Turnbull federal budget could wipeout Townsville property owners

Image: Cartoonist, Dave Pope

The Turnbull-Morrison federal budget could wipe out many property owners who are hanging on to their investment properties in the Townsville district by the skin of their teeth, enduring sustained cash flow and equity declines over the past 5 years.

Not to mention the property owners (investors and owner-occupiers) whose fate has already been determined, falling victim to the steepest economic and property decline in financial terms in local recorded history.

Many are local residents that have lost their jobs or businesses, foreclosing with the banks or filing for bankruptcy. The highest occurrence of bankruptcy across the entire country has been experienced in Townsville.

Significant numbers of property owners are living from hand to mouth constrained by the debt imbalance. They are incurring losses from which negative gearing and a reliance on taxation refunds are their only salvation.

Despite the Property Council of Australia's (PCA) influence on this budget, the threat at the next election of a more extreme left-wing policy of reducing or eliminating negative gearing, has become a haunting possibility as the country strives for more revenues.

Green and left-wing extremism are likely to swing ordinary voters against the rise of Trumpism and Turnbullism. More anti-business and anti-corporate campaigns like Getup's malicious campaign against Adani coal is an ideology with heavy domestic and international support.

Although a seemingly senseless policy to any economist, a change of government, could be the armageddon for property owners if the Townsville economy continues to dance so far out-of-step with national economic trends and federal fiscal policy makers.

Also, Townsville governance organisations threaten the investment pipeline of the City in the short term, as the Turnbull government has a deep thirst for the "City Deal" mega data deposits from the Internet of Things (IoT) system. Under the contract by Mayor Jenny Hill, the "no data, no deal" is setting Townsville Enterprise up for restructuring or imminent redundancy.

The federal budget announcements targeting big-ticket infrastructure and taxation concessions using superannuation and negative gearing for managed funds to address housing affordability in Sydney and other capital cities is a dumb policy. This is really irresponsible on Townsville North Queensland given the recent and ongoing pain and suffering.

Despite Townsville Enterprise foolishly appealing for more new housing development to meet projected population growth, in other words increasing supply, North Queensland and Townsville districts do not need a housing affordability policy at the forefront of the public agenda when business investment and jobs are what is needed the most.

Instead, a more prudent priority for Townsville district is to seek microeconomic solutions such as the Tax Increment Financing (TIF) scheme, as proposed by the PCA. This is backed up by the Northern Australia Development Facility, with strong and robust relationships, with leading boards and executives of large enterprise both domestically and internationally.

Apart from births, migrations, and immigration, the focus on value-add industries securing property for development in Townsville's Council district, is Townsville's only leverage under the "City Deal" contract, to attract significant federal and state government investment.

The New Residential Land Sales and Supply chart clearly shows the surplus land stocks in Townsville districts.

In his address to the media, the Treasurer Scott Morrison said, "it's not a silver bullet – nor is it intended to be", referring to his federal budget and the media anticipating a fix all budget.

Ironically, this is exactly what this budget is. A silver bullet for property owners being put out of their misery if these measures strike to achieve more housing affordability in a market plagued by asset value declines.

Unemployment rates in Townsville are at 11 percent and the broader economy of regional Australia is hurting from the downturn in mining activity and substantial increases in energy prices.

The centre-point of the budget, being that it addresses housing affordability, could move the sentiments of distressed property owners and buyers to protest and disrupt the political will of what is perceived to be a puppet's play.

This federal budget reaffirms the concerns of local representatives that the Federal and State governments are capital city-centric. They are driven by votes instead of delivering "a fair go for all Australians", which Mr. Turnbull promised in his preamble to this budget.

The Turnbull-Morrison federal budget will go down as the most politically safe budget in coalition history. In fact, many commentators are saying it is a labor policy budget with terms like "centralist budget" and "not traditional liberal".

The Liberals are fully funding social programs such as the National Disability Insurance Scheme (NDIS) and increasing taxes on the banks.

