Top 20 Brisbane growth suburbs of the decade: Terry Ryder

Brisbane’s market has been busy recently, without delivering strong capital growth. It has in common with most of the nation’s capital cities a reluctance to join Sydney in a property boom.

It’s overdue for a period of growth because it’s been an under-achiever in the recent past. It ranks fifth among the eight state and territory capitals for long-term capital growth, well behind (in order of ranking) Perth, Melbourne, Darwin and Sydney.

Based on Domain figures for the average annual growth in median prices over the past 10 years, the top 20 suburbs in Perth all have growth rates between 9% and 10% per year. Brisbane’s top 20, bar one, are between 6% and 7% per year.

Brisbane averages have been dragged down by poor performance in the past four years. City markets took time to recover from the floods of early 2011. In the years since, Perth, Darwin, Sydney and Melbourne have all had periods of price growth ranging from solid to strong, but Brisbane has yet to join the growth party.

Parts of the Brisbane metropolitan area have out-performed, but the average citywide performance has been lukewarm.

Looking at the figures describing growth rates for the past 10 years, Brisbane currently has only one suburb with a growth rate above 7% (Hendra, which averages 7.6%). All of the other Top 20 suburbs have long-term growth rates between 6.0% and 6.9%.

The leading precinct is Brisbane Northside – the northern suburbs of the Brisbane City Council area – which provides the top four suburbs and six of the top 10. This area is prominent in terms of capital growth rates because it led the upturn in sales activity in the city market in 2013 and 2014 – and many suburbs have recorded double-digit annual price growth in the past 12 months, lifting their long-term growth rates.

The Brisbane Northside suburbs, and indeed most of the suburbs on the Top 20 list, represent Brisbane’s middle market. The 12 most expensive suburbs in the Brisbane region have median house prices in the range from $900,000 to $1.2 million. The middle market is the next tier below that – and that’s the market that leads on capital growth rates.

All but one of the Top 20 have median prices below $900,000. Fourteen of the Top 20 have median prices in the $600,000s and $700,000s. There are currently no bottom-end suburbs on the list – only two have medians below $600,000.

I expect a different result a year from now, as many of the cheaper markets are now rising across the Brisbane metropolitan area and are likely to experience good price growth, lifting their long-term growth rates.

Brisbane’s most expensive suburbs have been mediocre performers – only one of the 12 priciest suburbs features on the Top 20 list for capital growth rates. Only four of them have capital growth rates above 6%.

The worst performing precinct has been the Moreton Bay Regional Council area in the far north of the Greater Brisbane area. Seven of the Bottom 20 suburbs are located there. This may change in the near future, as this precinct is one of the areas with elevated sales activity, as the momentum ripples out from the neighbouring Brisbane Northside precinct.

BRISBANE TOP 20 – ANNUAL GROWTH % OVER 10 YEARS

No. SUBURB MUNICIPALITY   MEDIAN GROWTH RATE %
1 Hendra Brisbane-North  $815,000     7.6
2 Newmarket Brisbane-North  $740,000     6.9
3 Gordon Park Brisbane-North  $700,000     6.8
4 Northgate Brisbane-North  $610,000     6.7
5 Paddington Brisbane-Inner  $865,000     6.6
6 Cannon Hill Brisbane-East  $705,000     6.5
7 Lutwyche Brisbane-North  $697,000     6.5
8 Doolandella Brisbane-South  $460,000     6.3
9 Gaythorne Brisbane-North  $618,000     6.3
10 Bardon Brisbane-West  $840,000     6.2
11 Fig Tree Pocket Brisbane-West  $934,000     6.2
12 Holland Park Brisbane-South  $619,000     6.2
13 Woolloongabba Brisbane-Inner  $645,000     6.2
14 Camp Hill Brisbane-South  $748,000     6.1
15 Fairfield Brisbane-South  $678,000     6.1
16 Upper Mt Gravatt Brisbane-South  $550,000     6.1
17 Albion Brisbane-North  $687,000     6.0
18 Eight Mile Plains Brisbane-South  $619,000     6.0
19 Norman Park Brisbane-East  $760,000     6.0
20 Seven Hills Brisbane-East  $618,000     6.0

TERRY RYDER is the founder of hotspotting.com.au. You can  email him or follow him on Twitter. 

Dear Reserve Bank: Australians don’t need to be reminded that prices fall

When the head boffins at the Reserve Bank deliver their sermons, saying “prices don’t always rise, sometimes they fall”, many Australians who don’t need reminding must wonder what planet they’re from.

People living in many parts of Queensland, for example.

If you’re an apartment owner in Cairns or Townsville, you don’t need a lecture about the reality that prices don’t always rise. The latest edition of Market Monitor from the Real Estate Institute of Queensland shows that median apartment price in Townsville today is 11% lower than it was five years ago. In Cairns, average values remain 15% lower than in 2009.

There are stories like this throughout the state (and throughout the nation). Large parts of Queensland are undoubtedly on an upward trajectory now, but many markets still have price levels lower than five years ago.

The median unit price for the Whitsundays has risen 9% in the past 12 months, but it remains 6% lower than in 2009.

In Noosa, Queensland’s most over-rated market, the median unit price dropped 6% in the past 12 months and remains lower than it was five years ago. The housing market in Noosa tells a better story, with moderate growth in both the past 12 months and the past five years.

Despite a little growth in the median unit price in the past year, Gold Coast values are still lower than in 2009.

Ipswich City, in the south-west of the Brisbane metropolitan area, is back on a growth path, but its median house price is still below former levels.

