Regional QLD

The Smartline Report – November Edition

The month in review: Regional QLD

By Herron Todd White
November 2015

Toowoomba

In the Toowoomba residential property market the investor subset remains active. However, the last half of 2015 has seen a stabilisation in investor driven development, perhaps in response to reduced mining activity in surrounding areas. Evidence of this is that while the median house price continues to increase, the volume of house sale since the peak at the end of 2013 and start of 2014 has slowly reduced, showing early signs of a softening consumer sentiment across the market.

Although investors continue to play an influential role in the level of development activity across Toowoomba, development of new units and dwellings on non-traditional small lots built to an average standard with basic to good finishes is concentrated in suburbs such as Glenvale and Kearneys Spring to the west of the CBD. The typical investor pool is comprised of mostly out of town investors seeking house and land packages.

There has been a notable slowing in rental demand and a subsequent decrease in gross yields being achieved for investor product. As such, this may encourage the investor subset to reduce risk appetite. Moreover, the tightening of investor lending criteria may negatively impact the Toowoomba residential market in that the construction of new units and dwellings on non-traditional small lots in these areas is near completely reliant on investor and tenant demand. This is the case as the nature of these rental dominated estates or precincts is often synonymous with average street appeal and a general lack of maintenance which has traditionally deterred interest from the owner occupier market.

In summary, it is unlikely that investor activity in Toowoomba will continue to increase at the rate seen in the previous year given the reduced mining activity in surrounding areas. However, while Toowoomba’s median house price remains below $400,000, the affordability of investment is likely to continue to attract some level of investor attention.

Hervey Bay

Sales relating specifically to investors have remained steady throughout 2015 for the Fraser Coast. Most investors target property in the sub $350,000 range, with only minimal activity above this price point. Rents have been gradually rising over the past two years, with some property achieving gross yields above 6%.

Many agents now comment that they simply do not have enough housing stock to cater for the ongoing demand, with a mix of interstate, intrastate and local buyers competing for existing property. Hervey Bay currently has at least five separate estates being developed with the next stage likely to cater for house and land packages under $400,000. Going forward, demand is expected to remain constant for investors as these new estates move to completion. Growth in rental return is not expected to continue however and is likely to stabilise in the short term, with affordability being a major factor.

Emerald

Investment in the local market is limited to a few active locals. There appears to be no out of town investors currently active which is the opposite of four years ago. It appears the worst is over for Emerald with an average drop of 25% in values over the past three years and rents dropping significantly over the same period. The market appears to be leveling now for the time being and there are some bargains about. There is no news on the horizon which will cause capital growth in the short term but historically the region goes through cycles and we are currently near or heading towards the bottom of a cycle. Any new major announcements of redundancies or mine closures in the local resource sector could cause a new low in the property market. Many locals would like to buy an investment property in the current market but have lost all equity in their own property if purchased in the past six years. Those who do have equity or are cashed up are shopping around. Residential properties currently show 5% to 7% gross return.

Bundaberg

Investors are attracted to the Wide Bay region due to the affordability of land, houses and units in the area. Interstate investors seem to be attracted to new stock in outer suburbs such as Moore Park Beach and Branyan producing housing around mid to high $300,000 and obtaining rentals of around $340 to $350 per week. However, these houses when offered back to the market for sale to local purchasers are not achieving original construction prices.

Sales volumes have remained steady in 2015 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 timber house in Bundaberg averaging $260 to $290 per week and a 4-bedroom modern brick house averaging $345 to $370 per week. Vacancy rates are at about 4%.

Confidence appears to be growing with the current low interest rates, federal government incentives and average vacancy rates encouraging both first home owners and investors to remain in the market during 2015.

Gladstone

There is very little investor activity in the market at present compared to three to four years ago when investors were pretty much the only buyers in the market. The demand for accommodation in association with the construction of the multi billion dollar LNG plants was the highest Gladstone had ever seen. However the market has been declining, significantly in some sectors since the peak in 2011 and 2012. In 2015, there has been a general stabilisation of the market for existing established housing. Sales activity has spiked at various times throughout the year as prices are now much more affordable. Most of this activity has come from owner occupiers or local investors out for a bargain.

