Townsville's property market is a laboratory of capital, social and policy forces impacting on the supply and demand dynamics for accommodation and housing in Australia's 2nd largest economy.
The 'Capital of North
Queensland' has seen steady price movements in both acquisition and leasing
markets over the past 5 years.
But now the time has
come, or we are on the eve of a long awaited uptrend at least, that investors and
accommodation consumers realise the benefits from a convergence of economic,
policy and political factors pushing prices to the pinnacle of downside trends
in the market.
If Warren Buffett's
secret to successful investing in business is to be believed, the underlying
value of the Townsville property market is undervalued and primed for
valued-centric investors.
In comparison to
Australian capital cities, significant regional economies and local trends in
prices and values, the 'Greater Townsville Region' is a "hot spot"
location for investors in the Australian marketplace.
"The arrival of
a new agency in Townsville comes as ANZ chief economist Warren Hogan predicts a
revival for the property market. Speaking to the Committee of Economic
Development of Australia this week, Mr Hogan said “the housing market is in its
early stages of a solid cyclic upswing” caused by low interest rates and market
shortfalls. He predicted a 15-20 per cent increase in home values between
2013 and 2015 and said Queensland cities could soon experience growth already
seen in southern capitals." Townsville Bulletin, Feb 2014.
Townsville in Focus Report May 2014 identified that; "The
median house price stood at $355,000 in March 2014, 2.0% below the
$358,000 median house price recorded in March 2012 and 6.1% below the peak
of the market in December 2009.
A significant lead
indicator for the accommodation and housing market is the demand for
residential rental accommodation. The Herron Todd White, June 2014 Rent Roll
Survey Report shows vacancy rates have continued to increase to 5.45% overall.
As reported by Herron Todd White, "Median house rents have dropped
by $5 a week, from $365 to $360 per week, between March 2013 and
March 2014. Median unit rents have dropped by $15 a week, from $315 to
$300 per week, over the same period."
Townsville Real Estate Blog (TRB) believes rental prices have eased further in the June 2014 quarter based on 'coal face' monitoring, and forecast prices to steady with less easing in the September 2014 quarter. Prices are forecast to steady in the December quarter at the corrected new medians. It is bold to forecast that the unit median price could dip below $300 per week, but there is anecdotal data showing a subdued rate of enquiry on existing stock from professional and semi-professional occupations on existing CBD stock, a period after EOFY that draws higher inflows of this category into the City.
The Far North Queensland and Cairns market is experiencing a revival in demand
and prices. A Cairns and Far North Queensland real estate agent said;
“There has been a substantial rise (dwelling prices) on the back of high rental
demand, which has increased the popularity of people buying instead of paying
higher rents,” he said. “That’s the catalyst for the change in the
marketplace and obviously the fact that rents have come up has attracted
investors back into the marketplace as well, also with the underlying
expectation that Aquis (a Chinese and Hong Kong-based 'super-resort' at Yorkeys
Knob) will proceed. So there’s confidence in the housing market from that
point of view, not only in current rental returns, but expected future capital
gain.”, Mr Sterling from Ray White northern beaches said.
Townsville Real Estate Blog reported in March 2013 (Time to Wake and Smell the Roses
Townsville Real Estate; Queen Bees are Being Born) that the optimum market
for buyers would be 6-12 month away.
Mr McLeod, Principal
of Rapid Realty in Townsville said; "The vacancy rates and supply and
demand dynamic in the rental accommodation market is like a "canary in a
coal mine" as far as sales are concerned. As is seemingly occurring in the
Cairns market, a pickup in rental demand should signal a revival in volumes and
prices in the sales market."
Ranked from highest to lowest by TRB in terms of the most influential
micro-economic factors impacting the supply and demand dynamic in the
Townsville property market are:
1. Higher
unemployment from mining, government and small business retractions (demand
flat)
The top ranked factor
is unemployment and government instability. This factor is creating a negative
imbalance of demand inflows for accommodation in the market. Higher vacancy
rates have occurred as more people move away from the City seeking employment
than an equal volume of people moving into the City. The current unemployment
rate is approximately 8.5 percent in the district.