Owners in locations like these aren’t talking about whether prices sometimes fall. They’re talking about whether they ever rise.

The good news for most of the locations mentioned above is that they are now moving into growth phases. Cairns, the Sunshine Coast, Ipswich and the Gold Coast can all look forward to significant price gains, after five bad years. No doubt commentators will soon be warning us about bubbles.

The people who least need a reality check about the possibility of property values falling are those who live (or own rental properties) in Moranbah, the coal mining town in Central Queensland which has become the quintessential boom-to-bust story of modern times.

Moranbah’s median house price is down 28% in 12 months, according to REIQ figures, and is now 15% lower than it was five years ago.

There are some more positive stories in the same combination of numbers from the Queensland Market Monitor report.

There is some comfort for landlords in Gladstone. While the median house price has dropped about 10% in the past 12 months, it remains 12% higher than in 2009. So anyone who bought five years ago remains ahead on value, despite the current decline in that market.

There are similar stories for owners in Emerald and Mackay. If you bought five or more years ago, you’re still in front, despite the recent downturn.

The Market Monitor report reveals Toowoomba to be the state’s success story. Its median house price is up 10% in the past year and is now 24% higher than five years ago. There are almost identical numbers for the Toowoomba unit market.

It also shows the gathering momentum in South East Queensland, where every municipality in the conurbation covering the Gold Coast, Brisbane and the Sunshine Coast has delivered price growth in the past 12 months – still quite moderate, ranging from 2% in Redland City to 8% in Brisbane City, but there is considerable momentum in these markets.

You can reach Terry via email This email address is being protected from spambots. You need JavaScript enabled to view it. or twitter.

http://www.propertyobserver.com.au/terry-ryder/36122-dear-reserve-bank-australians-don-t-need-to-be-reminded-that-prices-fall.html

 

 

The announcement that gave hope to property investors in mining towns

An announcement this week gave hope to all those investors who own properties in mining centres.

Indian mining company Adani started advertising the thousands of jobs that will come with its $16 billion Carmichael coal mine in Central Queensland.

It’s a further indication that Adani is keen to move ahead quickly with its project, which will include the mine, plus rail links and export port facilities.

Every day I receive emails from people who own investment properties in places like Moranbah, Emerald, Blackwater, Mudgee and the towns of the Hunter Valley.

These places have lots in common. They’re all towns where property markets boomed when coal mining was thriving, with rents and property values rising strongly. Then two things happened: the coal sector turned south just as developers were heading north. Demand fell just as supply was rising.

Big vacancies caused rents to fall and property values followed. If you bought in any of these places two years ago, you will be feeling lots of financial pain.

Moranbah’s median price has dropped 40% in the past 12 months and rents are about one-third of their peak levels.

The common dilemma expressed in so many of those emails is this: should I cut my losses and sell, or should I hold on and hope it improves? One correspondent this week suggested things might be turning around in Moranbah but asked: “Is it just wishful thinking?”

The Adani announcement that expressions of interest are open for jobs on its Carmichael mine suggests that hope is not unreasonable.

Adani, which has state and federal approvals for its Galilee Basin mine, is planning to employ up to 5,000 people during the construction phase and 4,000 more during the mine’s operation.

A key beneficiary will be Emerald, a regional centre which sits amid the Galilee Basin to the west and the Bowen Basin to the east. Lots of coal, lots of big plans, but not much action at present.

I’ve often said to people: it will only require one of the half dozen proposed mega projects in the Galilee Basin to go ahead, for Emerald’s market to come storming back. I’ve always thought the Carmichael mine was the most likely to go first, because Adani wants the coal to provide for its own needs (its Indian power stations) rather than to supply the depressed global market.

The problem for investors sitting on empty rental properties is that these huge projects are slow-moving events. You need lots of patience and nerves of steel.

But this is life in mining towns. It’s not a new phenomenon. This is not the first time Moranbah has fallen into a trough (althought this one is deeper than any of the previous). It’s not the first time a boom in Gladstone has been followed by a bust.

Gladstone’s market experienced a major peak in 2008, followed by a couple of years of declining values, before rising to another peak in 2012, followed the another period of decline.

Mudgee in New South Wales had a peak in 2007, falling prices in 2008 and 2009, another peak in 2010, decline in 2001, another peak in 2013 and now another decline. The price graph for Mudgee looks like a mountain range.

Ditto Muswellbrook: since 2006 it’s been minor peak, minor trough, minor peak, mknor trough, major peak (2012), major trough (now).

When prices rise strongly in markets like this, the market always “give some back” before moving into the next up-cycle. Usually the market gives back less than it gained earlier, so the overall trend is upwards.

If you don’t have the temperament to deal with this kind of volatility, it’s best to stay out of resources-related markets.

 

http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/34994-the-announcement-that-gave-hope-to-property-investors-in-mining-towns.html

Terry Ryder’s top 10 markets to avoid

Investors should steer clear of Brisbane’s inner city, New South Wale’s Hunter region and Queensland’s Emerald, according to Hotspotting.com.au’s Terry Ryder.

In his Over-supply Alert, commentator and regular Property Observer contributor Ryder nominates 10 regions that investors should avoid due to oversupply issues. According to Ryder, “supply is the factor most over-looked by property investors,” with many focusing on demand.

He attributes the Gold Coast’s five year price tumble to oversupply, while the same factor is also to blame for Wyndham City’s stagnation. With oversupply, writes Ryder, comes a fall in rents which in turn pulls down property values.

