in prices and a reduced demand for resources related to the industry. This has led many interstate and offshore investors to question how their properties in the mining capital will fare, and left potential investors hesitant to start buying in WA.
Lets delve deeper into some common myths surrounding the mining industry, and what implications it has for the property industry.
Myth#1: Mining has gone bust
False. Despite the industry cooling, it remains highly profitable. Last year committed mining, oil and gas infrastructure projects in WA totalled $123.1 billion, with the Department of Mines and Petroleum reporting 1046 operating mines totalling $99.5 billion in value*. While some major projects have come to completion, moving forward, mining still presents significant opportunities for contractors and suppliers in areas such as operations, maintenance and export.
Myth #2: Mining is the main source of income for WA’s economy
False. While mining is indeed an important part of WA’s economy, the industry is by no means the singular pillar propping up the entire state that it is often perceived to be. Perth is a global resources hub and is one of 20 international energy capitals around the world (World Energy Cities Partnership), responsible for approximately 6% of world’s LNG production. It is estimated that by 2020, Western Australia will be second only to Qatar in global LNG production.
In addition, Western Australia has strong agricultural and tourism sectors. In 2015 the state’s gross value of agricultural production (GVAP) was $8.6 billion, 16.5% of Australia’s total GVAP. With growing demand for premium agrifood products, especially from Asia, WA is in a strong position to build on its reputation as a reliable supplier of clean, safe and high-quality food to overseas markets.
Western Australia’s pristine beaches, incredible biodiversity, and world-renowned wineries make it a hugely popular tourist destination. The industry employs approximately 100,000 people, with tourists spending $8.9 billion in 2015. Visitor numbers from China are up 14.7% for the year ending March 2016, visitors from India are up 14.4% and visitors from Malaysia increased by 16.7% for the same 12 month period**, all of which bodes well for those Asian visitors who might later consider property investment in the state.
Myth#3: No mining means no jobs
False. WA has a broad employment base, with mining only ranking sixth in terms of the number of people employed by an industry. The industry only employs 7% of the total workforce, with health care, construction, retail trade, and professional, scientific and technical trades all ranking higher. Despite a tightening in the resources sector, projections by the Australian Department of Employment indicate growth across a broad range of sectors in the next two years.
Myth#4 – Iron is mining’s most valuable commodity
False. While demand for iron ore has decreased, there’s a shiny new metal in the mining scene that’s set to steal the spotlight. Lithium, a key component of battery technology in mobile devices and electric cars, is a commodity in high demand due to an overall shortage of supply around the world.
Given there are now more mobile devices in the world (8.6 b) than people (7.4b), and an increase in the production of battery-equipped electric cars, expect demand for lithium to continue to skyrocket. High profile manufacturer Tesla, who exclusively makes electric cars, aims to make one million cars a year by 2020. Several other companies are rushing to compete with Tesla (which has been described by Wired magazine as a battery company, not an automaker), which has sent share prices of the ASX-listed lithium miners soaring by more than 12,540% since January 2015.
Western Australian contains the world’s largest known lithium reserve, the Greenbush Project, and is the world’s largest exporter of the metal.
Truth – There’s no better time to invest in the West
So whilst there’s been endless speculation and hyperbole around the effects of the mining industry on Western Australia’s employment and economy, and undoubtedly a slowdown in demand for iron ore, the state has far more than mining going for it. Its broad employment sectors and a strong and diversified economy position it well for growth into a much greater global player in the years to come. Holding a unique position as one of the largest exporters in the world of a highly valued, in demand commodity like lithium will no doubt accelerate that process.
These factors, in addition to the ideal market conditions discussed in our previous article, indicate Western Australia is due to become the next goldmine for savvy investors.
*Outlook Perth, Urbis Report, 2015
** Tourism Western Australia – International Market Profiles Year Ending March 2016 Research Report