Regional QLD

The month in review: Regional QLD

By Herron Todd White
May 2017

Capital value movement for the established housing market within greater Ipswich has remained relatively steady over the past two years with a slight recovery noticed from the low in the market of 2011-2012. This recovery stage of the cycle is in its infancy, with some properties selling slightly below previous levels.

Demand for new housing and vacant land has improved, with a noticeable increase in sale rates reported from developers. Buyers for this product type comprise a mixture of owner-occupiers and investors. Estates heavily supported by the investor market and in particular, estates dominated by a particular form of construction (such as dual-occupancy property) are of some concern.

The rental market remains relatively firm, although increasing housing supply will potentially have a negative impact on current rental levels.

In general terms, the Toowoomba residential property market is past the peak of the cycle; however, it can currently be described as multi-speed. An oversupply of residential product emerged during 2016 (particularly units), leading to an increase in vacancy rates, a reduction in rental rates, and subsequent slowdown of absentee-investor interest. While properties in the sub-$400,000 market have showed some signs of regression in value and rental rates, it appears that higher end property above $600,000 and even the $1 million-plus price point have enjoyed a decent level of interest, with some strong sales being achieved. Property in the mid-range has also moved along steadily, with a good level of interest from owner-occupiers. Market performance appears to be particularly property type and location specific. Higher priced established properties in the eastern suburbs appear to be enjoying strong interest from owner-occupiers (third and fourth home buyers), while interest in the western suburbs, which largely appeals to first home buyers and investors, has softened.

Toowoomba is currently a hub for major infrastructure projects including the $1.6 billion Toowoomba Second Range Crossing (TSRC) and QIC’s near-completed $500 million Grand Central Shopping Centre extension, bringing employment opportunities to the community.

Despite the high level of major projects taking place in the region, residential property values are anticipated to remain relatively stable throughout 2017. The vacancy rate at slightly above 3%, combined with recent interest rate increases for investors, is likely to keep the lower end of the market subdued.

The market will be positively influenced through the creation of long-term sustainable employment opportunities, which may be generated by the flow-on effects of the transport infrastructure projects underway, in planning, and completed (TSRC, Wellcamp Brisbane West Airport and Inland Rail). Investment activity may be reignited if major lenders were able to focus the current tightening of lending criteria on the major capital city markets only, while supporting investment in regional markets.

Sunshine Coast
The market on the Sunshine Coast is currently strong with agents reporting strong demand and limited supply. We are now seeing multiple offers and in some cases sale prices exceeding list prices, particularly for well-presented dwellings along the coastal strip and to a lesser extent, dwellings in hinterland townships.

The unit market is improving, but not at the same speed as single dwellings.

Entry-level units in small, older complexes are currently outperforming larger more expensive units within bigger holiday complexes, mainly due to the higher body corporate charges associated with the larger complexes.

Confidence in the higher end $1 million-plus residential dwelling market is also improving for properties along the coastal strip or canal front, and better-quality rural-residential properties.

The current low interest rate environment combined with the additional demand being generated by the new Sunshine Coast University Hospital is driving the market. Price growth over the past six months has been strong, particularly the southern end of the coast in and around the new hospital. Employment opportunities within the various medical professions are set to increase significantly as the new hospital continues to expand. This should see demand for housing improve further.

The Noosa or northern Sunshine Coast market has also shown strong growth recently, again more so for single dwellings compared to units. This market has historically been more volatile, driven mainly by a lack of supply and strong demand by buyers from Sydney, Melbourne, and Brisbane.

Employment has always been an issue on the Sunshine Coast and historically the market strength corresponds with the strength of the construction and tourism industries. Both sectors have been performing well, resulting in greater demand and therefore higher property prices. Affordability is always an issue and developers have been counteracting this problem with smaller lot sizes.

Investor interest from interstate appears to have slowed a little, mainly due to banks introducing tighter lending policies. Future interest rate increases would likely have a similar impact in slowing the market.

Hervey Bay
The Fraser Coast incorporates a varied array of markets that fluctuate independently. The Hervey Bay market is quite stable at present, with only the occasional sale exceeding vendor expectations. Most activity occurs between $280,000 and $450,000, with rents remaining steady. There has been an influx of new duplex dwellings over the past 18 months, which has been attracting investors seeking higher yields. The Maryborough market has experienced a decline in house prices; however, this may have levelled more recently according to local agent feedback. Employment for the Fraser Coast is a major driver for consumer confidence and the stability of house prices. A large aged care facility is due to open within the next six months in Hervey Bay, along with another respite complex that is in process of being completed. The requirement for medical-related employment remains a high priority for this area. The construction sector is currently another large employer, with many new subdivisions and estates under way. There have been two significant announcements in and near Maryborough that will help to generate more employment. These include a discount food supermarket, which not long opened its doors, as well as a $280 million solar farm reported to cover 800 acres near Aramara, to be built early next year.

