23 November 2014

Townsville Citizens Under In-Direct Fire from Residential Development Moguls

Townsville property moguls and inept Councillors (including local State representatives) are
pushing Townsville residential property income into decline, while a higher cost base is impacting on the standard of living for local citizens in comparison to the prevailing Gross Regional Product (GRP) in the overall economy.

"Stuck between the devil and the coral sea", governments and high-end property moguls are unleashing a volley of crazy capital stimulation from the sea-side inner-city unit developments to the outer-urban residential developments.

Meanwhile, second-generation incumbent inner-city unit and urban housing owners are feeling the greatest impact with many investors being pushed to the brink with lower than forecast profit margins.

Factor in acquisition capital, high vacancies and reduced cash flows, and probable losses on distressed sales and mortgagee in possession scenarios have increased substantially in the Townsville region in the past 12 months.

Bungled government tax reform, soliciting middle-class income capital for social housing policy, misaligned climate change policy and an over-supply of new construction housing have by and large triggered structural changes in Townsville's tropical and regional economy.

While the real estate and rentals industry are the highest contributors in percentage terms to Townsville's GRP, it is a sector under enormous pressure from which some businesses and investors have been brought to their knees.

The ABC's David Chen reports that "new figures show Townsville continues to have one of the highest rates of personal insolvencies in the country. Data released by the Financial Security Authority shows for the September quarter, there were 76 personal insolvencies in Townsville. Financial counsellor Saskia ten Dam from the Townsville Community Legal Service said the poor local economy, high rents and increased costs of living were putting pressure on residents. "Well I would say a minimum of one a week of people who [are] walking away from mortgages, surrendering their homes," she said.

Local economist Mr Dwyer said; homeowners in some suburbs may be disproportionately affected by the economic downturn. “... I know from Australian Bureau of Statistics data that there are suburbs really battling substantially higher levels of unemployment compared to the rest of the city,” he said. (Townsville Bulletin, 20 Nov 14)

Townsville needs visionary leadership! Leadership with a desirable political influence in Brisbane and Canberra and connections to new funding and capital supply. Links to new capital raising methods such as 'crowd-funding' initiatives, strategic alliances, joint ventures and networking with large corporations, institutions and consortium.

Spawning new and niche products and services, coupled with incentives for corporations to develop and foster skills and jobs in new and emerging technologies, must be high priorities for government and corporate leaders.

In the face of influential leaders that have built their reputation and wealth primarily on the back of Townsville's traditional real estate developments, enabling new leaders that are connected to the global capital, new age technology and infrastructure is seemingly an insurmountable task. But the Townsville economy, its people and its leaders must adapt or fall behind an increasingly competitive and ascending middle class in Australasia.

Still, traditional skills and networks are essential to attracting secured capital, while engineering and construction expertise is needed to drive facilities developments such as a base load power plant, events and people facilities or government-sponsored infrastructure projects.

Decisions by State and Local Governments to release more residential land while seeking inner-city investment stimulation and more residential unit development is a crazy policy. Especially at a time in our economic and political cycles that Townsville is not winning a fair share of government funding based on the ratio of economic contribution the region provides to the State.

An example of crazy planning is the government sector funding of a combined federal military and private sector housing project at the new Blue Wattle community, a massive residential land release development covering 1500 hectares some 20 kilometres from the CBD. Less than 40% of the land will be occupied by defence personnel.

The non-direct investors, those living and working outside the City's trade zone, investing in Townsville is likely to continue with long term benefits, as direct investors have benefited from the growth of Townsville in the past decade.

But the local investor, many of whom are mature citizens, are needing immediate real economic stimulation from construction in sustainable industries and future growth technologies and trade networks. The City is set to continue suffering in the short term otherwise. Revenues and profits must improve to support personal lifestyles and local economic dynamics for small business and large enterprise in order for the standard of living are maintained based on previous generations.

Governments and corporate leaders must rapidly arrest the losses local investors and citizens are experiencing. The devil in the over-supply of residential property will haunt the citizens of Townsville for many months and years to come.

Townsville's productivity has been relatively stable while the citizens, investors and businesses are reaping less personal income from their labour and profits. Businesses and investors are being forced to reduce costs in order to maintain personal and corporate income, impacting substantially on the quality of life for the people of the City.

From an ear to the ground perspective, Townsville Real Estate Blog has actively reported on the general sentiment in the real estate economy and forecast short to medium-term supply and demand activity accurately. These forecasts have served as lead indicators for not only the real estate sector but the broader Townsville economy.

The extent and depth of the cutbacks occurring in the mining supply chain reducing fly in and fly out employment, subsequent reduction in manufacturing outputs, climate risk insurers driving strata unit and housing costs through the roof, while increased energy prices impacted directly on big industry and small businesses...this translated directly to lower living standards for property exposed citizens.

But the most significant risk element for property investors, apart from unemployment moving forward, is the supply of land assets by developer networks connected to large land release projects.

In a climate of conservative government policy, with construction stimulation a pillar of the State government election platform, combined with a local enterprise and political leadership culture prejudiced in the belief that more residential development means robust economic stimulation, the people of Townsville are being shackled with a tendency for misdirected economic stimulation costing its citizens dearly.

"BATTLERS struggling to pay their rates on time have handed Townsville City Council a $490,000 windfall"
Council figures show 7,785 homeowners and businesses failed to pay their rates on time, up from 7,111 at the same time last year. The financial troubles of those homeowners and business are expected to produce a $490,000 windfall for the council, as the 15 per cent discount on rates no longer applies if payment is late. (Townsville Bulletin, 20 Nov 14)

A change of planning focus and strategic direction is needed urgently, especially as the newly agreed Australia and China Free Trade Agreement rolls into operation in 2015.
Anticipating structural changes in the economic mix, entrepreneurship must become the new apprenticeship and trainee initiative promoted by governments.

