Gold Coast May 2017

The month in review: Gold Coast

By Herron Todd White
May 2017

M1 – North-west Gold Coast
At present, the market in this region appears to be at its peak and in very recent times it’s started to flatten, with reduced enquiries on listed properties and lower numbers at auctions.

Houses and vacant land are the main part of the market across this region and to a lesser extent, townhouses. Recent years have seen the introduction of low-rise units with several new buildings in 2016, so this property type is relatively untested.

Most of the land selling in these estates is priced between $160,000 and $225,000. New house-and-land packages average around $340,000 for a 3-bedroom, 2-bathroom, 1-car garage on around 300 square metres of land. A 4-bedroom, 2-bathroom, 2-car garage on 400 square metres of land will average around $400,000 to $420,000.

The main change in this area has been the tightening of investment lending policy for the banks. At this point, an interest rate increase would be the trigger to start the market on a downward trend.

Over previous months, the numerous new developments in this region have been a large chunk of the market and very recently, some of the major developers behind these estates have been consistently raising their vacant land prices. As a result, we are seeing a real slowdown in sales – not just investor buyers as discussed previously. However, typically the estates that perform better are those with good amenities such as schools, supermarkets, parks and sporting facilities, and good proximity to medical services.

Northern coastal – Gold Coast
This area is very strong with no obvious signs of slowdown. Agents report a shortage of sale stock and an increase in buyer interest. The strongest market segment performers have been detached dwellings, prestige (mainly canal-frontage properties) and vacant land. Typical 3- to 4-bedroom dwellings on land parcels of, say, 500 to 900 square metres have performed very strongly, rising in value approximately 20% to 25% over the past 18 months. Much of this has been a recovery process after the GFC; however, there is now clear evidence that price points have well exceeded the values of the last property peak of 2007. Some suburbs such as Ashmore have performed very strongly. Prestige canal-front properties have soared in value, with Hope Island being a hotspot. Properties that may have been valued at around $1.3 million 18 months ago are now selling in the $1.6 million to $1.7 million range. Prestige units in good Broadwater locations have also performed well; however, low-rise and high-rise units in the value range of, say, $300,000 to $600,000 have only marginally strengthened. Residential vacant parcels are now very scarce in the area and buyers compete for these listings. In Hope Island, some parcels are now selling at $125,000 to $175,000 higher than the price they were sold by the developers about two years ago.

A combination of factors that has driven the market includes;
• the recovery process after the GFC;
• improved local market confidence;
• low interest rates;
• foreign investment, particularly Chinese;
• migration and investment by interstate and New Zealand buyers (the Gold Coast is once again viewed as an affordable market compared to other interstate locations);
• local optimism fuelled by the 2018 Commonwealth Games;
• improving local infrastructure and large development projects (such as expansion of the light rail, new sporting facilities, new hospital, expanding university, and numerous large residential high-rise developments).

A significant factor that may force a change in the local property market would be a tightening of the investment lending policy by banks. A shift in rising interest rates will be crippling for many investors and home owners who are already overstretched. Feedback from local banking professionals is that there are already many who fall into this category. However, the main threat would be a left-field macro world event such as the collapse of an international economy, a new war, fuel crisis, or perhaps a world health issue. Historically, the Gold Coast has been regarded as a boom-crash property market and all crashes appear to have been triggered by world events, for example the 1980s New York stock market crash, the Japanese economic fall, and the most recent 2007/2008 GFC. The Gold Coast has high foreign and interstate investment and at times of heightened risk, these are often the first investments to be liquidated. Another crash at some point is predictable.

Central Gold Coast
Over the past six to twelve months, the residential property market in the central areas of the Gold Coast has been strong. In particular, prices for detached housing has been very firm across most suburbs and according to local agents, this is due to a shortage of stock. Property values for detached housing are now exceeding the price levels of the last peak of the property market in 2007. The housing market between $1 million and $2 million has also been rather buoyant, with Broadbeach Waters and Mermaid Waters being highly sought-after locations for buyers.

There has been some price growth for the unit market on the central Gold Coast over the past twelve months, but this growth is not to the same degree as the detached housing sector. A number of new apartment projects are just commencing between Surfers Paradise and Mermaid Beach, which is a good indicator of a healthy market.

It would seem that we are approaching a peak in the property market cycle.

Key factors currently influencing the market on the Gold Coast are:

  • The low interest rate environment – Despite recent strong price growth in some property sectors, interest rates are still at low levels, which allows residential property to be an attractive investment for both owner-occupiers and investors.
  • Confidence in the local market – It is evident there are quite a number of apartment buildings currently under construction, which suggests developers are taking advantage of a strengthened market.
  • Foreign investment – New residential product constructed in the central areas of the Gold Coast within the past year has been supported by foreign investment, almost exclusively from the Chinese market in some cases.
  • Interstate investment – It has been evident that a good volume of sales over the past twelve months have been New South Wales and Victorian buyers. Buyers from these regions may see the Gold Coast market as an easier and more affordable option.

The major banks are also likely to play a significant role in how the Gold Coast market performs in the next twelve months. As long as inflation remains low, the RBA is unlikely to hike up interest rates this year; however, some banks have already raised their own rates or tightened their lending policies in the past couple of months, indicating early signs of caution moving ahead in 2017. We have recently experienced record-low interest rates and it’s hard to imagine that rates will continue to remain this low given the fluctuation of the official cash rate over the past couple of decades. The further raising of interest rates or tightening of investment lending policy will definitely put the brakes on the market.

Other issues to consider looking ahead are factors such as the performance of the Sydney and Melbourne property markets and on the global front, seeing whether growth in the Chinese economy diminishes. The Gold Coast property market is traditionally reliant on the investment market to remain buoyant.

