Regional QLD

The Smartline Report – February Edition

The month in review: Regional QLD

By Herron Todd White
February 2016

Toowoomba
Toowoomba experienced a relatively strong 2015 with sales and price growth demonstrated in the first half of the year. A slowdown in activity or cooling of a somewhat heated market was observed in the second half of 2015 as the declining coal seam gas industry and associated job losses took their toll on the market.

It is considered the Toowoomba property market has passed its peak with agents reporting reduced buyer inquiry and longer selling periods. Some sectors are performing better than others but there is no specific property type outperforming the broader market.

There is an air of expectation for 2016 as large infrastructure projects gain momentum. The second Toowoomba range crossing road construction is expected to be a catalyst for growth given the scale of the project and likely workforce demands.

In contrast, the towns situated in the previously booming Surat Basin to the west are now experiencing the effects of the mining slowdown. Chinchilla, Miles and to a lesser extent, Roma are all in a declining phase with the oversupply of new housing and units developed during the peak of the mining boom now surplus to the local market needs. Vacancy rates of up to 45% have been observed in Miles with increasing mortgagee in possession sales activity expected in 2016 throughout these towns.

Toowoomba is expected to maintain values based on historic trends, however a reduction in sales volumes is anticipated. Properties in the sub $400,000 price bracket are considered the safest bet for investors as this sector has traditionally been underpinned by the first home owner influence.

There has been strong supply of affordable, new housing and units in Glenvale over the last two years. This product has been marketed at the investor market and there is strong potential for an oversupply in this sector as vacancies rise.

On balance, 2016 may be a steady year in terms of sales volumes with the influence of the second Toowoomba range crossing likely to have some positive impacts on the property market.

Sunshine Coast
After what can be considered a generally good year for most property types on the Sunshine Coast, we expect 2016 to continue but at a slower rate.

Dwellings sales within the coastal corridor between Maroochydore and Caloundra, particularly the sub $600,000 price range, are expected to continue with increased demand as a result of the completion of the new Sunshine Coast University Public Hospital expected in late 2016. Generally older dwellings are also becoming more sought after due to their proximity to infrastructure and comparatively larger lot sizes. These properties are seen as an affordable alternative to new dwellings on small allotments within new estates.

Dwellings outperformed units in 2015 and this trend is expected to continue throughout 2016. The main impediment in demand for units in large complexes is the higher body corporate fees which erode returns. Units in smaller, walk up complexes near to beaches and cafes suited to owner-occupiers or permanent rental have seen a greater increase in demand as they offer an alternative to single unit dwellings. We anticipate that the interest in larger permanent style units and also larger townhouse and small lot housing will continue on the back of empty nesters wanting to downsize.

Early 2015 saw a large increase of investor product, particularly new dwellings on small lots in new estates, as well as the introduction of dual key dwellings comprising attached 1- or 2-bedroom units. A significant portion of new house and land packages within these estates were marketed and sold to investors, highlighting benefits such as the depreciation of the building as a tax saving. The main concern moving forward is the balance between the number of owner-occupiers and investors. Some of these new estates are starting to see an oversupply of rental properties which slowed rental growth during the second half of 2015. The APRA policy to curb investment lending will also continue to have an effect on the Sunshine Coast market.

While 2015 saw some capital growth for rural residential properties in hinterland localities, growth rates were lower than properties located along the coastal strip. Rural residential still offers very good value for money and we are expecting rural residential properties to continue to grow, particularly entry level product below $500,000.

The prestige market, will continue to remain patchy with most of the interest at the entry level ($1 million to $1.5 million). As with all markets but more so in the prestige market, it will be very much property and area specific with any properties that have issues or are overpriced sitting. The recent uncertainty of the share market and the anticipated slowing in Sydney and Melbourne markets will also have an effect.

Hervey Bay
The year ahead is expected to deliver steady market conditions for residential property and stable supply and demand across the region. Sub $300,000 stock is predicted to firm with the lack of housing in this price range and improved rental returns driving prices slightly higher. The move towards smaller lots sizes (in the range of 350 square metres to 500 square metres) is now encouraged by Council with many new estates currently being developed adopting this higher density format.

