Regional QLD February 2017

The Smartline Report – February Edition

The month in review: Regional QLD

By Herron Todd White
February 2017

Sunshine Coast
The Sunshine Coast property market finished 2016 pretty well with sale volumes for the year being strong and in some areas exceeding our expectation of the growth in values. Growth within the residential property market on the Sunshine Coast is expected to continue this year with a number of factors likely to fuel demand for housing.

Dwelling sales within the coastal corridor between Maroochydore and Caloundra, particularly the sub $700,000 price range, are expected to continue with increased demand as a result of the much anticipated opening of the Sunshine Coast University Hospital. The opening is expected to continue to improve market sentiment, particularly along the southern coastal strip between Maroochydore and Caloundra. This is also expected to have a major impact on the rental market within these areas.

Stocklands Aura development, located to the south of Caloundra, is continuing to generate interest from both owner occupiers and investors. In addition preliminary earthworks have recently commenced at Palmview which will provide the Sunshine Coast with another large scale residential land subdivision within relatively close proximity of the new hospital and the centres of Caloundra and Maroochydore.

Preliminary earthworks have also commenced at Oceanside which is the only significant undeveloped greenfield site remaining between Maroochydore and Caloundra. Once completed this development will comprise a mix of single unit dwellings, medium density residential units and a small retail and restaurant precinct.

Construction within the Maroochydore CBD has commenced and once completed will provide a business and entertainment hub for residents and tourists alike. The expansion of the Sunshine Coast airport and runway extension has had federal government funding approved with the private partnership yet to be announced. Once completed independent assessments value the economic benefit of the upgrade at $4.1 billion in the 20 years after it opens.

The northern coastal areas of the Sunshine Coast and the prestige markets in the Noosa area are expected to continue to see some growth throughout 2017. The strong markets and confidence of Sydney and Melbourne and more locally Brisbane areas are having a direct positive impact in the area. The lack of vacant land and new subdivisions are also helping to underpin these areas.

Units are predicted to lag behind the housing market throughout 2017, however stock levels of all types of property are expected to remain relatively low which will place upward pressure on prices in some areas.

The majority of residential development particularly in the new larger estates is primarily targeted towards the entry level market with residential lots getting smaller to improve affordability.

2016 also saw a large increase in investor product in new estates, particularly the introduction of dual key dwellings comprising an attached 1- or 2- bedroom unit. The resale market for this type of product is still relatively untested with limited sales through local agents occurring in 2016. A significant portion of new house and land packages within these estates has also been marketed and sold to investors, both local and interstate. The main concern in the future is the balance between the number of owner occupiers and investors. Also the APRA policy to curb investment lending will continue to have an effect on the Sunshine Coast market.

On the back of a strong 2016 and the continued momentum being created by the number of infrastructure projects, 2017 is expected to be another good year for the Sunshine Coast.

Bundaberg
The residential market for both houses and units has remained flat with a slight reduction in values over the past 12 months with overall confidence being subdued. Sales data indicates a contraction in the number of sales making it a buyer’s market at present. The rental vacancy rate has reduced from 6.3% to 4.5%. The Bundaberg economy has had a $10 million injection with the Bundaberg Sports and Community Centre and the Rubyanna Wastewater Treatment Plant being built.

The Knauf Plasterboard manufacturing plant at the port is still under construction. As these developments progress, confidence in the market should lift throughout 2017.

This year with confidence improving, we believe that we are in for some positive movement in values after a number of relatively flat years.

Gladstone
There has been much debate over the past couple of months about where the Gladstone property market is sitting. It seems every man and his dog has an opinion on where the market is situated and where we are headed!

2016 definitely was a tough year for Gladstone. While the market has been declining for the past four to five years, it all seemed to come to a head in 2016.

Despite the years of negative publicity regarding the Gladstone market, the past few months have heralded many positives. We are no longer all doom and gloom and it is unlikely that values will drop any further. Yes, it appears we have hit the bottom of the market!

There have been some telling signs including significantly increased sales and leasing activity especially in the bottom end of the market (sub $200,000). Also rental levels appear to have stabilised for most market sectors.