The banks, of course, have already said they will pass on the cost increases to every mortgage holder in the country. As the big four banks have done in recent times, they are well within their rights to act independently to raise their interest rates and fees.

Once again for Townsville North Queensland, the people are being asked to pull up the smelly socks of bad government leadership. Meanwhile, a liberal government slips into their fresh uncharacteristically labor-like federal budget cotton socks to attract votes from the capital cities and the left-wing media establishment driven by ratings and polls.

Even financial and taxation professionals are labeling the budget as a "good strong budget" as there are no additional personal or small to medium size enterprise (SME) tax increases announced. Superannuation by and large has been untouched. 

Just as the people have grown to expect smoke and mirrors from a political funding announcement, the Turnbull-Morrison duo is being socially responsible and hitting the big end of town just like the Labor opposition policies were proposed to target.

By design or coincidentally, it is likely Bill Shorten has been taken out of play in this budget. Not only in policy terms. But it is effectively the "Bill Shorten execution budget".

Shorten's electability, not just as an opposition leader but Labor candidate in the seat of Maribynong, has taken a direct hit with 127 hectares of defense land in his own electorate in Victoria being made available for 6000 new affordable homes under this budget.

Is Mr. Shorten's political career finished? Mr. Turnbull would hope so, if the cold shoulder he gave him in front of the media the morning of the budget announcement is any indication.

Putting the political undertones aside, what if Sydney, Melbourne or Brisbane had an unemployment rate of 11 percent with a median house price of $337,000 for houses, and $272,000 for units? Would the federal budget be focused on housing affordability? Absolutely not!

The House and Unit Prices chart below demonstrates the decline of values and stable affordability environment in Townsville districts. 

Economic stimulation with tax breaks, grants, and infrastructure investment spending in the regions would be high on the agenda. But not this politically and socially sensitive government.

Its focus is on self-preservation. Obviously seeking to secure the next election with capital city and regional Victoria and New South Wales voters, who are set to benefit from the new $20 billion rail corridor from Melbourne to Brisbane.

With a consolation prize of relatively minor funding, allocated to repairs and maintenance to the Bruce Highway and disaster relief from cyclone Debbie, nothing positive from a Townsville perspective can be said about this budget.

When we look at the median property price for rentals in Townsville, it makes the federal budget's focus on affordable housing look like a joke.

For example, a three bedroom house in Townsville is currently being rented for $290 per week. This is a decrease in the housing price of 6.5% in the last 12 months, with the housing price already starting from a low base and dropping consistently from nearly $400 per week in 2012.

Considering the massive uncertainty in the superannuation sector over recent budgets, the mobile and rental accommodation being so affordable in regional Australia, the elderly are anticipated to snap up the $300,000 per person superannuation top-up option in this budget.

Once again in a Sydney context, this policy might make sense. But in Townsville, adding more supply to an already distressed housing market is like igniting high octane fuel in a fire of despair.

Unless local governments and marketing experts in Townsville and North Queensland target the elderly in the capital city markets by offering comparable or upsize value strategies such as a clean, affordable and healthy tree-change lifestyle, this budget measure is more likely to be detrimental to Townsville's property market.

The likely result is more housing supply as our elderly residents will seek to cash in. This breeds more unhappy owners because the further downward pressure will be put on median house prices.

In addition this budget also, the federal government will establish the housing finance corporation (HFC). From July 2018, the HFC will offer long-term, low-cost finance to community affordable housing providers. Investors are assured to get rental payments from the government with direct deductions from welfare payments transacted to investors.

It's the $1 billion National Housing Infrastructure Facility (NHIF) that is of particular concern in the hands of an inept local government being charged with developing business cases, to win funding and then administering the funds through community housing contractors.

Desperate for new home developments that attract increased revenues, council rates and economic stimulation, the NHIF program in Townsville will have Mayor Jenny Hill and Townsville Enterprise salivating at the mouth.