Unit development is considered to be imminent in the short to medium term, with very little new stock being offered to the market after absorption of an oversupply of units. The most popular unit style which has shown to be well received by buyers in recent times is the villa and townhouse unit, as opposed to high rise development.

The Hervey Bay Housing Affordability Project is an initiative by Council and Federal Government which offers $12,000 grants for new land or new house and land packages. The incentive is reported to expire on 30 June 2016 which could result in a slowing of sales to first buyers. It is hoped the project may be extended to stimulate economic growth and support local employment in the construction industry.

The prestige property market has improved over the past twelve months with more sales in the higher price range (above $700,000) than previous years. While property prices are not considered to rise in this market in the short term, sales are expected to continue at this rate with more medical staff moving to the area due to the new private hospital and supporting medical industries. There is currently an abundance of higher priced stock on the market and vendors have to be flexible in order to finalise a sale.

Bundaberg
Welcome to 2016. The year ahead looks to be an interesting one. We have reports of exciting new developments and industry being attracted to the region including to the Bundaberg Port, for example, the $70 million Knauf plasterboard factory that is reportedly bringing over 600 jobs to the region. The Innes Park North/Bargara South beachfront residential development should also stimulate interest in our very affordable region. 2015 saw some record sales at the upper end of the market under contract which will set new levels if the sales complete. The new $90 million wastewater treatment plant at Rubyanna will also stimulate growth with capacity for development in the area.

The residential market for both houses and units has remained steady and consistent over the past quarter with overall confidence being subdued. As the planned developments move forward, confidence in the market should lift throughout 2016.

Emerald
The Emerald market and greater Central Highlands region peaked in 2012. Values fell significantly in the period 2013 to 2015. We are now back near 2004 and 2005 levels and it seems the worst is over for the time being with the markets appearing to mostly level at the end of 2015. We think the market is going to be mostly level in 2016 with the worst in falling values behind us. There is nothing on the horizon to suggest values will firm at all in 2016. There is a significant number of properties for sale, many of them vacant, to be taken up before values would start to rise if there was a boost in the economy. We are seeing some great value for money in the Emerald market across the board but especially in the first home buyer entry level range of $200,000 to $300,000. We think the first quarter of 2016 will reflect exactly where the market is after three years of significant decline and the impact this has had on the community and the retail market after a very tough 2015. The community is hopeful that those businesses that have survived after the past three years of downturn will be able to hang on now under the new normal until the resource sector picks up or a new industry is created in the region.

Gladstone
Looking ahead in 2016, we consider market conditions to remain volatile for all Gladstone regional residential market sectors with potential for further price vulnerability despite value levels already being the lowest in the decade. The Liquefied Natural Gas (LNG) industry and more specifically the construction phase of the LNG consortium building multi billion dollar gas plants on Curtis Island are now coming to an end. The impact of the declining construction workforce switching to an operational phase associated with LNG plants is yet to be fully felt. The declining workforce will have a direct flow on effect to the residential property market in terms of rental values, vacancies, dwelling sales and land values.

The unit market remains a sector to be cautious of in 2016. In early 2015, the few unit sales occurring were showing discounts of up to 40% from peak value levels. In the later part of 2015, sales were showing up to 55% discounts from peak value levels. Even at these levels, there has been very little interest or activity occurring. This is in part due to the fact that most of these units are typically investor stock and the market for units and townhouses has strong links to the performance of the rental market. Also recent changes in relation to deposits required for investment products have had an impact.

Rockhampton
After a tough 2015 the year ahead does not look like getting any easier for the Rockhampton and surrounding residential markets. Confidence still appears to be down, with many resource and associated service industries still dealing with tumbling commodity prices and a declining workforce.