The regions Ryder to avoid fall loosely into two “danger situations”: inner city apartment markets and regional centres where increasing supply has coincided with declines in demand due to the resource sector slowdown.

Here are Ryder’s top 10 markets to avoid:

  1. Brisbane inner-city (QLD)

    Despite the “aura of safety and respectability” surrounding CBD apartment markets, Ryder warns that Brisbane’s CBD residential market hasn’t performed well historically. He notes the city has 69 apartment developments, of 100 or more units each, scheduled for the next five years, which “suggests the situation will get worse before it gets better.”

  2. Emerald (QLD)

    Ryder cites the shrinking Bowen Basin coal industry as a factor in Emerald’s growth prospects, with new stock from developers hitting at exactly the wrong time.

    “But currently this is a market to avoid – at least until the new resources projects get under way and the existing accommodation surplus is absorbed.”

  3. Gladstone (QLD)

    Gladstone’s vacancy rate currently sits at 8%, up from 1.5% in August 2012. According to Ryder, Gladstone is now experiencing the effects of a wave of developer activity in late 2012 and early 2013.

  4. Gracemere (QLD)

    About 10 kilometres out from Hotspotting favourite Rockhampton, Gracemere “has just been smashed by developers” according to one of Ryder’s clients. Ryder sees the almost doubling of residential building approvals in Gracemere from 2011-2012 to the next year as a “warning signal.”

  5. Hunter region (NSW)

    The coal industry’s downturn has also hit New South Wales, with Ryder claiming that despite several other strong economies in the area, the resources sector once “elevated its status to a boom region.”

    Though he believes that the coal industry’s contraction isn’t likely to be permanent, Ryder says the downturn in demand is occurring alongside a rise in developer activity, driving oversupply.

  6. Mackay (QLD)

    Mackay is another region feeling the effects of a contracting coal industry, according to Ryder. But he believes that it will eventually pick up.

    “Mackay has been a strong regional property market numerous times in the past and will be again in the future. It’s a growth centre and it has one of Queensland’s most important export ports for the resources sector,” he writes.

    “But currently this market is still in decline and is one to avoid until the bottom has been reached.”

  7. Melbourne inner-city (VIC)

    This isn’t the first time Ryder has raised concerns over Melbourne’s inner city market. Last month, he wrote that “the inner Melbourne “boom” is toxic growth if ever I’ve seen it.”

    “Local investors should stay well away from this market,” advises Ryder.

  8. Moranbah (QLD)

    With a vacancy rate of 10%, “the Moranbah market is a basket case – and Australia’s most spectacular example of the rise and fall of a property market,” writes Ryder.

    Again, Ryder writes that although the area will recover in the future, “right now it’s the nation’s No.1 No Go Zone.”

  9.  Perth inner-city (WA)

    Oversupply is a smaller issue in Perth’s inner city than in Melbourne or Brisbane, writes Ryder. But nevertheless he cautions investors against the area.

    “There are high levels of urban renewal activity in and around the Perth CBD and this is likely to see considerable new construction in the near future,” he writes.

  10. Port Hedland (WA)

    Ryder urges investors to disregard marketing materials when it comes to Port Hedland, where properties are taking five months to sell as the mining boom winds down.

Sydney’s new airport at Badgerys Creek will be a double-edged sword for investors

Already the questions are streaming in: how will the new Sydney airport impact on property markets?

Will Badgerys Creek make Penrith become a boom town? Will Liverpool surge? Where should I buy to benefit?

Many issues are evident here. One is that investors are constantly trawling for opportunities and for events that will be game-changers. Some are looking for shortcuts to wealth and see an announcement like Badgerys Creek as the door to a rapid windfall, if they can zero in on the best places to invest.

Another issue is about risk in real estate. And another addresses the elements that generate out-performance in real estate investment.

Let’s take the last issue first. There’s no doubt infrastructure is the biggest creator of real estate wealth. New infrastructure is the ultimate game-changer.

And the most influential is transport infrastructure.

I suspect more people will waste money buying in haste than make money by getting it right.

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Hotspotting research shows that suburbs with commuter train stations have higher capital growth rates than those without. A new motorway or bridge can revolutionise the appeal of a location by making it more accessible. The intersection of two motorways is a magnet to warehousing and logistics real estate – and other forms of property spin off it, including residential.

The thing about a major new international airport is that it’s a double-edged sword, it can create problems as well as opportunities. Property under the flight path may suffer while others will benefit from the economy generated by the facility.

It’s similar with a commuter train station: the ideal is to be within walking distance but not so close as to suffer from the noise and the traffic.

The most direct real estate beneficiaries of a new airport are outside the residential sphere. A new airport creates, firstly, demand for hotels and secondly, for warehousing and other light industrial property.

Residential is an indirect beneficiary because an international airport creates a new economy with tens of thousands of jobs, and people like to live close to their work.

But perhaps the core issue is risk. When a project like Badgerys Creek is announced, lots of people dash about looking for ways to make a killing from buying strategic real estate. But the airport may never happen. This is the ultimate political football and there will much upheaval along the road to construction. Plans for a second Sydney airport have been talked about for close to 50 years. The Prime Minister’s announcement does not make this a certainty.

If it does happen, Badgerys Creek won’t be reality for maybe 10 years – although the Prime Minister hopes construction will start in 2016. But before that can happen, big issues need to be sorted, including funding, road and rail links, project partners and the issues of noise and flight paths.

Long-term, the impact of a new airport at Badgerys Creek would be enormous. Short-term, many investors will expend considerable energy trying to find out how best to turn the federal government’s decision into a personal windfall.