However, this social housing initiative will be disastrous for incumbent property owners in Townsville based on the accumulated evidence from the NRAS (National Rental Affordability Scheme). The now abolished Labor government NRAS program was a disaster back in 2013, its legacy is still being felt across the City.

Then, NRAS was the catalyst for the sustained fall in rental prices and subsequent fall in sale prices across the City. This combined with softer global commodity prices and carbon tax policies, Townsville's property economy has been impacted by catastrophic losses ever since.

Furthermore, affordable housing investors are being offered a possible 60% discount on capital gains if they build new housing projects with the condition of pricing the accommodation below market prices to low-income tenants managed by a community housing provider.

This is NRAS rebadged! All be it with a 40% less capital write-off, but with a more favourable incentive to control rental cash flow directly from welfare payments or employer direct contributions.

NRAS created a false economy and drove free market prices down just as the combined housing affordability initiatives are now likely to do.

The NHIF is based on the UK model aiming to assist local governments to develop new homes and apartment blocks. For Townsville North Queensland, the combined measures of NFIC and NFC are unfavorable with property prices already falling substantially over the past 4-5 years. NRAS Mark II is what this federal budget is delivering.

But that is not all, a separate Trust is being established by the federal government to encourage both foreign and domestic investors to invest in affordable housing in Australia. 

On one hand, foreign investors leaving properties vacant are being penalised $5,000 in capital gains in this budget, while on the other hand, the government opens up a larger pie for taxation write offs by directing their attention to public housing infrastructure.

In principle, this is a smart measure if it were applied to foreign investors directing their capital into regional manufacturing and new enterprise initiatives that create "value-add" to Townsville's enterprise infrastructure. 

Knowing the influence of Townsville's infamous property development moguls with land to burn (as shown in the New Residental Land Sales and Supply chart above), and a local council habitually grovelling for new subdivision applications, the depth and intensity of the housing affordability measures in the federal budget are bewildering.

To drive the nail in the coffin even further, property owners who claim travel expenses on their tax returns for inspecting, maintaining or collecting rent on their rental properties will no longer be allowed after July 2017.

Consider the fact that over 40% of Townsville's total housing supply are rental properties owned by investors, many travel to Townsville to check on their properties.

With current property yields declining and debt-to-equity ratios increasing, the federal budget is indirectly targeting the 3rd largest contributor to industry output in Townsville's $30 billion economy, this being the "Rental, Hiring and Real Estate" sector at 9.4% (Source: REMPLAN: Dec 2016). This is an industry contributing $2.8 billion per annum to the Townsville economy.

Under prudent management rationale, this budget would normally bring opposition kicking and screaming. But not a whisper from the incumbent Labor representatives in all local, state and federal seats across the Townsville districts.

Patricia O'Callaghan, Townsville Enterprise (TEL) CEO, confirmed in a statement to the Townsville Bulletin that the budget did not address any of the priority initiatives outlined by TEL in their pre-budget wish list. Yet she praised the Smart City Deal initiative and pledged to work with the federal government. 

The property owners and investors of Townsville North Queensland have been left with more questions than answers from this federal budget. With this fresh analysis undertaken by TREN, the property owners and stakeholders of Townsville North Queensland can forge a conclusive understanding of the impact from the federal budget on local real estate investors and owner-occupiers. 

Do you have an opinion about the federal budget? The TREN community wants to hear your story.

New smoke alarm laws; Is your family safe?

From the 1st January 2017, new smoke alarm laws for domestic dwellings came into effect in Queensland that requires smoke alarms older than 10 years, or that are faulty, must be replaced with a photoelectric smoke alarm that complies with Australian Standard (AS) 3786-2014.

Dwellings that are hardwired must be replaced also with photoelectric smoke alarms under the same conditions if they are 10 years old or faulty.

Image: Thanks to rta.qld.gov.au

Existing ionisation smoke alarms are recommended for replacement as soon as possible. Although this is not mandatory until 2022 or it becomes faulty or exceeds the 10 year age condition. It is recommended by Fire and Emergency Services to replace Ionisation smoke alarms anyway.