The key driver at present is the affordability of property in the Gladstone region. Value levels are the lowest they have been in over a decade. We are seeing more and more transactions that represent very good value for money. Most established housing products are worth below replacement cost which has definitely been a factor in the increased activity. While this is good news for the established housing sector, the trend in new construction activity is still declining as in most cases it is cheaper to purchase an existing modern home than it is to buy land and build.

While we expect that over the course of 2017 the market will stabilise for established housing, there are concerns that the unit market may take a little longer. The market for suburban townhouses and inner city apartments is still considered volatile given the significant supply built in the past ten years.

2016 was also a tough year for the local economy and the employment markets. All construction on the Curtis Island LNG plants ceased. Major employers in the region also made significant redundancies. Local small businesses were not immune either with many longstanding businesses closing up shop in 2016.

While we may be at the bottom of the market, it is likely to take a while for us to see any uplift in values. The Gladstone region vacancy rate still sits at approximately 8% indicating there is still an oversupply of product. The vacancy rate is slowly dropping however until it is at least halved, there is unlikely to be any pressure put on the rental market and rental levels.

Mortgagee in possession activity is also still increasing. 2016 saw a significant increase in the number of mortgage defaults in the Gladstone region. With the possibility of increasing interest rates this year from major lenders, we suspect these properties will continue to roll in during 2017.

While not everything looking forward into 2017 is positive, we can at least say we are finally on the track to a healthier property market in Gladstone. We hope that come the end of 2017 our predictions were not too far off!

Emerald
The Central Highlands region is starting to look a lot more positive off the back of rising coal prices and increased employment opportunities in the region. Moranbah is leading the charge with a jump in value up to 20% over the past three months for some market segments. Clermont is coming second and Emerald in third place where we have seen a jump of $20,000 in some segments and movement in some price ranges where there was no activity. While coal prices stay up or continue to rise history shows it drives employment and values begin to firm. It may surprise some but it’s been five years since the downturn started. In 2016 we saw values level. 2017 has started off with level to firming values, renewed confidence and employment opportunities. All this is taking place and the Adani project has not commenced construction yet. If the Adani project starts on top of what is already a strengthening mining sector then we may see a significant spike in values. How far values will rise all depends on the strength of local employment generated from the resource sector, but for now it appears we are on the upward property cycle. Many say we will never again see the prices experienced in the last boom which peaked in 2011 and 2012 and proved to be unsustainable. Are we at the start of a small upward cycle or a big boom? Only time will tell as our market is very sensitive to the coal market which drives our employment.

Rockhampton
2017 brings with it a more positive outlook than has been evident over recent years. This may see the bottom of the property cycle realised in Rockhampton and region.

We consider this is largely due to the recent improvement of the mining industry, driven by recent announcements by Adani Coal, increased commodity prices and improved perception of job security across associated service industries.

This positivity on top of what are (comparatively) affordable housing prices and low interest rates is hoped to generate some activity in our local markets and stabilise value levels.

The last quarter of 2016 also saw a tightening of rental vacancy rates in Rockhampton. Should this reduced rate become a trend or even merely stabilise at this lower point (around 4.5%, down from around 6.5%), it will enhance the investor sector of the market (sub $250,000).

For these reasons, we would expect the lower end of the market to be the sector to watch. Generally it is this sector that needs to stabilise first before a market recovery can be anticipated.

Sectors which may warrant more caution during 2017 will continue to be modern housing estates wholly marketed to non-local investors as house and land package deals. In recent years, we have seen land in this type of estate marketed and sold with inflated land contracts. As the region’s attractiveness to investors improves, so too will the number of sales with these inflated land prices in selected areas.

Rockhampton’s riverfront continues to evolve, with another unit complex in the early stages of construction now.

The Gallery Stage 1 (of two stages) is to provide thirty 2- and 3-bedroom apartments plus a ground floor restaurant. Approximately 40% of the units in Stage 1 are currently under contract.

Another riverfront complex, Skyview has also recently been introduced to the market, offering a boutique development of thirteen 2- and 3-bedroom apartments with river views. Prices range from $449,000 to $799,000.