2.1. NRAS promoting
false economy in new construction (demand flat/oversupplied)
By design, the
previous labour government introduced the NRAS scheme to reduce the price of
accommodation and housing in the marketplace, which was deemed to be
'overheating' and unaffordable for ordinary people at the time.
Driven by a consumer-centric society seeking cheaper prices, and adopted by a
progressive government, this social policy decision is having a significant impact on
rental vacancies in the non-subsidised accommodation and housing economy.
"What can be
given by the pen, can also be taken by the pen!" NRAS is creating a false
economy in the new construction sector. The Abbott government has budgeted for
a termination of this scheme if the Federal Budget is carried in the current parliament.
2.2. Middle income
families lured into NRAS homes at significant price discounts (demand
flat/oversupplied)
Townsville Real Estate Blog have received
reports that eligible NRAS tenants have declared over $100,000 in combined
personal income yet were approved for the government subsidised and privately
funded NRAS properties.
The attraction of
middle income consumers to such a scheme demonstrates the depth and breadth of the demographic supported with government subsidised accommodation impacting the private real estate economy.
If the 'silver
bullet' of public housing policy could be manufactured, the NRAS scheme would
have to rival all social housing schemes in terms of the structural impact it
is having on the supply and demand dynamic in the Townsville economy.
2.3 NRAS demand pool
slowing and landlords seeking termination (oversupplied)
In recent times, TRB
has received direct enquiries from NRAS landlords asking if they can terminate
the NRAS contract early because of extended vacancy periods being experienced.
NRAS registered property owners were unable to maintain essential cash flow
from the NRAS pool of eligible tenants.
It has become evident
that the exclusive nature of the NRAS scheme has itself exhausted qualifying
tenants to fill vacating properties. Just as credible, the demand-side of this scheme is
not meeting the appetite from investors seeking the lucrative $100,000 taxation
rebate over 10 years.
3. Sustained low cash
interest rates (demand positive)
Sustained low
interest rates have contributed substantially to the demand for mortgages
impacting the flow of capital into the property market in Townsville.
Mr Hassan of the
Westpac-Melbourne Institute said; “While the Reserve Bank did not cut
interest rates over the month, some banks have been lowering rates for new
loans, reflecting recent declines in market rates as the slowdown in activity
has seen a reassessment of prospects for the official cash rate. In August we
saw the confidence of those households with a mortgage jump of 12.8%".
Mr Hassan also said "We expect
the bank to again leave rates on hold at its July meeting and through the
remainder of 2014 and the first half of 2015,'' he said.
The minutes of the RBA board's June meeting noted there were
''uncertainties'' over what impact the federal budget and expected declines in
mining investment would have on the economy. Economic slowdown is 'likely', Westpac-Melbourne Institute Leading
Index shows.
4. Lack of sustained
private and public capital projects (demand moderate)
Townsville's $78
billion capital expenditure programmes have by and large run their course such
as the Flinders Street Mall redevelopment, new Cruise Ship Terminal and Port
expansion, Port Access Road, Jezzine Barracks, Lavarack Barracks developments and expansion of the Townsville Hospital site.
Townsville Enterprise Chief Executive Officer, David Kippin, said, "the
March quarter 2014 DSR shows investors have maintained confidence in the
development of Townsville North Queensland with major infrastructure, construction
and mining activity stimulated by new ventures. Since the December quarter
2013, more than $65M in projects have been proposed including the $50M aged
care facility at Fairfield Waters,” David said. The report shows $9B in
projects underway, $35B approved and $33B proposed for the region with more
than $150M in projects completed since the December quarter 2013. “A
number of significant projects have been completed including the $40M Jezzine
Barracks and Kissing Point redevelopment which opened at the weekend with
celebrations continuing throughout the week.” (Townsville Enterprise
website, March 2014)
Employment from these
projects, mining and government operations has caused robust and sustained
price improvements to rental accommodation in line with the national consumer
price index of 2-4 percent. The convergence of capital project completions,
reduced private and government capital flows have been the sharp edge of the
economic downturn and higher unemployment in the last two quarters.