The Gold Coast property market is not expected to be as strong in 2017 as in 2016, but there will be some price growth with sales volumes likely to plateau or even fall.

Southern Gold Coast/ Far Northern New South Wales
The market at present is very strong on the southern Gold Coast and on the Tweed Coast in beachside suburbs such as Burleigh Heads, Burleigh Waters, Miami, Palm Beach, Kingscliff, and Casuarina. The strong demand on the southern Gold Coast beachside suburbs is for duplex units and dwellings, while on the Tweed Coast the strong demand is for vacant land and dwellings.

The main factors driving this market are aspiration to own a property in a desired suburb (good local public perception), low interest rates, strong rental demand, and proximity to beaches.

Factors that would have to occur to move the market in any direction are numerous and include migration, jobs, income, interest rates, infrastructure spending, and the global economy. These factors can have either a negative or positive role in the way the local residential market moves.

At present, if current market conditions hold, the market will continue to grow to an extent, but if any significant changes in the factors mentioned above were to occur, the market would change, as the property market, particularly the Gold Coast market, is volatile.

The most likely event to cause a slowdown would be a combination of two factors: an interest rate rise coupled with a slowdown in construction work (and therefore jobs) would have a negative impact on the residential market.

Central-west/lower western Logan/Scenic Rim
The current market for the central-western Gold Coast, Scenic Rim and lower western Logan is currently steady overall; however, it remains somewhat property and area-specific.

Central-west (Nerang, Carrara, Maudsland, Pacific Pines) Residential/Rural-Residential
The current state is steady with respect to values and sales activity. There is definitely no shortage of stock with all the new estates and projects being released in numerous areas. This, along with strong demand, low interest rates and strong rental returns, has formed a steady market over recent months. Sales activity is steady; however, there has been no significant growth in value over recent months – although definitely no decrease either.

Agents and home owners are starting to hold on to their assets and money as the growth in sale prices is affecting affordability, particularly in the central areas.

West – Rural/Rural-Residential
In Scenic Rim, Lower Western Logan (Tamborine, Boyland, Beaudesert Shire), the current state is reasonably steady with respect to values and sales activity; however, there is considerably less activity and weaker demand than central-west areas. The current state is due to low interest rates and strong rental returns forming strong demand for particular properties. Agents are reporting a shortage of stock as some home owners are pursuing above-market sale prices and are being affected by affordability in more central locations. Reasonably priced properties are selling within satisfactory time frames (up to three months). The market remains property and area-specific and the increase in new product availability and supply is affecting demand for older dwellings as home buyers and investors seek new product.

Drivers
New product availability: It is apparent that demand for new product has sparked an increase in development and building activity for new estates. Some prices appear to be above market. Typically, these are purchased by interstate buyers. New products priced reasonably are purchased by local buyers, with a mix of investors and home owners.

Low interest rates and lending criteria: Low interest rates appear to have contributed to recent sales activity. Sale listings over the past 12 months have started to show ambitious prices, with these properties typically being purchased below listing price after a lengthy period on the market if the price is unreasonable, particularly in the western localities.

Strong rental returns:

Strong rental returns appeal to investors. With low interest rates, investors appear to be willing to paying higher prices, justifying spending by projected rental returns.

Population increase: As seen in recent years, the Gold Coast’s population has increased as a result of affordability in comparison to capital cities. This has increased job availability due to new projects and construction (Jewel project, upgrades of Robina Town Centre and Pacific Fair, Commonwealth Games infrastructure), as well as catering socially, economically, and domestically for the population increase (increase in eateries, upgrades to other shopping centres, creation of public spaces).

New buyers and residents are moving to central western and western localities as they are considered more affordable than central localities. A continual increase in population may force more residents to the central-western and western areas, which will effectively increase sales volumes and rental prices as well as create a stronger demand for housing in the more affordable areas on the Gold Coast.

Supply – Decrease: A decrease in new product supply may create a stock shortage and force up value levels of established properties in central-west and western localities. Supply – Increase: An increase in supply may force value levels down as buyers will have an increase in choice of stock, thus forcing more competitive pricing and an overall decrease in values and rental pricing.

It is apparent through recent sales activity that interstate buyers are already attracted to the Gold Coast market, particularly the central-western and western areas. An increase in infrastructure investment will increase the stock of housing and therefore, increase affordability, which will effectively improve the local market. This being said, the investment should be implemented reasonably and over a sustainable period to avoid oversupply and a declining market.

Factors that may contribute to a slowdown in this market include:

Oversupply: An increase in stock may force value levels down as buyers will have a broader market and variety of property, thus forcing competitive pricing and overall, decreasing values and rental returns.

Price inflation/affordability: Within central-west and western areas, properties priced above market are typically not selling at the listed price or if they do, a prolonged sale time (over six months) is required, particularly in the western areas.

Interest rates/lending criteria: If interest rates and lending criteria become less favourable to borrowers, this may dampen confidence and be detrimental to current borrowers with respect to repayments and affordability. This may force owners to sell at forced or declined prices.

Economic occurrence/natural disasters: As history has shown, economic occurrences (such as conflict between countries or a global financial crisis) and natural disasters (such as cyclones or bushfires) have an impact on the property market with respect to market confidence. A recent example is the Tamborine and Beaudesert areas being heavily impacted by flood levels in March and April this year, which may deter potential buyers and investors in the affected areas.

Affordability in sought-after areas: If property in more sought-after localities (such as central Gold Coast or the south-western rural-residential areas of Currumbin Valley, Tallai, and Tallebudgera Valley) were to become more affordable, residents within central-west and western localities are likely to purchase in superior localities, thus declining prices and demand for properties within the central-west and western areas.

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