The Galilee Basin rail corridor, port expansions in Townsville and Abbott Point, new mining ventures including renewable energy farms, and relocation of government administration to the Capital of North Queensland are critical projects for the City and region.

Traditional jobs are estimated to half by 2035. Progressive solutions such as community hubs for emerging e-commerce, home-based small business networking and building technology enterprises around online retail and content curation services and infrastructure is the future. With base load power on our doorstep, heavy industry and manufacturing could better compete with trading partners.

Once construction is completed, the economic stimulation reduces substantially. Meanwhile more residential accommodation is presented as supply to the property market. This is more competition for existing house and apartment assets impacting the ratepayers of the City.

Paradoxically the real victims of the over-supply of land and residential developments are also expected to shoulder the costs of infrastructure development and maintenance for next generation investors.

These investors then fall victim to the paradoxical cycle unless the political, corporate and community leaders drive a different agenda for the benefit of our property investor citizens, ratepayers contributing over 40% of the revenue to Townsville City Council coffers.

Either tone down the residential construction stimulation or ramp up the infrastructure, facilities or investment in entrepreneurs to ensure the demand for residential accommodation is sustainable for the majority of incumbent citizens of Townsville and the developer moguls of the City.


Townsville Real Estate Blog
Core Logic RP Data Reports
Townsville Bulletin
ABC News
Colin Dwyer, Local Economist

07 November 2014

Ready the Spinnaker – Winds of Fortune Turning in the Townsville Market

Townsville property has experienced significant head winds over the past 12-24 months impacting on investor yields, particularly in the apartment market, while lower median prices and valuations have occurred on the back of slowing economic conditions.

Increased holding costs, higher unemployment, government stimulus programs impacting over supply in the new construction sector, and fiscal policy reducing demand for private rentals with tax minimisation incentives for investors, have all been contributing factors as reported by Townsville Real Estate Blog.

It seems many measures and conditions have been unfavourable for incumbent investors while the fundamentals of the City’s broad-based economy have sustained continued interest in Townsville as a solid investment destination.

As the head winds ease and the inevitable turn of momentum comes, events are suggesting the winds could now be moderating to the stern (rear of the ship) offering forward momentum as governments announce publicly at least, sponsorship of capital investment projects such as the Ross Creek Precinct and jobs programs at a local call centre to mitigate the political risk of intolerable unemployment figures, and a growing displeasure with the perception of South-east Queensland-centric policies of the Newman government.

Now the Capital City markets are slowing and rental yields are weakening, as reported by RP Data’s senior researcher, Cameron Kusher. Mr Kusher reported; “With rents growing at their slowest pace in many years we are also seeing weakening rental yields. At a combined capital city level across all dwellings, gross rental yields are recorded at 3.8% which is the lowest reading since January 2011. With the rate of capital gains outpacing rental growth we are seeing rental returns reduce across all capital cities. In fact, over the past year gross rental yields have fallen across each capital city.

Townsville some 24 months ago experienced simular dynamics with an increasing supply of new housing driven by Federal and State government money, cash flow thirsty developers pushing land releases, cheaper housing models on smaller allotment sizes and a highly competitive build market caused yields and prices to ease.

RP Data’s Mr Kusher also commented; “The surge in building approvals over the past 18 months or so is likely to be contributing to the slowing rate of rental growth. With the number of home sales rising, new housing supply rising, more investor owned properties and population growth slowing, those renting properties have comparatively more housing options to choose from. As a result, the owners of these investment properties have less scope to increase weekly rents when renters can find alternate accommodation more easily than in the past”.

Townsville’s rental vacancy rate has reduced from July to August 2014 by 1% as the mid-year seasonal in-flows of people occur. Still less demand experienced in previous seasons as Herron Todd White’s Townsville Rent Roll Report for Oct 2014 identified with total vacancy rates sitting at 4.42%, units are 5.77% and houses are 4.42%.

Compared to Oct 2013, the vacancy rate for Oct 2014 is nearly 2% higher, which does not lead well for vacancy rates and flow on demand of consumer goods and services coming into the Christmas period, which traditionally experiences further outflows of people from the City.

Despite the sustained higher vacancy rates pushing prices for rental accommodation down in both unit and housing, interest in house sales have improved slightly with an increased median price of 3.5% over the past 12 months. Unit prices reduced by 12% with this sector considered a high risk investment in the short term. Houses on the other hand are picking up from the winds of fortune turning and astute investors are heeding the signals.

Local Real Estate Principal and Auctioneer, Aaron McLeod commented; “Our Townsville team has experienced an upswing of buyer interest in properties with value-add prospects. Land where a small subdivision, dual occupancy development is approved within 5 kilometres from the CBD or where properties need minor improvements to generate a positive return in financial or lifestyle terms”, Mr McLeod said.

Self-managed superfunds have been active in the market along with traditional home buyers acting on the purchase of quality homes at fair prices. These buyers along with astute investors have contributed to the transaction volumes and causing a modest upswing in prices off the back of sustained price easing over the past 5 years, Mr McLeod commented.

With government attention being drawn to the North Queensland economy with relatively high unemployment leading up to a State election, the supply of new housing easing as competition and development cost become less profitable, government funding for subsidised accommodation reducing and Capital City yields and prices easing in an environment of low cash rates, Townsville and North Queensland investors should get set as the main sail draws on the tail winds of an improving property market leading into 2015/16.


RP Data Core Logic Report
Herron Todd White Townsville Rent Roll Survey Report
Townsville Real Estate Blog