The lower end of the market (sub $300,000) has experienced some of the worst declines in value across the region with a significant number of mortgagee sales recording drops in value from 20 to 40% against their previous sale prices which can generally be any where from one to eight years prior. The worst affected areas include Gracemere, Zilzie and older established suburbs of Rockhampton such as Depot Hill, Berserker and Park Avenue. This has largely been the result of a mass exit of investors leaving the market reliant upon first home owners and lower income buyers with substantial budget restraints. 2016 will be another tough year for the localities and as such they should be treated with caution however at the same time they may present opportunities should we reach the bottom of the property cycle, but as always this is something very difficult to flag at the time.

Better quality localities and properties where owneroccupiers are active in the medium price range ($300,000 to $500,000) appear to be holding there values. Suburbs include large areas of the Capricorn Coast, Norman Gardens, Frenchville and Wandal. Despite these areas holding well, it is unlikely that they will experience any substantial gains in value throughout 2016.

Medium to high end properties above $500,000 have been also holding relatively well and include suburbs such as Rockyview, parts of Norman Gardens, and The Range.

In summary 2016 sees many challenges facing the Rockhampton market and values will be dependent on a range of factors including the mining/resource industry outlook, state and local council initiatives and on a positive note the local agricultural industry, particularly beef is experiencing record cattle prices which are forecast to continue and will no doubt act as a positive indicator for the region.

Mackay
With job losses still occurring in the mining sector, along with completion of the Dalrymple Bay Coal Terminal and City Heart Revitalistation projects, there does not appear to be any indication to suggest positive turnaround in the Mackay property market in the short to medium term. Although sale volumes have started to slowly increase, a majority of sale transactions are in the sub $300,000 market. Local agents are reporting that buyers are becoming more fastidious due to the large supply of properties listed for sale.

There is still a relatively negative outlook among buyers and sellers in the Mackay region and market evidence suggests that property values are still declining in the short term. It is difficult to see any growth in values in 2016 without some big momentum shift in the Mackay economy. However it is hoped that some levelling will occur towards the mid to latter half of 2016.

It is difficult to predict what will happen to rental values and vacancy rates in the Mackay region over 2016. We believe that any movement in rental values and vacancy rates will largely depend on what happens to property values and interest rates.

Whitsundays
The year ahead is expected to deliver steady market conditions for residential property with what appears to be a stable supply and demand across the region. There is speculation on the China Town development in the hart of Airlie and also the proposed extension/ upgrade to the Whitsunday Airport.

There appears to be a oversupply of entry level units at this point in time. Prestige units appear to be slowly on the increase and it is expected that these markets will continue throughout 2016.

House and land packages appear to be a sort after product with some builders stating they have work for the next nine months. So this will form a steady stream of work for many local contractors, which all has a positive outlook for 2016.

The rural residential life style properties are in good demand with people upgrading to an affordable lifestyle property. This is also expected to continue throughout 2016.

The down turn in the mining sector has impacted ever so slightly on Airlie Beach and it’s surrounding suburbs. We are looking forward to a fantastic 2016.

Townsville
Our local property market will continue along a flat line trajectory into 2016, continuing to be impacted by the downturn in the mining sector, uncertainties around job security, high unemployment and elevated rental vacancies.

Affordable buying remains in all sectors of the residential market if you are willing to shop around. Relatively speaking there is good buying in the secondary and outer lying suburbs where there are perceived social issues, with the trade-off between value for money and these perceived social issues posing consideration.

During 2016 the outer suburbs will likely experience little change in value, while secondary or less attractive property may realise further value corrections. The inner ring suburbs and beachside locales should continue to enjoy stable to slightly improved values.

The unit market is likely to remain at status quo. There was limited new unit stock constructed for sale during 2015 resulting in the supply of new units available for sale at the end of 2015 reducing to a seven year low.

The rental market continues to exhibit a mild oversupply of rental properties available relative to demand with 2015 ending with an overall trending vacancy rate of 5.15%.

The year ahead for the rental market should see this vacancy rate progressively return to a more balanced market range.

Townsville’s residential market will likely remain subdued throughout the first half of the year with very little in the way of local stimulus or broad economic drivers to indicate any change in this position.

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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