Image: Thanks to rta.qld.gov.au

From 1st January 2022, ionisation smoke alarms must be replaced if the dwelling is being sold, leased or an existing lease is renewed and replaced with a photoelectric smoke alarm less than 10 years old and interconnected with every other smoke alarm in the dwelling. The alarms must be hardwired or powered by a non-removable 10-year battery.

Each storey or level of the dwelling, bedroom and each connecting hallway, or between bedrooms if there is no hallway must have an interconnected smoke alarm installed. Even if there is no bedroom on an extra storey or level, at least one smoke alarm must be installed in the most likely path of travel to exit the dwelling.

In addition to the Fire and Emergency Services requirements, rental property owner/managers are obligated to comply with the following requirements

Image: Thanks to rta.qld.gov.au

From January 2027, all private dwellings (yes your private home), townhouses, units and houses and investment properties must install interconnected photoelectric smoke alarms. If a hardwired smoke alarm cannot be installed, a non-removable 10-year battery smoke alarm interconnected must be installed to comply with Australian Standard (AS) 3786-2014.

If you are buying smoke alarms, there are some alarms that do not comply with Australian standards and there are alarms that standards certified recommended by Queensland Emergency Services and Standards Australia. The alarms to buy have these symbols or labels attached to the smoke alarm product.

Image: Queensland Fire and Emergency Services

The alarms to avoid have these symbols or labels attached to the products or nothing at all indicating the Australian Standards labels. Do not buy these because they are not compliant with Queensland law.

Image: Queensland Fire and Emergency Services

The placement of smoke alarms is also recommended along with having a fire escape plan in place to not only be alerted by the alarms but to respond to the emergency and exiting the property safely with your life and your loved ones.

Image: Queensland Fire and Emergency Services

Details of the placement and all other fire safety specifications can be found on the Queensland Fire and Emergency Services website. Here you can also find important information regarding smoke alarm safety; selling and leasing, new buildings or renovations and more detail about photoelectric smoke alarms.

Property owners and managers can find further information at the Residental Tenancy Authority website.

High profile politician buys Townsville shopping complex

Image: Mr Dutton and wife Kirilly Dutton 

Australia's federal Immigration Minister, the Hon. Peter Dutton has purchased a multi-purpose retail, medical, consulting and office space complex in the Edison Plaza shopping centre at Wulguru, just off the Flinders Highway south-west of Townsville.

The suburb has been earmarked by TREN as one of the hotspot locations in Townsville with its proximity to the army base, university, Cluden Park horse racing, commercial retail including Bunnings, Woolworths and variety stores, heavy industry transportation facilities, the Stuart correctional centre and the proposed 25,000 resident development of Elliott Springs.

Image: Edison Plaza Wulguru

The Edison Plaza complex is adjacent to the Wulguru State School. The commercial property is reportedly netting approximately $104,000 per annum with a current vacancy of approximately 10 percent. Fully tenanted, the complex has a nominal net yield of approximately $140,000 per annum.

The property was marketed and sold by Elders commercial agent, Glenn Adair with a 752m2 floor area on nearly 1 acre of land. The Edison Plaza complex includes eleven tenancies with 52 onsite car parks and drive-through access.

Image: Google Maps, Wulguru, Townsville

This investment brings the couple's property portfolio to five properties across Queensland and the Australian Capital Territory with the most audacious being the property at the Gold Coast's Palm Beach for $2.3 million.

Mr Dutton is an ex-police officer mainly working in the drug squad for Queensland Police. He was elected to federal parliament in 2001 as the member for Dickson, a suburb north of Brisbane. He famously unseated then Australian Democrats Leader turned Labour Party member and MP, Cheryl Kernot.

In his maiden speech to parliament, Mr Dutton said; "As a police officer, I have seen the best and the worst that society has to offer. I have seen the wonderful, kind nature of people willing to offer any assistance to those in their worst hour, and I have seen the sickening behaviour displayed by people who, frankly, barely justify their existence in our sometimes over-tolerant society."

