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

Rising Property Prices Stumble; Snapshot of Townsville Real Estate June2014

The Townsville property market has experienced an increased median house price across the City since the same period last year up to June 2014, stimulating a modest recovery in a sustained challenging market.

Although the Townsville median unit price has dropped by 1.2% to $266,000, the median house price has increased by 3.5% to $343,000.

A total of 4175 dwelling sales have occurred to May 2014. Of the total number of dwelling sales in 2013-14, 82% are houses and 18% are units sold in the greater Townsville area. The volume of sales have reduced from the previous year by 1% and 3% below the 5 year average.

With a median house price of $343,000, over a 5 year period house prices have reduced by 0.7% demonstrating the housing market has experienced steady house prices for an extended period. 

Calculating the median house price with the median rental price at $360 per week, the indicative gross rental yield sits at 5.4%.

Vendors have been experiencing challenging times with prices being discounted by 8.0% and the time on market sits at approximately 92 days.

While houses have improved in value over the past 12 months, unit median prices have reduced in the same period. But most notable is the median unit price reducing over the past 5 years by 12.2%, demonstrating a material impact from an increased cost base for strata unit owners.

Townsville Real Estate Blog reported in 2013 the "North Queensland Strata Unit Market in Eye of Perfect Storm".

http://townsvillerealestate.blogspot.com.au/2013/12/north-queensland-strata-rental-market.html

Vendors have discounted their sale prices by nearly ten percent at 9.6% with a higher number of days on the market at 127.  With a median rental price of $325 per week, units have produced an indicative gross rental yield of 6.2% in the same period.

Further reading;

Boom or Bust? Factors Impacting the Townsville Real Estate Market

http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html

References:

Rpdata Core Logic for Business Report June 2014

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

Rapid Realty Townsville Scorecard - www.rapidrealty.com.au

Breaking Story: Townsville Property Investors Left out of Pocket;Building Contractor License Terminated

The newly reformed Queensland's Building Construction Commission (QBCC) has terminated the licence of an alleged unethical building contractor operating in the Townsville new construction industry, leaving many angry investors in the dark and out of pocket thousands of dollars.

Reports of the contract builder's termination comes as the Townsville property investment and rental market feels the strain of increasing vacancy rates, reported by Herron Todd White in September 2014 to be trending at 6.08%.

Mostly South-Eastern and Western Australian investors who signed up to off-the-plan house and land contracts are impacted by the termination of the builders' license. Most of the 20-30 new investment properties are now abandoned, partly completed like ruined buildings and ghost houses nearing final completion waiting for QBCC assistance, which cannot come soon enough for mum and dad investors across Australia.

Approximately 500 new developer lots were available in April 2014 for purchase in the Townsville market. The scope of impact is relatively minor at this stage in the context of the entire new construction market in Townsville. But this offers no consolation to the many investors committed to the Townsville and Darwin property markets through what is known as the "Base Camp" investment system.

Local estate agents are reporting that unpaid contractors are returning to the properties and removing installed equipment because they have not been paid by the disgraced contract builder. One agent who wished not to be identified said; "we went to the property to check progress of works on behalf of our client and take photos, then found at the next visit that the irrigation system had been stolen or ripped out of the ground".

Ex employees of the contract builder have also confirmed that sub contractors are recovering their equipment from the abandoned buildings in lieu of being paid for their services. Suppliers have cancelled scheduled services on the news of the builder's license termination, and in some cases honestly refunded up front payments to the client on the "smell of a rat".

Townsville Real Estate Principal and Property Management Expert, Aaron McLeod said; Investors must be very careful dealing with venture building contractors especially those engaged by property investment spruikers to build and commission new investment properties. Investors are advised to engage the services of a licensed real estate professional in the location of the project, and work with local reputable builders.", Mr McLeod commented.

Back in 2013, Townsville contractors remember all too well when "Walton Construction (Australia) Pty Ltd and Walton Construction (Queensland) Pty Ltd were placed under administration on October 4 this  year owing millions of dollars to sub contractors across Queensland, NSW and Victoria." (Sunshine Coast Daily, Oct 2013)

Distressed investors are anxiously seeking help from the newly formed QBCC, insurance providers, lenders and the Southern investment spruikers who brokered the investment opportunities in the first place through participating finance brokers, often luring investors through effective telemarketing or property investment seminars in the capital cities.

At least one innocent investor has reported to the Townsville Real Estate Blog that they paid the final payment to the builder, then learned through the developer's covenant inspector that a substantial list of defects needed fixing. Defects such as fences, gates, roller doors, doors, security screens, locks and plumbing services, irrigation, etc. we're found not working at the property.

A practising Townsvilke building certifier reported; "These are components not typically included in the final inspection covered by the statutory Form 21 process. These defects seemed to have slipped through the gap in this certification process because plumbing and drainage is handled by local council inspectors, not the privately contracted and licensed building certifiers."