The unit market has been the hardest hit in terms of value with most values now approximately 40% to 50% less than their value in the peak. There were over 900 apartments and townhouses built during the boom. This market is unlikely to improve in the medium term future. Most of these units were marketed towards investors and the new APRA guidelines are likely to further stagnate sales and possibly lead to further value reductions.

New construction activity is very low. Gone are the days of house and land packages being marketed to investors. The packages are still being marketed, however the uptake is much slower.

While many believe the residential market in Gladstone has hit the bottom, there are a few important factors which may say otherwise. There are still approximately 7,000 workers on Curtis Island finalising construction of the LNG plants. Approximately half of these are locals who within the space of 12 months will need new employment in a region that is already struggling. Vacancy rates continue to rise, currently sitting at approximately 8%. Demand is limited in certain market sectors. These items coupled with APRA’s new guidelines regarding investment lending indicate that Gladstone could be in for a bit more hurt in the future.

Rockhampton

Historically, investors have been a significant influence in the Rockhampton region, in particular in the entry level market sector. Investors in this region vary from both mum and dad investors to interstate investors who have often seen value in our affordability and during peak market conditions, were not fazed by purchasing properties sight unseen.

The investor market in Rockhampton has typically always been entry level price points however in recent years, there has been an influx of investment in new homes specifically targeted to non local investment providing a basic 4-bedroom, 2-bathroom home in the mid $300,000s.

As in most markets, investors in our local market focus on rental return and potential for capital growth. In a town of our size, transport infrastructure and proximity to major facilities is still a consideration, however not as important as it is in the major capital cities.

Investment in the unit market has a smaller influence in the market overall, yet between 6% and 7% gross yields are still attainable. Rockhampton has seen significant development in the short term and holiday accommodation sector in the past five years and supply is now becoming tighter, yet this is a relatively new market sector in which resales are largely untested.

Multi unit dwellings have always been a sound option for investors due to the lower risk of vacancy, however given the affordability of the Rockhampton region as a whole, rental returns for aged dwellings are also attractive.

Smaller sub markets in our local area such as Gracemere and the Capricorn Coast are experiencing similar conditions to varying degrees, with Gracemere being the first sub market in the Rockhampton region to reflect a downturn as a direct result of investor withdrawal. This downturn has been exaggerated by the significant number of non local investors paying highly inflated prices for house and land packages about three or four years ago on the basis of unsustainable rental guarantees which are now expired. This market was significantly developed, in particular in Gracemere between 2011 and 2014, off the back of the resources boom in mining towns within easy commuting distance of Rockhampton, including Gladstone. Once demand appeared to have reached its peak and the Gladstone market started to show signs of easing, developers of these housing projects quickly withdrew from the local market, particularly in Gracemere, and are no longer active in the area. Significant declines in values have been experienced in those resales that have occurred.

Locally we have been experiencing a downturn in investor activity to date in 2015, however market indicators show this is more as a result of lower confidence and job security rather than the changes to the APRA lending criteria for investors, which appears to be targeting the more heated markets of Melbourne and Sydney. Ideally, with the implementation of these new guidelines, interstate investors may start to return to our local market as a 20% deposit on a $200,000 to $300,000 house may be more attainable for investors than a 20% deposit on a $700,000 plus property. Mackay Prior to 2014, the residential market was heated with both national and international out of town investors. They tended to favour house and land packages, or near new dwellings or units. A particular residential estate known as Blacks Beach Cove, located in Mackay’s northern beaches, was marketed predominantly to out of town investors. A typical modern 4-bedroom, 2-bathroom dwelling with double garage accommodation was priced between $450,000 and $550,000 and would achieve between $500 and $600 rent per week. Vacancy rates in the Mackay region were below 1%. However since the downturn in the mining sector and influx of investor house and land products, there is very little investor activity in the Mackay residential market and property values of investor type products have fallen by up to 30%. The same 4-bedroom, 2-bathroom dwellings within Blacks Beach Cove are currently selling between $280,000 and $350,000 and achieve between $270 and $320 per week. Vacancy rates within the Mackay region are now in excess of 9%.

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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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