Many will feel they need to act urgently or they’ll miss a major opportunity. My advice is to take a cold shower, settle down and watch what happens.

I suspect more people will waste money buying in haste than make money by getting it right.

Dodgy marketing tactics luring unwary investors into regional and mining town no-go zones

Property investors need to be ever vigilant. Many feral creatures prowl the real estate domain looking for ways to devour consumers, often using deception to lure buyers. A significant part of my 30-plus years as a researcher and writer have been spent investigating real estate scams and I know property to be a dangerous place for the unwary.

Many developers are using marketing companies to shift stock at the moment. These specialist marketers can earn massive fees, way beyond the commissions paid to mainstream real estate agencies who sell properties on behalf of vendors.

Why would developers pay 6% or 10% commissions to marketers when agencies will do the job for 2% or 3%? Because the stock in question is proving difficult to move, usually because the local market is oversupplied or otherwise in serious decline. They need an outfit which is happy to use dodgy methods to flog this unwanted stock to distant investors, often at above-market prices.

Right now developers are struggling in oversupplied regional centres like Gladstone and Mackay or in mining towns with falling markets such as Moranbah in Queensland and Port Hedland, Karratha and Newman in Western Australia.

No informed investor would buy in any of these places at the moment because they are all in serious decline and the bottom has not been reached. All are locations that will recover in time, but that time has not yet arrived.

The glossy promos pumped out by the marketers make no reference to the parlous state of these markets. They speak of vibrant local economies, strong markets and the prospects of double-digit rental returns – all claims that are blatantly false.

Sometimes real estate media will publish the propaganda from these organisations, without providing any journalistic filter to the “information”. One property magazine last week published verbatim a press release from a marketing company which claimed Moranbah was “on the cusp of another property boom”. This was written by the team marketing a unit development in Moranbah so there was an obvious vested interest in talking up Moranbah’s prospects.

When a magazine publishes this kind of rubbish it’s dangerous for consumers because it’s presented as genuine editorial and credible information.

I have no doubt Moranbah, which has been a real estate growth star in the past, will recover in the future. But right now it’s the nation’s  number one no-go zone. Rents are about one-third of their previous levels and the median house price declined 42% in the past 12 months. The coal sector, which is Moranbah’s only industry, is still in downsizing mode with commodity prices low and costs still way too high. The biggest miner in this region, the BHP-Mitusubishi joint venture, has just announced further job sheding to trim costs.

Another alarming example of marketing hyperbole which casts the truth to one side was a promo from marketers seeking to peddle high-priced townhouses in Wandoan in Queensland.

The promo said the new townhouses were in “the heart of the Wandoan CBD”. Anyone who knows Wandoan will laugh at the notion of it having a “CBD”. Wandoan is the quintessential one-horse town, with a population around 350.

The project was proclaimed “Wandoan Central, The Property Investors Dream”. The marketers claimed investors would “easily earn up to an amazing 14.4% return”. The townhouses had asking prices around $450,000, in a town where you can buy houses on land for $100,000 to $150,000 less than that.

Let’s be clear about Wandoan. The only reason anyone would build a unit development here is because international mining company Xstrata (now Glencore Xstrata) was planning a $6 billion coal mine and there were also plans for $1 billion rail link to the coast from this region. We have alerted our clients to this because, if those projects go ahead, Wandoan will become a much larger town.

But, as I’m sure the marketers of Wandoan Central know, both those big projects have been deferred. The new Glencore Xstrata is scrapping projects to trim costs and the Wandoan mine is one that’s been chopped. And without projects like this, the rail line is not feasible.

There are also companies pumping out propaganda on Karratha and Port Hedland, oblivious to rising vacancies and falling prices and rentals. The claims made about the yields that can be achieved in the current market are patently untrue.

Karratha prices are on a serious downward path. Locations which previously had median houses prices in the $800,000s are now down in the $600,000s and vacancy rates have hit 7-8%. Sales volumes are dropped and prices have followed.

These locations will recover in time, but the time to re-consider their prospects for investors is a considerable way off.

Terry Ryder is the founder of hotspotting.com.au.

http://www.propertyobserver.com.au/hotspots/dodgy-marketing-tactics-luring-unwary-investors-into-regional-and-mining-town-no-go-zones/2014021067683

Mining town vacancy rates mean that it’s wise to wait and watch

The publication this week by SQM Research of vacancy rate trends in mining-related cities and towns is a timely reminder to investors to check out supply-demand issues before buying.

The figures show that, in many important regional locations around Australia, oversupply is the issue, rather than the much touted “chronic housing shortage crisis” – just as it is for inner city unit markets in several capital cities.

Many investors consider demand factors, such as population growth, but forget to check out the level of supply in the market.

It’s difficult to imagine a place with more compelling demand factors than Gladstone, with massive levels of infrastructure development under way. Yet the Central Queensland city has a vacancy rate of 11%, according to Louis Christopher’s figures. Developers seeking to profit from the LNG boom went overboard and the Gladstone market has been sinking for the past 12-18 months.

Nearby Mackay has also suffered from an upsurge in new developer product and now has a vacancy rate around 7%.

Some markets have had a double whammy, with an increase in supply coinciding with a drop in demand. There is particularly true of Queensland coal mining towns, such as Dysart, Moranbah, Blackwater, Clermont and Capella.

Moranbah once ranked as the growth star of Australian real estate. In early 2012, its long-term capital growth rate (average annual growth in its median house price over the previous 10 years) was above 33% and its median weekly rent was $1,200. Before the end of 2012 its median house price would reach $750,000 – but, by then, rents were already falling and prices were soon to follow.

