Regional QLD August 2017

The month in review: Regional QLD

By Herron Todd White
August 2017

Toowoomba

Investors have generally been attracted to low maintenance properties such as near new 4-bedroom 2-bathroom 2-car houses and 6-bedroom 4-bathroom 2-car duplex pairs. Majority of the investor market at present appears to be non-local investors with most locals purchasing to occupy. The majority of the investor market tends to operate in the sub $400,000 segment for houses and sub $550,000 for duplex pairs. In the current market it’s unknown whether investors are favouring strategies to seek higher yields or focusing on capital gains. With a slow moving market at present, investors are possibly looking to use a mixture of the two strategies.

Some of the western suburbs such as Glenvale and Cranley, and nearby neighbouring suburbs including Wyreema and Cambooya have tended to be hot spots for investor activity over the past few years. This is most likely a result of vacant space able to be developed; with other suburbs to capacity and unable to spread. The investor market has been strong in the Toowoomba area over the past few years with the contributing boost in infrastructure and developments recently completed and still underway. These projects have brought workers to the area requiring accommodation. It could be argued that the high investor activity recently experienced in the Toowoomba area had a negative impact on the region with an apparent oversupply situation, rise in vacancy rates and a reduction in rents. On the other hand this has also helped bring jobs, housing and affordability.

Investor interest in Toowoomba and surrounding areas has significantly slowed in the past two years, resulting in a gradual correction of the market with vacancy rates and rents stabilising. People looking to invest in the Toowoomba area could consider purchasing in older suburbs closer to the CBD, shops and services such as Centenary Heights, Darling Heights, Kearneys Spring, Newtown, North and South Toowoomba. These areas could see higher yields with proximity for convenience and have greater potential for capital growth as these suburbs have nowhere to spread.

Sunshine Coast

Investors in the Sunshine Coast property market have been pretty active over number of years. Market sentiment had improved which has intern instilled confidence in the marketplace. The main driver of this sentiment was the construction of the new Sunshine Coast University Hospital,, one of the largest hospital facilities and infrastructure projects constructed in the southern hemisphere over that time. That combined with the uplift in the market cycle, that was well over due, has led to the Sunshine Coast having their day in the sun.

The coastal areas have been very popular with investors. Typically the price levels are up to $500,000 with the original suburbs seeing a good uplift in values over that time.

The master planned estates have had the benefit of the small lot phenomenon and the ability for developers to bring built product to the market at the sub $500,000 price point. Rental returns remain around the typical 5% gross yield.

Inland, the price point tends to drop down to the $350,000 to $450,000 level. The main centres with good local infrastructure such as schools and shops etc. have been the most popular areas. There is the potential to get a little better yield then in the coastal areas however capital growth opportunities may not be as great.

In the prestige market, we have started to see an increase in the number of investors. This market is typically difficult to gauge given that there’s a number of different drivers in the investment decision. This market is closely related to the southern markets of Sydney, Melbourne and Brisbane so at the moment has been somewhat good. A number of investors in this segment are certainly purchasing for position and lifestyle choice and in quite a number of cases, with a view to the investment being a future retirement home/principal place of residence. The majority of activity in this market is occurring up to the $1.5 million mark running right along the coast from Caloundra up to Noosa.

Considering all of the above, the investment market on the Sunshine Coast has been fairly healthy. The good news is, there are a number of infrastructure projects in the pipeline that will help with maintaining market sentiment in the area.

Hervey Bay

Investors are typically attracted to standard house and land packages which start at an affordable $330,000 for a basic 4-bedroom, 2-bathroom home with double garage. Lot sizes have been steadily reducing over the past five years as Council looks to promote higher density living particularly within the newly established estates located in the fringe areas of Hervey Bay. Over the past few years we have seen many duplex style dwellings constructed, with the floor plan providing 3-bedroom, 2-bathroom accommodation (with single garage) on one side, with an attached 2-bedroom, 1-bathroom flat (with single garage). These have been very popular with investors with most yielding 6% to 7% gross return, along with attractive tax depreciation benefits. This type of property is currently being marketed to interstate investors and we are yet to see a resale of this type of duplex. Investors who choose to purchase on the Fraser Coast have a very wide range of property to choose from, with new estates offering a range of turn-key quality inclusions to attract buyers.

Bundaberg

The Bundaberg property investment sector could currently be described as soft. Rental returns of approximately 6% with no to limited capital growth over the past few years coupled with the increase in interest rates solely to investors by the banks has made this sector particularly cautious.

The RBA increasing rates to slow up the southern property markets has managed to slow our already slow market.

The areas with older timber dwellings that need a complete renovation seem to be the areas to find a bargain.

Regardless of the soft market, the Bundaberg area is still considered to be an affordable place to invest.

Emerald

Investors in the Central Highlands region have been nearly non existent. There are some local speculators picking up some basic properties at the bottom end of the market hoping for a capital gain return over the next two years. Other than that there have been a few multi unit properties sell to investors showing a gross yield range of 7% to 12%.

Gladstone

Investor activity in the greater Gladstone region has been very limited over the past two to three years on the back of significantly declining value levels and high vacancy rates.