Perhaps most culpable could be the inspector, believed to be the licensed certifyer, that verified to the Client's lender via the investment spruiker that the building was completed and ready for handover. In addition, the plumbing and drainage final either was not done or was not delivered by the investment spruiker to the Clients lender before the final loan payments were disbursed to the failed builder.

Meanwhile, the builder and onsite supervisor reportedly coerced the investor into paying the final payment before keys could be provided to an independent agent, knowing forewell the property was not satisfactory for handover.

Because the investor has drawn down 100% of the borrowings after the Form 21 final certification form was received by the lender, the undisclosed defects still prevented the building from being occupied and rented so interest payments on the client's borrowings for the project could be serviced from cash flows.

Sources of the Townsville Real Estate Blog believe the Company Directors behind this particular investment scheme are based in Yatala, located between the Gold Coast and Brisbane. It is believed the company, which produces the steel framing for all of the new buildings, has set up a subsidiary contract building company in alliance with investment spruikers, delivering poor quality uninhabitable homes on this occasion to unsuspecting investment clients.

This type of company, setting up intermediary building companies, are taking advantage of the substantial increase in demand from property investors wanting to set up self managed superannuation funds on the back of government legislation reform and taxation changes on private superannuation contributions.

Questions are now being asked how a licensed certifier could complete the final Form 21 when the building was not completed satisfactorily? And the licensed builder, now the subject of QBCC license termination, could get away with causing such financial stress and mounting losses to innocent investors? How could the QBCC issue licenses in the first instance to seemingly unqualified and underfunded intermediary companies?

This property investment scheme debacle is unfolding at a time when Minister for Housing and Public Works, Tim Mander, said a "new early dispute resolution service would make solving problems between builders and families far less stressful than in the past". (Queensland Government and Ministry Director website, 30 June 2014)

"Contract disputes are never pretty but when you're talking about disputes between mums and dads who are making the biggest investment of their lives, and builders whose livelihoods could be on the line, it's only natural that emotions can run high," Mr Mander said.

"In the past there was no assistance fro families, or for builders, until the contract had either been terminated or completed, which meant the process cold drag on for months.

"This new service will significantly reduce the cost that disputes can place on consumers and contractors as well as substantially reducing the time it takes to resolve them, without legal action.

"This free service is part of our strong plan to grow construction, as we promised, and will create a brighter future for the industry."

Mr Mander, said the early dispute resolution service was just one of a raft of measures coming into effect on July 1 which would make life easier for builders and consumers.

It seems the integrity of the Campbell Newman Government's reforms of the old Building Services Authority (BSA) with the reformed QBCC will face its first real test in light of these serious events unfolding in Townsville, Darwin and across Australia.

Innocent investors already caught up in this potentially explosive property investment scheme impacting Northern Australia, could pay a high price in an economy under enormous strain from a government hellbent on centralised procurement in the lead up to the Commonwealth Games on the Gold Coast.

The depth of impact involves a supply chain of property investment spruikers, mortgage brokers, banks, builders, subcontractors, property managers and the government's own construction licensing regime.

Townsville Real Estate Blog reported in August with insight the impact that new construction and property spruikers were having on the supply and demand dynamic of the Townsville property market. (Boom or Bust? Convergance of Factors Impacting on Townsville Real Estate Market, http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html)

Owners and contractors impacted by failed construction investments can contact the QBCC hotline on 139 333 for help.

References:

Sunshine Coast Daily

http://www.sunshinecoastdaily.com.au/news/state-probe-into-walton-49m-failure/2091194/

Townsville Real Estate Blog

http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html

Queensland Government and Ministry Directory website, 30 June 2014
http://statements.qld.gov.au/Statement/2014/6/30/building-disputes-to-be-resolved-faster-and-cheaper

Boom or Bust? Convergence of Factors Impacting Townsville Real EstateMarket

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.

Read more: http://www.smh.com.au/business/economic-slowdown-likely-westpacmelbourne-institute-leading-index-shows-20140618-3ae3t.html#ixzz3AGhU9sHF

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

Sydney Morning herald - http://www.smh.com.au/

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

Media Release: Local Agent Head On with Foreign Franchises

Townsville's sporting community is proud of our local teams winning on a state, national and international stage be it the NQ Cowboys, Townsville Crocs, Townsville Fire or Queensland’s record breaking State of Origin team.

Well it's no different in the real estate game with locally founded company, Rapid Realty Pty Ltd (Australia) approaching the playing field with a feeling of pride and determination, taking on the foreign franchises head on with its own style of marketing, education and auction extravaganza events.

Townsville's own real estate franchise, often recognized by a "big red man" on 2.4m high signs around the streets of Townsville, was established in South Townsville in 2007 by two brothers with one employee.