The demise of the Moranbah market was as spectacular as its rise. In the past 12 months its median price has dropped 42% to $435,000 and the median rent is now $520 per week. Median yields, which were 12% not so long ago, are now around 5%.

All manner of woes hit Moranbah. BHP and its partners refused to pay the astronomical rents being asked by investor landlords. Existing projects were downsized and new projects were deferred or progressed with 100% fly-in, fly-out workforces. And new dwelling supply hit the market.

Similar events have happened in other mining-related markets across Australia. In Roxby Downs in South Australia, where many investors bought in anticipation of a $30 billion expansion of the Olympic Dam mine, the vacancy rate has risen to 10% in the wake of BHP’s decision to defer the project.

Investors need to be aware of these issues because marketing companies continue to pump out promotional material for new developer product at high prices in mining-related markets that are in sharp decline.

One I received this week was touting two-bedroom units in Port Hedland for $715,000, claiming they would rent for $1,400 per week, provide a 10.2% return and earn up to $22,000 per year in profit – thereby providing the “perfect investment opportunity” for first-time investors.

The promo failed to mention that Port Hedland’s vacancy rate is now above 6%, that prices have dropped by up to 10% in the past 12 months and typical yields are now around 7% (and falling).

Similar propaganda comes in every week for highly-priced new product in Karratha and Newman (where the median price dropped from $850,000 to $450,000 in six months).

This is life in mining-impacted property markets. Many of the locations I’ve mentioned will recover, once the resources sector has finished the current phase of cost-cutting.

One tactic commonly being used is to shut down a mining project, sack all staff – and then, perhaps six months later, re-hire at lower pay rates and re-start the mining project. One town impacted by that is Collinsville in Queensland where, according to SQM Research data, the vacancy rate is currently 36%.

Moranbah, Newman and others will recover as there are big projects in advanced stages of planning. But in the short-term they are dangerous places to buy. Even investors who are happy to have some risk in their portfolio would be wise to wait and watch until the current phase is done and dusted.

By Terry Ryder
Thursday, 30 January 2014

Terry Ryder is the founder of hotspotting.com.au.

PROPERTY REPORT – July 2013: Danger time amid the upturn

by Terry Ryder

Introduction:

Danger time amid the upturn

With 2013 arriving like a blast of fresh air, the previous (February) edition of this report was devoted to identifying the places we would buy in this brave new world of growth property markets.

The greatest danger for investors in such a climate is becoming careless. When markets are rising and newspapers switch from their usual gloom to stories of booming prices, it’s easy to believe that you can buy almost anywhere and get growth.

We had a scenario like that a decade ago. The period around 2003 and 2004 was the last time when there was a genuine Australian property boom – a rapidly rising market that encompassed pretty much the whole country.

The rising tide rescued people who made bad investment decisions.

Property 2013 is different. This is not a boom. It’s a time of recovery and a return to growth in many markets. But not all. It’s a climate in which buyers have to be careful – and selective.

So I’m giving over this edition of the Quarterly Market Report to a theme that’s the flipside of the previous edition. This time I’m discussing the places we would avoid.

 

National Overview: Markets are rising – but you need to be selective

Today there are more good places to buy around Australia than at any time in the past 3-4 years.

While there were local differences across the nation, property markets generally struggled in 2010 and 2011, before moving gradually into consolidation and then recovery in 2012.

There has been a marked change in 2013, with a general upturn in the indicators which chart the course of the national property scene. Most of the capital cities are now recording price growth, led by Perth, Darwin and Sydney (although there’s a lot of confusion caused by conflicting figures from the various research sources, reported without intelligence by newspaper journalists who wouldn’t know a townhouse from an outhouse).

As was the case in 2012, many of the nation’s regional towns and cities are performing solidly this year.

But in any market conditions, no matter how strong they are generally, there are places buyers should avoid.

Contrary to the impression imparted by economists and media, there is no such animal as “the Australian property market”. There are many thousands of markets and they’re not all moving in the same direction, nor at the same speed.

Local conditions are often more influential than the underlying national factors. Last year, while most of the capital cities were still struggling to rise out of their slumps, many key regional centres showed double-digit growth – especially those with some impact from the resources sector.

The remote Queensland regional town of Cloncurry has a 35% rise in its median house price, while upmarket Double Bay in Sydney had a 35% decrease. In between those extremes were myriad markets, some of which rose a lot, while some rose a little, others experienced moderate decline and still others had big price declines.

Locations with growing populations and major infrastructure spending will tend to show growth while places without those attributes will not. Places impacted by natural disasters – Australia is the land of flooding rains, as well as drought, bush fires and cyclones – will temporarily decline while other places are unaffected.

Central Queensland provides a good example of how much markets can vary. Last year both Gladstone and Mackay showed good growth, while flood-impacted Rockhampton stagnated. This year, Gladstone and Mackay are declining – because developers have built too much new product and vacancies have risen – while Rockhampton is showing good price growth.

This means investors need to be well-informed and selective about where they buy – and what they avoid.

 

 

Adelaide and South Australia: What would we avoid this year and why?

Typical houses in Port Pirie cost around $180,000 and the median rental yield is around 6.5% – so, at first glance, it might be a candidate for one of our reports called “Cheapies with Prospects”. But while Port Pirie is a cheapie, it lacks prospects.

Port Augusta, Port Lincoln and Whyalla are all attracting their share of major new investment connected to the resources sector, but not much is being directed Port Pirie’s way. Meanwhile, the town’s lead smelter continues to cause angst over its pollution issues – lead levels are 45 times above health standards. Prices in the town keep falling. One to avoid.