Described by a former flatmate that "not everyone loves him, that's for sure". He is also described as being smart, charming, funny, astute, duplicious and articulate.

The Edison Plaza property was a sale by private treaty for $1.1 million and was on the market for nearly a year and a half. Mr Dutton and his wife Kirilly paid $760,000.

The couple has two sons, Tom and Harry, and daughter, Rebecca. The couple reside in their family home at Camp Mountain, north of Brisbane and are not expected to relocate to Townsville, North Queensland.

National retailer embarrassed selling illegal smoke alarms in Townsville

Townsville residents are being warned about buying out of date smoke alarms from local retail and hardware outlets.

A local property owner reported purchasing non-complaint products from a local retailer this month, despite the fact new tougher smoke alarm laws were introduced in Queensland from the 1st January 2017.

Queensland's Minister for Fire and Emergency Services, the Hon. Bill Byrnes, said; "although residents would have up to 10 years to install the new alarms, everyone should take action to update their alarm system as soon as possible."

TREN can confirm that residents have been buying redundant smoke alarms from one of
Australia's largest hardware retailers as late as the first week in February 2017, over a month after the new laws were passed but at least 6 months since businesses had been warned of the impending changes.

One of the homeowners who contacted TREN about this public safety story presented one of the three alarms she purchased, and it clearly displays on the back side of the device, an expiry date of "12 July 2016". (see image below) The proof of purchase was also presented.

The smoke alarm was purchased from the retailer in February 2017 with "Quell Ionisation Smoke Alarm", "Manufactured in China for Chubb and Security Pty Ltd", who is based in New South Wales, clearly displayed on the back of the device.

Non-compliant ionisation smoke alarm
Image: TREN

When TREN alerted the retailer to the bungle a very pleasant and well-informed employee said: "this alarm is out of stock and non-compliant." When the employee was asked, "What about the other alarms that have already been installed?" The employee said: "they must be returned with your receipt and we'll give you a refund".

Many residents that have purchased the old ionisation alarms for their own homes reported that they feel confused, or completely not informed about what to look for when purchasing fire safety devices. This comes as the trend of online shopping is growing at a fast pace where cheap illegal products can be purchased very easily. No wonder consumers are confused and concerned about their safety and legal obligations.

Image: Queensland Fire and Emergency Services

Even when the labels on the ionisation smoke alarm in the above image are compared to the QFES website recommendations, it is understandable how residents could justify their confusion. The labelling of the smoke alarms is unclear and ambiguous based on the QFES recommendations on their website.

The yellow triangle hazard system on the homeowners' non-compliant alarm, which is not recommended, does not even appear on the QFES guidelines. Instead, a yellow square label is shown. And, even though the five tick Australia Standards symbol and Activefire Certified certification icon are shown on the QFES guidelines to be safe, the non-compliant ionisation alarm displays them.

Residents that are concerned and may not understand the new smoke alarm laws are advised to contact a smoke alarm installation professional, licensed electrical contractor or consult the Queensland Fire and Emergency Services website for further information. You can also contact the manufacturer with questions. For example, Quell has number to call 1800 654 435.

But with residents finding even the QFES website guidelines confusing, residents are encouraged to call a professional QFES "firefighter" to conduct a "Safehome" visit to receive advice about the best locations to place fire alarms and suggest other fire safety initiatives around the home.

To request a Safehome visit call 13QGOV or visit 
https://www.qfes.qld.gov.au/community-safety/freeprograms/Pages/safehome.aspx'

Townsville NQ Capital Legitimacy Under Threat from North

Townsville's industrial relevance and Capital of North Queensland status is set to experience testing times over the next decade as the average vacancy rate approaches 30 percent in the City.

In contrast, the Cairns economy continues to see positive growth on the back of growing demand for agricultural products and international tourism experiences.

The City's business sector more broadly is seeing mixed activity with business confidence and job advertisements increasing while employment prospects continue to decrease.