The Emerald property market is heavily influenced by employment demand, the largest of which is the resource sector. We have just seen five years of downturn in the resource sector, which has affected property prices across the whole region. Over the past six months the coal price has risen, in some instances reaching new record highs, and in general it is a little volatile and not yet settled. The coal mining industry has gained some positive momentum off the back of higher coal prices in the short term, which has generated employment opportunities. This in turn has caused values to start firming and in some towns, such as Moranbah, values have firmed sharply again. So, what does it take to change our market, or what has the largest effect on our market? The answer is the coal price. We know many mining companies are waiting to see where the coal price stabilises before they make any plans to significantly increase production or open new mines. In the meantime, it’s taking a while for the negative sentiment in the towns to be overcome by positive news. Buyers are taking advantage of the current affordability in most towns and this is driving sales somewhat. Small business owners are yet to feel any change and are struggling to adapt to the new ‘normal’ after the resource sector bust. Values have stopped falling in all Bowen Basin towns. Some are firming slightly, while others are firming sharply, and sales volumes have increased in Emerald and Moranbah. If the coal price stabilises anywhere above $120 per tonne, then it’s very likely we will see values firm for a sustained period of time.

The local residential market in Bundaberg is stable, which is a term frequently used to describe the area.

Sales volumes have slowed slightly with median values dropping slightly by around 5%.

The median vacant land price is $150,000 for this postcode. Median house and unit prices are $295,000 and $225,000 respectively for the last quarter. Affordability is the big draw card to the area, along with the proximity to the southern end of the Great Barrier Reef and the relaxed lifestyle.

The key to getting the market to move upwards is attracting more people to the area, with flights to other major centres apart from just Brisbane. This would attract more investment and that would require more infrastructure spending.

Another way would be for the government to include existing property in the First Home Owner’s Grant, which would also stimulate the economy.

The market appears to be drifting along the bottom of the property cycle at present. The key driver at the moment is affordability. Value levels for all property types are the lowest they have been in over a decade, which has resulted in significantly increased activity.

In the past, Gladstone’s property market has always been driven by major industrial projects in the area, resulting in demand or lack thereof for workers’ accommodation. While there have been a few possibilities of new projects thrown into the ring over the past several months, nothing has been set in stone.

The market has seen a changing of the guard in the past few months with increased confidence surrounding the economy and jobs. Much of the activity in the last few months has been in the bottom price sectors of the market, which has now led to a shortage of good-quality stock. Signs the market is beginning to move forward include decreasing vacancy rates and decreasing days on the market. Because of this increased demand, we may start to see a slight uplift in values in the coming months.

The market should continue to improve on the back of increasing business confidence and more job opportunities.

The 2017 year kicked off with more positivity coming out of the local mining industry than was experienced throughout 2016. We are watching with interest to see if this, combined with limited other projects in the pipeline, may help to stabilise the residential market in Rockhampton and surrounds.

While some low declining prices have been noted in Rockhampton, there are other market sectors that continue to remain less volatile, mostly better-quality suburbs attracting owner-occupiers under favourable buyer’s market conditions.

In recent years, the main driving factor for the Rockhampton region has predominantly been the success of the mining industry and associated service industries. Rockhampton and the Capricorn Coast have provided accommodation for many of the fly-in, fly-out and drive-in, drive-out workforce as an attractive lifestyle alternative to living in the mining towns of the Central Highlands and Bowen Basin. This made the region appealing to investors, both local and interstate. When the fortunes of the mining industry turned, so too did the area’s appeal to the investor market. Job security has been at a low not seen for many years, and vacancy rates reached levels also not seen in recent history.

Despite the Rockhampton local economy being more diverse than some of its neighbouring regions, the success of the mining industry has played a more dominant role in the housing market than other sectors such as education and agriculture, which have been performing well in recent times.

Just this year, some positive indicators have returned to the market with vacancy rates improving, albeit far from the 2% to 3% investors had come to expect. This has coincided with progress of the Adani project, and service industries starting to increase their workforce once again in response to an improvement in commodity prices. We are yet to see a definite new trend in the local property market; however, this is something we will be watching very closely over the coming months.

To see the local market change direction across all market sectors, real progression of the mining industry would be a benefit to the local economy.

Investment in private industry in the region would no doubt have a positive influence on the local economy, following a number of local small business closures in 2016; however, in isolation this would only be on a relatively small scale and insufficient to drive the market in a positive direction.