We’ve never been huge fans of investing in Roxby Downs. It’s not only a one-industry town, it’s a one-company town (BHP Billiton, with its Olympic Dam mine).

Rental returns available in Roxby Downs have seldom been high enough to compensate for the high-risk nature of buying in a one-company mining town. You can get the same yields in a well-rounded regional centre or in the cheaper suburbs of a capital city.

Many investors bought in Roxby Downs while BHP was touting a $30 billion expansion of Olympic Dam but the company has sent that project back to the drawing board, because the costs were too high.

Roxby Downs has delivered solid capital growth in the past, but we find the risk-return equation generally unattractive. That may change if and when BHP resuscitates the Olympic Dam expansion. In the meantime, there are better places to buy.

 

Brisbane and Queensland :
What would we avoid this year and why?

As I wrote in the previous (February) edition of this report, Queensland is bristling with places with good prospects. It’s also replete with places investors would be wise to avoid.

Queensland is a place with more valid choices and more potential traps for investors than any other state or territory. The status of some locations has changed quite dramatically recently.

Gladstone, one of the state’s strongest markets over the past two years, has become a market requiring caution and careful research by investors. Property developers, excited by the massive infrastructure development and growing working population, have dived into this market and, as they so often do, they have built too many new houses – with more on the way.

Vacancies in Gladstone have risen from near zero to around 6% very quickly as a large amount of new stock has hit the market simultaneously. Rentals are falling and price growth has stopped.

We see Gladstone as Australia’s No.1 industrial city and it has a very strong future. But, in the short-term, investors need to be careful. We would be waiting to see what happens with prices over the next months before making any purchase decisions.

It’s very similar in another key Central Queensland city, Mackay. It too has seen vacancies rise rapidly, for similar reasons. In the case of Mackay, the over-building by developers has coincided with a reduction in demand caused by down-sizing in the nearby Bowen Basin coal mining province.

Moranbah, the No.1 mining town in the Bowen Basin, has been the nation’s top performer on capital growth over the past 10 years. It has achieved extraordinary growth and typical rentals last year were around $1,500 per week.

That has changed dramatically with the closure of the Norwich Park mine, deferral of some proposed coal projects and general downsizing by BHP Billiton and others. The median rental for Moranbah has halved, vacancies have risen from near zero to above 6% and prices have fallen.

Moranbah has been through all this before and will recover, but for now investors should steer clear.

Bowen is another location where vacancies have risen very quickly. At a time when new projects greatly increased housing supply, demand dropped because seasonal workers left the area, the mining industry down-sized and construction workers left following the completion of major developments.

Bowen, like Gladstone and Mackay, has a big future. The Abbot Point coal export terminal is set to undergo major expansions, costing at least $10 billion, with new rail links from the Galilee Basin mining province. That will create thousands of jobs in Bowen and those vacant properties will fill.

In the meantime, there may be opportunities to buy well, because prices are falling in the short-term.

Many of Queensland’s coastal markets which have struggled over the past 3-4 years are now moving into recovery phases, including the Sunshine Coast, Cairns, the Whitsundays and Hervey Bay. But I would not include the Gold Coast in that list. While there are signs of better times ahead for the Gold Coast, this market is constantly targeted by high-rise developers and has regular bouts of serious over-supply. With the Commonwealth Games coming up, it will no doubt happen again.

 

 

Canberra and the ACT:
What would we avoid this year and why?

We would avoid Canberra altogether. Not forever, of course, but until the picture becomes clearer.

As I have written many times, Canberra has been the most consistent capital city market for a long time. Its steady performance, boosted by low unemployment and high average incomes, has been so consistent as to be boring.

More recently, that has changed because major construction projects have been completed and workers have left town. At the same time, the Federal Government has trimmed the public service.

Wayne Swan’s latest (and probably last) Budget has advanced the down-sizing of public servant numbers. I would expect a new Liberal government under Tony Abbott to trim employment even further, given the rhetoric so far and based on the actions of Liberal state governments around the country, most notably in Queensland.

Cost-cutting will be the first order of business if there’s a new government, which appears likely based on the opinion polls.

This coincides with an over-supply of new apartments in the inner-city areas.

There are much better places to invest elsewhere in Australia at the moment, so we would be staying away from Canberra altogether until everything settles down.

 

 

Darwin and the Northern Territory:
What would we avoid this year and why?

The Northern Territory is challenging Western Australia as the No.1 growth economy and Darwin is the property growth leader among the capital cities.

Look at these numbers, showing annual rises: house rents up 23%, unit rents up 22%, home loans up 17%, investor loans up 29%, building approvals up 69% – and unemployment the lowest in the land. House and apartment prices are now following the rental trend, with plenty of growth to happen in the next 12 months.

In an environment like this, it’s easy to believe you can buy anything and get capital growth. It’s danger time for investors.

We would avoid Darwin’s downtown apartment market. In the recent past developers have generated an over-supply in that market and, given the current boom conditions, are fully capable of doing so again.

Darwin suburbs have a strong record of long-term capital growth – most average 11-12% growth per year, in terms of the rise in median house prices over the past 10 years. The only major under-achievers in that regard are the city and near-city apartment markets – because of those periods of over-supply.

We would particularly avoid large apartments. Developers learnt recently that it’s hard to shift big, expensive, three-bedroom apartments – and some re-designed projects to create smaller, cheaper units.