Employment in the industrial sector of mining and construction has been impacted more than any other sector of the market.

The industrial sectors' contribution to Townsville's Gross Domestic Product (GDP) has reduced as a proportion to the total economic contribution of the region.

And therefore it begs the question about the relevance and future prospects for the industrial real estate market in Townsville and the City's claim to the symbolic title of being the capital of North Queensland. 

As the Herron Todd White Property Update for November 2016 reports, the job advertisements and business confidence is showing positive indications. But the all important unemployment rate is still unfavourable at 12 percent.

The actual number of people employed is the most telling economic indicator. On this measure, the trend since early 2011 has continued on negative news of approximately 25,000 workers losing their jobs to November 2016. This has been six years of sustained contraction in labour force wages.

Apart from mining exploration, extraction, processing and the commodity export supply chain, and various light industrial operations, Townsville's industrial and commercial sector has struggled to grow capacity as construction, mining and manufacturing GDP has reduced.

Technology is changing the supply chain's demand for labour and bringing unprecedented transparency on uncompetitive goods and services. This is impacting global industrials like never before. And this too will impact this sector of the Townsville market heavily.

Yet it's the industrial sector and the collaboration with landlords and tenants that will be critical in the next phase of Townsville's industrial relevance because innovation will enable existing products to develop and continue to find profitable markets, while invention will bring increased capacity potential and therefore more capability that will impact employment and GDP overall.

Cairns to the North of Townsville are competing for population and profits growth. Its leaders and commentators makes no bones about that.

Its robust international tourism and goods supply chain readily accessible to Asian markets, solid growth in property values, and a willingness to talk down Townsville's appeal at every opportunity, makes for challenging times for Townsville's property market and legitimacy as the capital of North Queensland.

References:

Herron Todd White Property Market Update November 2016

National Australia Bank Online Retail Sales Index June 2016

Australian Treasury Small Business Key Statistics and Analysis Report 2012

Rapid Realty Australia

RBA Shocks Markets with Cash Rate Cut: Mortgage Relief for Townsville Investors and First Home Buyers

The Reserve Bank of Australia (RBA) has shocked the markets today with a cash rate drop to 2.25 percent after being left on hold at 2.5 percent since August 2013.

The changing conditions in the housing market across the country featured in the RBA policy announcement today as a measure to assess and contain economic risks, typically driven by an easing in capital city prices.

RBA Governor Mr Stevens said; “Credit growth picked up to moderate rates in 2014, with stronger growth in lending to investors in housing assets. Dwelling prices have continued to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market.”

The overwhelming majority of economic commentators expected the RBA to leave interest rates on hold. Based on the finder.com.au survey of 30 economists and commentators, they found that 28 expected the cash rate to remain unchanged.

Mr McMullen from RAMS said that with consumer confidence and inflation low, the RBA would cut rates to help boost the economy and depreciate the Australian dollar.

Consumer confidence has been weaker, cheaper prices in the global oil market and the weakening of the Australian dollar were major factors in the decision.

“Market sentiment has fundamentally shifted over the past two months as oil prices have plummeted and concerns about deflation in Europe grow. This has led to markets expecting 0.50 percent in the rate cuts in the first half of 2015, “Mr Caelli from ME Bank said.

Today’s rate cut would normally provide a boost to the local market and lead to improvements in building starts if it were not for low business confidence and high unemployment numbers in the local North Queensland market, Mr McLeod said from MCINC Investments and Consultancy.

Providing cheaper mortgages for first home buyers and existing mortgage holders on variable rates is a relief for the local market, Mr McLeod commented.

However, in a low confidence market positive downward movements in cash rates need support by businesses leveraging a lower Australia dollar to attract export dollars, and more favourable private and government investment in critical infrastructure and facilities developments to kick start the economy with more jobs and cash flows, Mr McLeod said.

