Regional QLD

The Smartline Report – March Edition

The month in review: Regional QLD

By Herron Todd White
March 2015

Interest rate cuts look set to encourage the stability but not increase the momentum of the Toowoomba residential property market in the early stages of 2015. With interest rates already at a low base, the effect of further rate cuts is unlikely to have a significant impact on values and activity There are early signs emerging of an oversupply of investment housing and units in Toowoomba with the vacancy rate nearing 4%, having increased from around 1% in early 2014.

With this in mind and in line with the easing market activity recorded towards the end of 2014, it is predicted that the sub $450,000 price point encapsulating the median price point of approximately $350,000 will remain the most active due to its affordability and broad appeal to owner-occupiers as well as investors. This segment
is expected to continue to represent the broadest segment of market activity for the remainder of the year irrespective of rate cuts.

It is likely that investor activity will also remain consistent with that seen towards the end of 2014, as although there continues to be considerable hype surrounding the Toowoomba residential property market as an investor hot spot, there are reports of easing interest, particularly from absentee investors. Rate cuts may reduce the impact of any consequent weakening in this sector.

As for owner-occupiers, especially those located in the more established eastern suburbs of East Toowoomba, Middle Ridge, Mount Lofty and Rangeville, while rate cuts offer assistance, consistent growth in line with pre rate cut predications is expected.

Overall, interest rate cuts are not likely to have a significant effect on sales volumes and prices. However, these cuts will motivate the market to maintain current levels of activity.

Hervey Bay
Agents in Hervey Bay have been reporting good steady activity of late with demand mostly prevalent for stock in the sub $450,000 range. This interest is from a wide spectrum of buyers from interstate, local and intrastate locations. Buyer profiles vary, however investor activity does appear to have increased, with steady sales particularly for house and land packages. The further lowering of interest rates is likely to provide further confidence to current market sentiment which is increasingly optimistic overall. Rental demand remains strong with low vacancy rates across all areas.

In early 2015 investors appear to have largely retreated from the Gladstone market. Potential buyers are therefore mostly owner occupiers who are made up of a mix of first home buyers and people who are upgrading. The recent interest rate cut is likely to spur on the current higher level of activity we are seeing for existing housing. Sales volumes have increased moderately over the past few months as property values stabilise to more realistic values.

On a positive note, vacancy rates for conventional dwellings have fallen over the past few months and there appears to be reasonable demand for rental accommodation.

The markets for vacant land and units are still weak with a very low level of demand and oversupply in both market sectors.

It will take more than an interest rate cut to start seeing improvements in these markets.

Despite the increased activity in the market for existing housing, we consider it a possibility that there will be a further (possibly significant) market correction in the next 12 to 18 months over which time all LNG construction work will cease on Curtis Island. The exact effect this will have on the residential market is unknown.

The residential market remained steady throughout 2014 after some areas of Bundaberg flooded in January 2013. These flood affected properties did sell at substantial discounts from their pre flood values. Fully renovated flood affected properties coming onto the market now are beginning to realise higher values almost two years after the 2013 floods, however these levels of value are still less than pre flood values.

Sales volumes increased in the latter half of 2014, but values have remained static with most activity being in the sub $350,000 range.

Rentals appear to be stable with a standard 3-bedroom house averaging $290 per week and a 4-bedroom house averaging $345 per week. Vacancy rates are about 3%.

Confidence appears to be growing with the current low interest rates, federal government incentives and low vacancy rates encouraging both first home owners and investors to remain in the market during 2014 and into 2015. If you are in an older style timber dwelling with detached garage, you would probably be looking at taking the step up into a 3- to 4-bedroom brick with attached garage.

Suburbs where you might start if your budget is tight would be Thabeban. Here flood free, under ten year old homes can be found for high $200,000 and low $300,000 and would have you in a modern 4-bedroom, 2-bathroom home with attached double garage.

From there you might look in Kepnock, Kalkie, Avenell heights or Avoca for 15 to 20 year old dwellings at about $300,000 to $350,000.

These suburbs are all close to the centre of the city, shopping and healthcare. Bundaberg is only a 10 to 15
minute trip from one side to the other.

If you wanted a sea change, Bargara is only a 15 minute trip from Bundaberg and prices there start at the low $300,000s and rise according to proximity to the beach. Prices have been stable in the region for the past couple of years and we consider that prices will remain stable for the next five years.

In the Rockhampton region, the recent interest rate cut handed down by the RBA is welcomed however it
is considered unlikely to significantly impact on our local markets.

Given the recent job losses in the Bowen Basin mining industry and associated service industries, job security and buyer confidence is at lower levels than recent years. Therefore, the lowering of what were already low interest rates is not expected to have any short term benefits to our market generally.

With that said, there are some market sectors that remain fairly stable in the Rockhampton region, mostly better quality suburbs attracting owner occupiers under favourable buyer’s market conditions. This is the main sector likely to see any benefit in the recent rate cut and able to act accordingly.

Another market sector to consider is first home buyers. This market sector is likely to seriously consider rental expenditure verses mortgage repayments and find themselves financially better off entering the property market. That said, while interest rates are currently low, they will increase in time, therefore budgeting for a higher level of interest is necessary.

The reduction in interest rates may prompt some local investors who know the area well and are in a financial position to invest further to capitalise on the opportunity for a higher return than that currently available from term deposits. These property types and price points would include run of the mill housing in average suburban localities up to say $350,000.

This recent rate cut may benefit our region over a longer term as home loan borrowers are able to save some extra cash reserves in the short term resulting in increased buyer confidence in the future.

So, will the Reserve Bank’s decision to reduce interests to historic low levels have a major impact in the Mackay property market? We believe it will have an impact, not on potential capital growth but more a stabilising effect on a volatile and reducing property market. The Mackay market has been through the
wringer in the past 12 months, both on house prices and the rental market.

We think the reduction in interest rates may improve confidence in the market, however at reduced levels to the peak of two years ago. Agents are reporting increased enquiries and greater sales volume, however at reduced sale prices. The biggest effect we think will be in the rental market with landlords facing huge pressures from falling rental levels and higher vacancies. Rental values are down by up to 30% and higher in some areas, with vacancy rates blowing out to 8% and higher in some pockets. The reduction in interest rates may alleviate some of this pressure and allow landlords to hold on through this period.

As stated in previous Month in Review articles, everything hinges on the coal mining industry in the Bowen Basin and its flow on to service industries in Mackay. While interest rate reductions will definitely help the Mackay market, the recovery of the coal price and mining industry is what is required as a catalyst for any improved market conditions.

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 – 2015. Australian Credit Licence Number 385325


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