Darwin is an expensive market: there’s only one suburb with a median house price below $500,000 and only a few with median unit prices below $400,000. It’s a little cheaper in the City of Palmerston, the satellite city to Darwin.

We would avoid the top end of the market and concentrate our research at the cheaper end.

 

Hobart and Tasmania:
What would we avoid this year and why?

In the case of Tasmania, unlike all the other states and territories, it would be quicker and easier to explain where we would buy, rather than where we would avoid. There is almost nowhere in Tasmania with Hotspot credentials.

Few locations have strong population growth. Very little is being spent on new infrastructure. Major property developments are scarce. It’s hard to think a single location with the growth drivers that would encourage investors. Possibly only Burnie in the north has any potential to generate price increases.

Conversely, there are plenty of places to avoid. Queenstown in the west would be near the top of the list. This is the nearest thing to a ghost town I’ve seen, surrounded by a moonscape caused by the mining ventures of the past. I swear I saw tumbleweeds in the main street last time I was there.

Few locations in Australia have prices lower than a decade ago, but Queenstown is one. Its median house price today is around $80,000, well below the cost of building even the humblest of dwellings.

Perhaps they’ll discover oil and one day Queenstown will boom. In the meantime, look elsewhere.

A little north of Queenstown, Zeehan once showed potential as a Hotspot when new mining operations were being activated. Briefly, around 2007, the median house price rose 50% (from a very low base, well below $100,000). But that didn’t last long and in recent years the decline has wiped out all those previous gains.

Similar things have happened in nearby Rosebery. These days, both Zeehan and Rosebery have too few sales to even generate a median price. Zeehan has a handful of houses for sale, including one asking just $40,000 (needs work, apparently), and several others priced below $70,000. Residential home sites can be bought for under $10,000.

Stay away. It’s cheap for a reason..

 

Melbourne and Victoria:
What would we avoid this year and why?

This is a no-brainer. Melbourne’s inner-city apartment market is the No.1 “no go zone” not only in Victoria but in Australia.

The vacancy rate in the Melbourne CBD is 6.2%, according to SQM Research, and you have to go back to 2010 to find the last time it was below 4%. The market in Docklands has 7% vacancies and they have been at or above those levels since late in 2011. It’s worse at South Bank, where the vacancy rate is 9.2% – and has been above 6% since 2011.

But worse – much worse – is to come. According to property analysts Charter Keck Cramer, around 25,000 new apartments will be added in Melbourne by 2015. Currently there are 180 projects totalling 19,000 apartments under construction and another 250 projects with 16,000 apartments which are being actively marketed.

But wait, there’s more. Those figures do not include a host of other projects recently approved by controversial Victoria Planning Minister Matthew Guy – the man who gives developers direct access to the State Premier for a fee.

This adds up to the mother of all over-supplies. Developers think they will do okay by heading up to Asia to sell the stock for which there is no genuine local demand. Whichever way you cut it, Melbourne’s inner-city apartment market is heading for a massive shake-out and it will take years to recover.

Some of Melbourne’s outer suburban markets have dealt with similar problems recently. Municipalities like Melton in the north-west and Wyndham in the south-west have been targeted by developers, who built far too many houses. Vacancies have been as high as 10%.

Developers have managed to get rid of some of the surplus stock by using marketing companies who have flogged them off to unsuspecting distant investors, in both Australia and overseas. The vacancy rates in those areas are now back down to acceptable levels. But we would be cautious about buying in some of those high-population-growth precincts around Melbourne.

 

Perth and Western Australia:
What would we avoid this year and why?

Perth markets have exploded in the past couple of months. After a couple of years of strong rental growth and, in the second half of 2012, gradually rising sales levels, prices are now moving strongly.

Land sales have doubled in the past 18 months and home buyers are commonly offering more than the asking prices to secure properties.

An environment like this can be dangerous for investors. Twelve months ago we were advising people to buy in Perth, because major growth was brewing. The best time to buy there has passed and now there is strong competition for properties.

But this is the time when many people feel compelled to jump into the market. The herd mentality rules. Anyone buying in Perth now should set themselves a price limit and not exceed it.

Other Western Australian markets to avoid include Port Hedland and Karratha. Many have been attracted to these places because of the high rental returns, with very ordinary houses fetching above $2,000 a week.

But those sensationally high rentals have created equally monumental prices. The median house price in Port Hedland is $1.2 million, while South Hedland is $850,000. The suburb of Baynton in Karratha has a median price of $950,000.

Those very high values are sustainable only while the resources sector is pumping on all cylinders and while there remains a shortage of dwellings.

But the State Government is working hard to introduce new homes into those markets, with an emphasis on affordability. This is likely to undercut those value levels and we would be nervous if we had recently bought in Port Hedland or Karratha.

Broome is another place in the north of WA with very high prices. There were expectations that the town would receive a boost from the gas processing plant planned for nearby James Price Point, but now that Woodside has canned that idea in favour of more cost-effective options, there is not much remaining to pump up Broome’s market.

 

Sydney and New South Wales:
What would we avoid this year and why?

Byron Bay heads our list of “no go zones” in New South Wales. It is to NSW what Noosa is to Queensland – a highly-rated holiday destination and a highly over-rated property market.

Few places in Australia have performed as badly as Byron Bay. Its average annual growth rate in house prices over the past decade has been about 2.5%, not even keeping up inflation. Over the past five years, the median house price has fallen an average of 2% a year. In the past 12 months, it’s dropped 10%.

Byron’s unit market has been worse. The 10-year growth average has been a dismal 1.2%, with the median price dropping 8% in the past 12 months.