Reference:

Reserve Bank of Australia – www.rba.gov.au/

McINC Investments and Consultancy

Raid Realty Australia – www.rapidrealty.com.au

Townsville Real Estate Blog – http://townsvillerealestate.blogspot.com.au/

Wishing You and Your Family a Merry Christmas and Happy New Year

Reflecting on 2014, the Townsville real estate market experienced significant challenges with record unemployment, higher vacancy rates for rentals than the City has ever experienced in recent history, and a slowing economy with record low business confidence.

Reductions or even a correction in median prices for houses and units available on the rental market has caused anxiety for landlords and investors alike. This year has been a favourable period for consumers, both renters and buyers.

Strata unit median sale prices have reduced by 12 percent while house prices increased by 3.5 percent. Economic conditions contracted to levels of unprecedented low confidence for business while the national fiscal framework left the cash rate on hold at 2.5 percent for record consecutive periods.

The article "ready the spinnaker - the winds of fortune" provided some important insight for investors in the prevailing conditions in the market. For those investors seeking an indication of cycle timing and favourable movement in the market, this article offers some valuable direction.

Townsville Real Estate Blog (TREB) broke a leading story about a Gold Coast based building contractor having their licence withdrawn by the newly established QBCC. Contractors and investors experienced the trauma of financial losses linked to southern spruikers promoting boutique residential investments in the City. The story was picked up by main stream media including ABC national radio.

December 2014 brought the introduction of streamlined legislation for real estate professionals, both agents and auctioneers, that deregulated commissions for residential sales. The Property Occupations Act 2014 brought down the curtain on decades of formulated commissions.  

An opinion piece highlighting the role of residential land and unit development moguls in the City impacting the over supply of housing attracted interest that propelled the readership of the TREB to over 12,000.

The TREB now boasts a profile and position in the content creation community for real estate professionals that is second to none. We are now the most popular independent blog recognised for grass roots research and dependable commentary about the Townsville real estate market.

We look forward to bringing you more facts and opinions about the Townsville real estate market, the players and risks, opportunities and threats that we trust will assist you with your own research, planning and decision making.

Townsville offers an extraordinary opportunity for investors to place their wealth creation assets in the City. Citizens enjoy a tropical lifestyle and family friendly community desired by many people across the globe. We live in a beautiful and resourceful part of the world for which we all can be grateful.

TREB wishes you and your families, friends and loved ones a wonderful Christmas. Be safe if you are travelling over the holidays. We look forward to a more prosperous 2015 for our readers and supporters.

The TREB would like to thank our readers for their support this year and hope for continued support in 2015 with greater interaction and contribution from our readers.

It is a privilege sharing exciting and interesting stories with you about the Townsville real estate market.

Threat to Fixed Fee and Free Advertising Real Estate Agents; Queensland Commission Rates Deregulated

Queensland Real Estate professionals have feverishly been updating their knowledge, systems and processes to transition from the repealed Property Agents and Motor Dealers Act to the new Property Occupations Act, and for agents carrying trust monies, the Agents Financial Administration Act 2014 effective from the 1st December 2014.

The key changes include the replacement of seven separate agent appointment forms with a single standardised form;

• deregulating the maximum commission rates for real estate sales and property management
• removing the requirement for agents to disclose to a buyer the commission the agent is receiving from the seller
• extending the statutory limit on lengths of appointments for a sole or exclusive agency from 60 days to 90 days to better reflect market realities; and
• abolition of a separate Form 30 Warning Statement which will be replaced by a short prescribed statement included in the relevant contract.

The real estate industry has responded positively to the changes because of the reduction of "red tape" with simplified forms allowing agents to spend more time and energy servicing clients needs instead of filling out forms and worrying about paperwork.

Although the Property Occupations Act deregulates commission that agents can charge clients, Townsville Real Estate Blog has observed that agents are not increasing their commission rates for residential sales at this early stage in the new regulations regime.

Instead agents are reluctant to charge higher commissions in the Townsville market due to the strong competition for new listings. So clients, both sellers and buyers, find themselves in a strong position to negotiate with agents on the commission rate and marketing budget.