Now employing a team of six staff, over 20 regular contractors and an alliance network of finance, legal and planning professionals with a "standout brand" delivering real estate sales and property management services across North Queensland.

"The innovation of our team to design and deliver a solid brand, practicing values of integrity, quality and service efficiency in a combined property education and trading event is remarkable; Rapid Realty's Founder and Managing Director, Aaron McLeod said from his Kirwan home.

Mr. McLeod commented; this marketing initiative is consistent with our "real service, rapid results" commitment and is a reflection of the passion, gutsy and try-all attitude of our people to exceed client expectations. Our clients want “rapid results” but not at the expense of fair prices, so achieving a sale within 8 weeks 90-95% of the time is a quality outcome.”

Rapid Realty is seeking more local people to aspire and share in the values and growth plans for the company, firstly in North Queensland and then across Australia. With the real estate industry and property market on the verge of recovery in 2014, enquiries from aspiring real estate professionals wanting to enter the industry is picking up, Mr. McLeod reported.

Helping the community with education and achieving great sales results for clients through the "learn and earn, one-stop-shop" initiative is a win win outcome in a competitive real estate market in Townsville.

More often than people may acknowledge, the corporate business gives to the needy in the community with sponsorship or donations. In kind, people going through the pain of divorce, deceased estates, financial stress forcing a down grade or disposal of a property are all reasons an agent helps distressed customers with no financial gain. The client’s freedom to decide to sell is withdrawn for legal, emotional or economic reasons.

Providing free expert opinion and no obligation information is invaluable to the community needing the freedom of choice and movement. Learning and earning is an essential community need for personal growth and economic prosperity.

Being a real estate agent today is about "giving, not taking"; Mr. McLeod said. The mantra of giving and helping is a soft approach to selling. This has seen the company’s earnings increase 20% per year since Rapid Realty was launched in 2007. With their headquarters to remain in Townsville, the "learn and earn" initiative creates perfect synergy with all levels of investors needing to research before they buy.

Supporting a true local agent means the Townsville community benefits from employment opportunities, capital investment and profit reinvestment, as well as in kind knowledge expertise with genuine interest in caring for people. That’s the Rapid Realty way and point of difference from foreign franchisers, Mr. McLeod stated.

Ready for further development and expansion from its Townsville home, Rapid Realty is presenting their marketing talent this Tuesday 25^th Feb at the Master Builders House on Sturt Street showcasing the "learn and earn, one-stop-shop" property investment seminar and auction extravaganza.

There are limited seats available so registrations will be necessary. If you want to support this Townsville company, register rapidly at www.rapidrealty.com.au or call their office on 4771 3600.

TOWNSVILLE "HOTSPOT" FOR SMSF INVESTORS

Self-Managed Superannuation Fund (SMSF) investors have increased their enquiries and interest in Rapid Realty's new construction and "off the plan" houses and units in Townsville.

Since the property market has shown signs of a turn around and legislative changes to SMSF entities have been proposed pertaining to the discount of capital gains tax, the phone has been ringing off the hook, said Rapid Realty's Sales Representatives.

The main driver for the increased interest from SMSF is opportunistic. The positive buy status in "turnkey" and "off the plan" property, and to a less extent 2nd generation property, is finding the right time to buy.

By and large investors are finding today's conditions that tick all the boxes in terms of more upside then downside risk in the tried and true bricks and mortar of real estate.

The dream of building a retirement nest egg with less risky market conditions in terms of the:

· upside in accommodation demand and relatively low vacancy rates

· favourable lending products in fixed interest borrowings

· likely positive capital growth over the medium to long term

· cash flow performance being favourable, and

· great taxation incentives on capital gains tax

makes the Townsville housing market a "hotspot" for investors.

Aaron McLeod, Principal and Managing Director of Rapid Realty Townsville said; "SMSF Investors are seeking confidence and credible support and service in the research data, purchase and ongoing management of their property asset."

 

Mr McLeod believes semi-retired investors are worried about the financial risks off the back of the GFC and the concerns about having poor quality tenants in their superannuation nest egg investment. It is our job to disclose all the facts and build confidence for investors so they need not worry about finding and retaining quality tenants, Mr McLeod said.

With the "one-stop-shop" of services in buying, asset management and selling, Rapid Realty with its commitment to "real service, rapid results" is attracting serious investors and a loyal client base in this sector of the market, Mr McLeod said.

 

As an active member of Business Network International, Rapid Realty Townsville can assist with bono fide contacts in North Queensland that can provide further information for investors.

http://www.bni.com.au/Member_Details.asp?mem_id=168122

 

Investors are encouraged to seek independent advice from their professional team of financial planners, wealth advisors, solicitors and mortgage brokers.

Go to www.rapidrealty.com.au for more information about specific new and existing investment properties in North Queensland.