5. Abandoned sales pushing into rental pool. Unsatisfactory vendor price to
buyer value expressions and mortgagee in possession events (oversupplied)
Townsville properties
are sitting on the market for sale for an average 105-110 days, 88 days for
houses and 124 days for units. Over 3000 properties are listed on the market for
sale in any one month across the City. Approximately 250-275 properties are
sold per month. In February 2014, sale volumes were down to 215 for houses and
slight increase in unit sales to 55. On average sellers are discounting
the price of their properties by approximately 7-9 percent to achieve a successful
sale.
Approximately 450 new properties were listed in May 2014 in postcode 4810,
which includes suburbs of Townsville City and surrounding suburbs such as South
Townsville, West End, North Ward, etc. The overwhelming majority of
properties do not achieve settlement. Approximately 8-9% of all properties on
the market in Townsville actually sell per month. Of these
sales, approximately 3% have been distressed sales as 'mortgagee in possession'
transactions.
Sellers have opted to place their properties on the rental market contributing to the oversupply of stocks because of unsatisfactory price to vendor value. Just as there has been an increase in mortgagee in
possession sales in the past 12-18 months, so too the occurrence of abandoned sales.
6. Abandoned sales pushing into rental pool; excessive strata levy increases
(oversupplied)
Although both
owner-occupiers and unit investors are abandoning sales due to unsatisfactory
'on the market' value/price considerations, it's the owner occupiers mostly contributing to additional accommodation supply and pushing vacancy rates
higher each time an abandoned owner-occupier sale occurs.
Strata unit owners have contended with both inflow and outflow constraints.
Holding cost outflows and rental income inflows have been unfavourable. TRB
reported on the Strata unit market in December 2013 being the eye of the
perfect storm.
http://townsvillerealestate.blogspot.com.au/2013/12/north-queensland-strata-rental-market.html
These concurrent pressures have led to 'on the market' decisions by owners
generating further supply of units on the accommodation market in Townsville
contributing to 7.40% unit vacancy rate.
Coupled once again
with investor-driven new construction, reduced natural demand due to higher
unemployment, and the influence of NRAS people movements, excessive strata
unit supply is a worthy inclusion in the top 10 factors impacting the
Townsville property market.
6.1. New
construction; property investment spruiker road shows (oversupplied)
As the 2nd largest
regional economy in Australia and a reputation as a government hub for defence,
education, civil and social services, mining, transportation and tourism,
Townsville is an attractive destination for investors from Australia and
overseas.
Sydney-based
franchise agent McGrath stated "comments came as mortgage broker
AFG reported investment activity in Queensland had jumped from 33.5%
in January to 38.7% in June. A lot of that activity is in Brisbane but
key regional centres are also attracting attention. For example, our
office in Townsville estimates that 50% of investment sales are going to North
Queenslanders and up to 40% are going to Sydneysiders." McGrath said "investors were attracted to newer houses around $350,000 to $450,000 and small
sites with development potential." (Property Observer, August
2014).
"Developer land stocks have tended to increase due to on-going
production over recent months, with our latest survey showing a stock of
587 developer lots available for purchase as at the end of April 2014
compared to 424 at the end of June 2013", as reported by Herron
Todd White's May 2014 Townsville in Focus.
With the slight downturn in new house constructions since 2013, combined with underperforming government grant schemes and a slowdown in economic
activity, many of the new house constructions have been driven by Southern investors
contributing further to an oversupply in the rental market.
“A pick-up in the property spruiking business is a signal things may be getting a little too exuberant,” HSBC Australia’s chief economist Paul Bloxham told the Australian Financial Review.
Townsville Real Estate Blog expects a notable reduction in developer land stock over the coming months. This may be a factor in sale prices and volumes in existing dwelling stock
moving higher in the coming 6-18 months, setting the scene for more Sydney and
southern investors seeking solid returns as the capital city markets cool off
and returns ease.
6.2 New construction;
State Government "great start grant" funding
(oversupplied)
The Newman
Government's repackaged "great start grant" targeted
exclusively to first home buyers has contributed relatively minor activity in
the housing economy. The government has simply rehashed the first home buyer’s
grant, which many experts believe has lost its intended impact as an affordable
entry incentive to the housing market for first generation home owners. The
housing market has in fact experienced a modest slowdown in new constructions
since 2013.
Townsville Real Estate Blog believes the
new construction eligibility for this scheme has contributed to the low popularity
of an exhausted policy incentive because new house prices are much higher than
comparable functional 2nd generation properties.