However, clients are cautioned not to seek open quoting on price. Service-centric agents are unlikely to quote in an open tender process where price is the main driver for the client enquiries because service quality is the corner stone of most agents' reputation in the industry.

When to negotiate commissions with agents is behind closed doors in person. Either as part of the agent's pitch for your service (if you are price or costing saving focused) or after the pitch for your service. Choosing your preferred agent wisely is born from purposeful research of the solutions being proposed by the agents.

To the surprise of some sellers or buyers agent consumers, price cutting is not a solution to the real problem of achieving the highest possible price within a reasonable time frame. Keeping the marketing costs to a minimum such as advertising, communications, etc. is a project specific factor in the solutions package. But marketing should not be associated with the effective management and leadership of the solutions package. The typical analogy described in the service industry for this misunderstanding is that "you pay peanuts and you get monkeys".

Finding the right agent is therefore synonymous with finding the right solution! Selecting the right solution is finding the right leader in the industry of which there are many. The decision is not easy. Recruit the right team of suppliers coordinated by a lead agent and you will give yourself favourable opportunity to achieve your objectives accompanied by personal satisfaction, exhilaration, joy or overwhelming relief when the job is done.

Beyond the appraisal and price prediction phase, asking the right research questions centred around the agents solutions such as the team, suppliers, schedule or time on market, target market reach, technology, innovation examples, and Townsville Real Estate Blog believes perhaps the most important, is the passion, enthusiasm and posture shown by the agent for the product and neighbourhood in which the asset is located.

Ask until you are satisfied even if it takes an hour or more. If you sense the agent struggles to answer  unscripted questions, then perhaps the leadership suitable for your marketing project is unsuitable and the package of solutions is unworthy of your business.

The agent commission rates should be the very last question you ask once you have chosen the right leader for your marketing project. If that means paying a commission above the average commission rate in the market, then take the risk within your appetite (what can be tolerated as an acceptable loss) and make the investment. Remember most agents in Townsville have a 'no sale, no charge' proposal so agents that have a tendency to give their time and wisdom in good faith, are more likely to treat your asset with respect and a hunger for success.

Townsville Real Estate Blog will continue monitoring the prices agents are charging over the coming weeks and years. The commission rates may increase in the short term for projects that are resource intensive such as marital separation matters and other resource intensive projects where a proportionate sale price is less than the viable profit for an agency. Such projects could include land sales, rural and remote properties and low end unit and house sales found in small markets.

As market confidence expands, and niche selling and buying opportunities manifest in the market, commission rates may increase on a project by project basis. By and large most agents will seek to keep their cash flows moving and therefore be open to negotiation on their commissions.

Full fee agents, those agents that have not set their commissions on a fixed price under the old legislation, are likely to fight for commission based on a percentage of the sale between 2.5 to 3 percent for residential sales.

Remote, rural and regional areas are more likely to find agents charging higher commissions because of limited competition between agents and the maturity of the asset price points in these markets. Agents that have positioned their brand and reputation on free advertising could also find greater competition in that alternative agents could simply offset the risk of supplier overhead by increasing their commission rate.

Full service agents may seek to neutralise fixed price and free advertising agents by offsetting agent-paid marketing risk with higher commissions.

Evidence of agents increasing their commission rates cannot be substantiated in the Townsville market at this time. We may see movement in commission rates in the future when the market has an appetite for a change in culture.

References:

Townsville Real Estate Blog

REIQ website

Local Townsville Real Estate Agents

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.

Rising Property Prices Stumble
http://townsvillerealestate.blogspot.com.au/2014/09/rising-property-prices-stumble-snapshot.html

Real Estate and Rental Industry Highest Contributor to GRP
http://townsvillerealestate.blogspot.com.au/2014/09/castle-rocks-real-estate-and-rentals.html

Boom or Bust? Convergence of Factors Impacting Townsville Real Estate market
http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html

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.

References:

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