If one place has challenged Byron Bay as a poor performer, it’s Griffith, 570km west of Sydney. Its 10-year growth rate is almost as low, at 2.7%. But no growth has happened recently. The median price has dropped an average of 2% per year for the past five years.

Sydney’s prospects are rising this year, with an upturn long overdue. Sydney has been the great under-achiever among the capital cities, with growth rates well below the other state and territory capitals – particularly at the top end.

We would suggest people avoid those millionaire suburbs of Sydney, assuming anyone can avoid those prices, as they are very volatile markets. They do have periods when prices rise rapidly, but they tend to be brief – and often followed by equivalent decline.

To illustrate, here are the long-term capital growth rates for some of those suburbs: Bellevue Hill 4.3%, Bondi Beach 4.1%, Castlecrag 4.0%, Clontarf 1.5%, Collaroy 3.8%, Darling Point 2.0%, Dover Heights 3.4 %, Killara 2.2%, Mosman 1.8%, Palm Beach 2.4% …. I could go on, but you get the picture.

Better times may be ahead in upmarket Sydney, but long-term these places do not deliver great capital growth.

You’d be better off buying five houses in Blacktown, Cabramatta or Canley Heights than one in Mosman.

 

 

Conclusion:
Don’t put all your nest-eggs in one basket case

One thing worse than buying a property in a dud location is buying multiple properties in a dud location.

It’s surprising how many investors own several properties, but all in the same place. I’ll never understand why anyone would do this, rather than spread their risk across diverse locations.

But I keep hearing from investors who have all their assets in one spot. A bloke I met at the Brisbane Home Show early in June told me he once owned 30 units and 16 houses in the small Queensland town of Greenvale.

Greenvale was once a boom town, but when the nickel mine closed down they tore up the rail tracks linking it to Townsville and suddenly Greenvale real estate wasn’t worth very much. The population fell from 3,000 to 150. Imagine owning 46 dwellings in such a place.

The most successful investors I know own multiple properties – but never two in the one location.

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Newspapers getting it wrong on the never smooth resources boom

Writing about the Australian economy and in particular the resources sector is way too important to be left to newspaper journalists. Somebody competent should be doing it.

Not a day goes by without an over-rated hack with “editor” in his or her byline – economics editor, small business editor, deputy resources editor, acting deputy rural editor – declaring the resources boom to be over.

A total of 73 mining, gas and infrastructure projects costing $268 billion are under construction but, according to nine out of 10 journalists who misquoted the Bureau of Resources and Energy Economics, this constitutes the end of the boom.

Imagine how big it was before it finished.

Are we so desensitised by the numbers attached to mega projects that proliferate in this country that $268 billion in investment is interpreted as a slump?

Of course, the BREE report did not declare the end of the resources boom, as many print journalists so dishonestly claimed. When a journalist for The West Australian, Shane Wright, wrote “The resources investment boom is over, a new report has found” he was being inaccurate. That wasn’t the finding of the BREE report, it was Wright’s own spin on the report content, for the sake of a cheap headline.

He also stated, inaccurately, that the “figures show for the first time since the boom began that the value of new mining and energy projects is falling”. This ignores events around 2008 when the GFC caused many resources projects to be deferred or scrapped. Many journos declared the end of the resources boom then as well – not to mention myriad predictions of recession and double-digit unemployment.

But, despite the global economic calamity, the resources sector bounced back, stronger than ever. And will do so again.

The basic message in the BREE report is that an unprecedented $394 billion has been spent developing 390 resources projects since 2003. The great bulk of that is the $268 billion invested in projects currently still under construction.

Based on the current status of known projects, this will drop to $256 billion by the end of the end and then to $248 billion in 2014.

If no new projects are announced, and if none of the projects currently rated as “deferred” came back on line, investment will be about $70 billion in 2017.

A couple of things about that. The $70 billion figure is where things were at in 2007, when it was considered to represent the mother of all booms amid a raging national economy. We’ve become a little blasé about the enormity of the numbers since.

But that figure assumes no new events or no resuscitation of projects that have been sent back to the drawing board as mining companies seek to reduce costs – projects like the expansion of Olympic Dam, the Browse Basin gas project and expansion of port facilities at Port Hedland.

I’m pretty sure that a lot more than $70 billion will be pouring into resources projects in 2017. So too is BREE. The fine detail in its report, overlooked by many journalists seduced by the opportunity to declare the boom over, suggests that 120,000 new jobs could be created in the resources sector in Queensland and New South Wales alone over the next 10 years.

If all potential projects go ahead, another $270 billion will be invested, creating 80,000 jobs in construction and 40,000 in operation.

BREE resource manager John Barber says: “The resources boom is progressing. We’re turning that investment into projects that will deliver economic benefits such as jobs and revenue to Australian economy for years to come.”

Consulting group Wood Mackenzie has published an optimistic outlook for the resources sector, particularly for oil and gas. It says there is unprecedented spending in this sector and expects it to continue.

“The outlook for the next three years confirms the strength of the Australian resources sector,” it says.

Wood Mackenzie’s Gero Farruggio sees Australia’s dominance in iron ore increasing, taking its share of global seaborne trade above 50% by 2016. He also says the resumption of deferred coal projects and the development of new projects will keep resources spending strong through to 2017.

Wood Mackenzie sees investment in iron ore, gas and coal remaining high for at least the next three years.

The resources cycle is never smooth but the current boom in Australia, which started a decade ago and has persisted despite the GFC and the fluctuations in commodities prices, will continue to drive the national economy and many of its property markets.

Terry Ryder is the founder of hotspotting.com.au