Mackay
I hope all the avid Mackay followers had a fantastic Christmas and new year and now look toward the year ahead. I have to admit, the last few years I have dreaded writing the year ahead predictions, but this year I have a renewed sense of optimism that the worst may be behind us and that the Mackay residential market will stabilise. We saw an increase in sales volumes throughout the back end of 2016, rental vacancies fell throughout the year and a general sense of optimism returned to the Mackay economy. Prices for metallurgical coal rose in late 2016, the mining sector appears to be strengthening and Adani’s Carmichael Coal project is getting closer to fruition. Other projects in and around Mackay include the Mackay Ring Road Project, Eton Range Bypass and Vines Creek Bridge with construction commencing this year. Other small projects include a new fire station in Mackay city and upgrades to the Mackay showgrounds. All of these and other smaller projects will increase employment opportunities and benefit the entire Mackay economy.

In saying all this, the Mackay residential market isn’t expected to show any real signs of improvement in terms of value in the first half of 2017. We think there will be a consolidation of values during this time and that sales volumes will continue to be strong in early 2017. The key to any movement in values will be buyer sentiment. There has been negative buyer sentiment in Mackay over the past few years. We have seen this sentiment start to change during the last half of 2016, leading to higher sales volumes across the residential market, albeit at value levels not seen in Mackay in over ten years. This is seen as a possible predictor that the market has reached the bottom. Only time will tell if this negative sentiment can be reversed during 2017.

Whitsunday
Happy new year to all! The Whitsunday region has everything needed for a positive year ahead.

Hamilton Island: After an extended period of adversity, the market on Hamilton Island has recently begun to improve on the back of the lower Australian dollar improving domestic and international tourism and the strong property markets in Sydney and Melbourne fuelling investment. It is expected that this market will continue to prosper over the coming year.

Airlie Beach and surrounding area
The past 12 months have seen an increase in international and domestic tourism which is seen as a positive for the local economy and employment. The market appears to have levelled and is stable at present on the back of the increased optimism in the tourism industry. There was success in sales at the upper end of the local market late in 2016 and it is expected that this will continue. Agents advise that vacant land sales are on the increase in new subdivisions and builders have work well into 2017. All in all it is anticipated that the property market will show nothing but positivity in the coming year.

Townsville
No bones about it, 2016 has been a tough year for Townsville as its economy hit bottom and the property market travelled sideways at best. Hopefully though, the worst is now behind us with a stronger outlook for 2017.

We are already seeing new signs of a property market turnaround, albeit largely anecdotal rather than statistical at this stage, but it will certainly be pleasing to see the market rise again above the depths of 2016. Townsville’s residential property market has stabilised and with confidence now starting to improve, the market is poised for future recovery. The market right now is fragile and remains positioned at the bottom of the cycle.

Throughout 2017, the residential market is likely to continue ticking over with purchases being made by intending owner occupiers, with some signs of activity re-emerging in the investor market. We are likely to see further stabilisation in transactions with the market poised to enter a recovery phase during 2017 as confidence increases.

The housing market has seen a stabilisation in volumes and median sale price and this is likely to continue throughout 2017. The market is likely to remain suburb selective, with interest in most mid to inner suburbs, but some hesitancy in the outer areas or suburbs with perceived social issues.

The unit market is likely to remain status quo for the first part of the year at least, reflecting ongoing buyer aversion, low levels of investor activity and a lack of new units being brought to market with supply of new developer units now at a seven year low.

Like the unit market, the land market is likely to remain slow heading into 2017 with a lack of new home buyer confidence and the economics of new versus existing housing continuing to retard new home construction.

The rental market remains in an over-supply situation with the latest survey indicating an overall trending vacancy rate of 5.6%. The year ahead will hopefully bring some relief to the rental market seeing the vacancy rate return to a more balanced situation. There are a number of large commercial projects to commence construction this year within the local area and with an increasing level of business confidence and a rise in the number of jobs being advertised in the region, hopefully this will lead to stronger population growth and more job security, which should aid in reducing the number of vacancies.

Overall the year ahead should see improving market conditions, although somewhat suburb selective, as Townsville attempts to rise from the depths of 2016.

www.smartline.com.au

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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