New construction
products in Townsville are generally located 10-30 kilometres from the CBD.
Such developments are North shore, Greater Ascot, Blue wattle, Cosgrove, Mount
Margaret, etc. Combined with the premium price structure of new homes, first
home buyers are opting to live closer to centres of employment, or social
support centres, such a schools, shopping and hobby centres like sport and
community participation facilities.
Herron Todd White's Townsville in Focus Report, May 2014 identified; "The
trend in housing approvals has maintained a general increase over the last
three years, most recently on the back of three large scale
unit developments (together involving 238 new apartments) that have
been approved thus far in 2013-14. However the number of new
houses approved for construction has had a mild slowdown since mid-2013,
to a trend average of 102 new approvals per month in March 2014."
7. Federal funding
commissioning defence housing green acre developments and in-fill stock (demand
flat/oversupplied)
Defence housing stock
has received a substantial shot with the release of 98 hectares of land, 1300
lots, 430 of which is committed to defence personnel. The Blue Wattle Master
Plan Community is 17 kilometres from the CBD in the suburb of Rasmussen.
In addition to this
significant green acre development, defence housing is holding new stock in North
Shore, Bohle Plains, etc. Anecdotal reports have confirmed that in the
absence of sufficient defence customers, 20-30 surplus houses have been
released onto the general rental market into Stockland's North Shore
development, again contributing to excess supply.
The strategic
importance of defence members on the Townsville economy is significant. As
reported by Dr Riccardo Welters, School of Business at James Cook
University, The Australian Defence Organisation and Tropical Australia:
Its Socio-Economic Impact in Cairns, Darwin and Townsville, the
following personnel are members of defence across tropical areas.
8. Reduction in
immigration and refugee resettlement inflows (demand negative)
As a direct result of government policy, there has been inflows of 500 to 1000
persons per year being new immigration families mostly from North Africa and
Central Asia, with this having reduced to negligible volumes in the past 12 months.
A reduction in
immigration settlements to the City has been a relatively minor contributing
factor. With a preference for affordable units close to Aitkenvale with nearby
education, shops and transportation centres, the reduction has impacted the
most sensitive strata unit rental market.
Every profit seeking
trader wants to predict the bottom of the property market cycle in order to ride
the wave of value growth, and then hold until the planned profit outcome is
achieved that determines the optimum time to dispose of the asset.
Since the Global
Financial Crisis of 2007, astute investors in Townsville have factored
into their Return on Investment (ROI) calculations, that property prices have
more downside risk then upside opportunities. From a humble 'coalface'
perspective, this manifests in investors requests for rental appraisals and a purchase contract consistent with at least 7 to 9 percent ROI on
residential property purchases.
We have seen two
changes in government at the State and Federal levels since 2013. Continued political
and economic uncertainty in this time has contributed to a sustained bottom in
the property cycle. Although not defined as a material contributor to the
factors ranked in the content of this blog, political supply at a macro level
is a credible risk moving forward for the local economy and investor
confidence procuring property.
In my opinion, based
on daily conversations with buyers, sellers and landlords around the dining
room tables of the City, and critical analysis of broader material research,
the property market has over-matured like an ancient Chinese cottage cheese.
References:
World's Oldest Cheese http://www.ibtimes.com/worlds-oldest-cheese-found-3600-year-old-chinese-mummies-made-ancient-technology-1558756
Dr Riccardo Welters, School of Business at James Cook University, The
Australian Defence Organisation and Tropical Australia: Its Socio-Economic Impact
in Cairns, Darwin and Townsville
- http://researchonline.jcu.edu.au/30101/7/30101_Welters_2013.pdf
Townsville Bulletin
- www.townsvillebulletin.com.au/
Townsville Enterprise
website - www.townsvilleenterprise.com.au/
Herron Todd White,
Townsville in Focus Report May 2014 - http://www.htw.com.au/
Herron Todd White
Rent Roll Survey May 2014 - www.htw.com.au/
Cairns Post
- www.cairnspost.com.au/
Townsville Real
Estate Blog - townsvillerealestate.blogspot.com.au/
Rapid Realty
Townsville - www.rapidrealty.com.au