Now that the market has bottomed, we have seen a very slight increase in investor activity, however owner-occupiers and first home buyers in particular, still dominate the market. The investors who are buying into Gladstone are mostly non locals and they do not appear to be buying any specific product. Yields are very low and vacancy rates still sit at about 5% (above average) for the region, therefore long term capital growth is currently the strategy of most investors. With value levels the lowest Gladstone has seen in over a decade, the timing is ripe for investors to snap up bargains in the area.

Rockhampton

The recent life and times of the residential property investor has been interesting as both government instructed and financier initiated changes have caused adjustments in property investors’ behaviours. With respect to the greater Rockhampton market, investors have traditionally favoured the lower price end of the market where potentially higher gross yields can be achieved. Compared to non-local investors, locals have typically been more discerning in their investment choices, often favouring better quality products than non-locals who have been more focused on returns.

The majority of the investor market has historically invested in the $250,000 to $300,000 price bracket, however a softening housing market has reduced this to $200,000 to $250,000 for similar quality properties. The greater Rockhampton market has typically provided higher gross yields than its capital city counterparts, but characteristically has not achieved similar capital growth rates.

Investors chasing higher yields at the lower price point end of the market have generally been the hardest hit due to a softening local economy and an oversupply of rental properties. Renters have taken the opportunity to upgrade the quality of property they are renting, whilst paying the same or less in rent. Secondary locations and older style properties have had weaker demand from renters, with only price point or generous incentives enticing renters to occupy these properties. Owners of better quality properties in sought after locations have been able maintain better occupancy rates than secondary locations.

Historically, Gracemere has been the most active market for non-local investors who sought to take advantage of the growth in the mining industry. A significant number of these sales were to non-locals on the promise of guaranteed rental returns. The downturn in the mining industry that followed, coupled with an oversupply of newly constructed dwellings, meant that at the end of the guaranteed returns, the rent able to be achieved in the market was significantly less. This decrease in rent caused many investors to off load properties resulting in an oversupply of properties for sale.

In recent years, the investor market has been limited due to a weaker local economy and softening house prices which has eroded both investor equity and confidence. Investors, however have the ability to have a very positive influence on the greater Rockhampton market. This can be achieved by investing in the established lower value properties throughout Rockhampton which will provide a floor in the market. Should investors tend towards purchasing new off the plan properties at inflated prices with guaranteed rates of return as they have in the past, this will only seek to further saturate the rental market which would be detrimental to the Rockhampton market.

The investor has generally missed greater Rockhampton and the opportunities that it presents.

Rockhampton has a more diversified economy than some of its neighbouring cities and whilst it may be too early to determine where the market is on the property clock, it is certainly more towards six o’clock than twelve o’clock. The short term outlook for investors is mixed; those who purchased properties at inflated prices will have to wait a longer period to potentially recoup their initial purchase price, however the discerning buyer could see gains much sooner, highlighting the importance of research prior to investing. Our advice to any investor looking to invest in the Rockhampton market is to do their research and to have a realistic time frame for their property investment goals. Whilst in the immediate short term, capital growth may be limited, the market does present opportunities for prudent investors at lower price points than in capital cities.

Mackay

There has been very little investor activity since the downturn in the mining sector which saw rental values fall up to 50%. Significantly lower market values have seen the typical renovator or builder and some non typical investors such as parents and son or daughter quartets joining the market. They are purchasing the renovators delight and doer uppers to renovate and flip for capital gains.

Single units are not very attractive for investment in the current market however duplexes and quadplexes are ideal for investors looking for higher yields. Older style duplexes have been selling for between $240,000 and $300,000 with gross yields between 7% and 8%. Quadplexes have been selling at between $440,000 and $510,000 with gross yields between 8.5% and 9.5%.

During the last quarter of 2016, rental vacancies were sitting at 6.9% and market values appeared to have reached the bottom of the market cycle. Market values began to stabilise during the first half of 2017 and rental vacancies are currently sitting at 6.4%. This could be seen as a positive indicator for investors.

Townsville

Over the past few years, local and out of town investors have typically been more attracted to housing product over unit stock as the rental market, particularly for units, remains in oversupply along with ongoing buyer aversion due to high body corporate expenses. Local investors appear to be typically attracted to entry level stock in the sub $300,000 price bracket, whilst out of town investors are generally in the $300,000 plus price bracket.

The rental market is continuing to indicate an excess of supply with the vacancy rate for houses as at June 2017 standing at 4.75% and units at 6.50%. This excess supply of property available in the rental market relative to demand over the past three to four years has been filtering through to on-going trend reductions in the level of median rents. In trend terms median rents in March 2017 for both houses and units are 11.7% below their corresponding levels in March 2012.

Investors in the current market appear to be seeking capital gains. With both the median house price and median rents at soft levels, this puts investors in a good position to capitalise on the upswing in market conditions.

The latest federal budget has tinkered with property market settings to address housing affordability including the implementation of changes to residential investment property depreciation. These changes along with tighter financial controls for investors appear to be one size fits all adjustments applied to correct Sydney and Melbourne markets, however they have the potential to negatively affect regional markets such as Townsville, where the primary concern is consolidating a recovery process, not affordability.

 

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