Progress on state government infrastructure projects such as the Lower Fitzroy River Infrastructure Project (Rockwood and Eden Bann Weirs), is more likely to be of a scale to make a positive difference in the region’s property market as a result of far-reaching benefits to the region across a number of sectors.

This month, we ask: ‘What will it take to change the Mackay market?’ Such a simple question; however, there’s a complicated answer. Regular Mackay readers are well aware of the significant falls in values right across the region over the past few years. The best way to view the future is to seek guidance from the past.

The Mackay residential market is heavily influenced by the mining industry in the Bowen Basin and associated service industries located in Mackay. Mackay rode the wave of the resource boom with rises in house prices pretty much echoing the price of coal. The downturn in the Mackay market is also directly related to the downturn in the mining industry and the falling price of coal. This downturn in the mining industry meant many projects were cancelled, contractors and full time jobs were lost, the advent of a fly-in, fly-out workforce, and a large number of receivership and mortgagee-in-possessions, all leading to the market conditions experienced from mid to late 2016.

So, what does Mackay need now to reverse its fortunes? Well, this has already begun to some extent with some early signs in late 2016. There is no doubt Mackay is still heavily reliant on the mining industry. The mining industry appears to have had a bit more positivity around it over the past six months on the back of record production numbers and an increase in the price of coal, leading to greater employment opportunities. If the contract price of coking coal can stabilise at a reasonably profitable level, this will help continue the positive outlook for the mining industry. Also, the commencement of large infrastructure projects such as the Eton Range Bypass and the Mackay Ring Road are leading to greater employment opportunities and increased economic activity for the city.

One of the big hurdles the Mackay residential market faces is reversing negative sentiment. The downturn in the mining industry and flow-on effects to the Mackay economy left a pretty big imprint on all involved. As the residential market started to fall a few years ago, and the realisation set in that it would continue to fall, a large amount of buyer uncertainty crept in and negative sentiment began to increase at an alarming rate. Local agents report that it was very common for offers to come in well under asking prices, with potential purchasers saying, ‘If they don’t take it, there are plenty of other houses out there I can buy.’

So, can we reverse this negative sentiment? Absolutely! We are already seeing signs of this happening. The main driver fuelling increased market activity at the moment is affordability. The Mackay market is at value levels not seen in well over a decade and with historic low interest rates, has led to great buying conditions. There appears to be a school of thought that the Mackay market has reached the bottom, leading to increased market activity, especially in the lower price brackets. In early to mid-2016, there were dwellings available for under $200,000 and some were well under; however, these have been scooped up over the past six months with very little left on the market. Those that do find their way onto the market are being purchased very quickly! Even the top end of the market has found a voice over the past six months, with nine homes over $1 million selling since July 2016, and three this year – the latest being sold under the hammer for $1.4 million.

What did it take to affect the Whitsundays market? It was called Tropical Cyclone Debbie!

Tropical Cyclone Debbie passed through this area on 28 March 2017, causing varying degrees of damage to property and trees.

The market here was just ramping up and showing some positive signs, but now it has all stopped. Agents advise that properties have been withdrawn from the market either because of damage, or owners choosing to give the locality a break and starting to rebuild.

The rental market is off the chart with the influx of tradespeople and locals who were left homeless. Demand is extreme with some agencies advising that they have no houses to rent; however, this will only be short term.

Past experience would dictate that in the short term there may be a reduction in market activity, but as time passes and the debris is cleared off the streets, the market should return to activity similar to that experienced prior to the weather event. The length of time this will take is difficult to determine, and any change to the level of value can only be defined by sales with a contract date occurring after the date of the cyclone.

So far, 2017 has been a much more positive year for the Townsville property market, with a number of green shoots appearing and a distinct pick-up in market sentiment. Although the market remains relatively weak, people’s perceptions have changed and we have moved through the bottom of the market cycle to the start of recovery phase.

During 2016, unemployment levels skyrocketed in the Townsville region due in part to a slowdown in mining and the closure of Queensland Nickel. Due to the high level of unemployment and low level of employment opportunity, we also saw subdued levels of population growth, which is a major catalytic driver of the property market.

Market sentiment is primarily driven by employment opportunities and job security. The trend in the number of jobs being advertised on employment websites for the Townsville region has surged to record levels over recent months. The number of jobs advertised in January 2017 increased by a healthy 29.1% compared to January 2016, and bodes well for ongoing net employment creation during the course of this year.

There are opportunities for increased employment in and around the Townsville region over the next six to 12 months with the North Queensland Stadium, Adani’s regional headquarters and mining all ramping up. There are certainly some positive economic signs and it will be pleasing to see the market rise out of the depths of 2016.

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