The Sunshine State has seen only bright pinpricks recently, as its two-speed market has lurched from one crisis to another. Are things finally looking up?
Much has been written about Australia’s potential ‘two-speed’ economy. A recent report from the Commonwealth not only noted this syndrome, but made a point of the fact that mining states and territories – Western Australia, the Northern Territory, South Australia and Queensland – are “pulling away from the less well-endowed states”.
However, it’s likely that many with an interest in the Queensland market would argue that the two-speed economy is not just an interstate issue – it’s also one that is happening within states, and the Sunshine State is displaying this most dramatically. After all, how else can you explain a state in which you have both the country’s best growth in median unit rents (26.3% increase in Brisbane’s West End, according to RP Data) while still seeing a 28% fall in average house prices in a suburb in Cairns over the last quarter?
If there is some comfort that can be drawn from Queensland’s volatile figures, it’s that average prices have now recovered to their pre-GFC levels. Bill Morris, author of the Midwood Queensland Investor Report, isn’t convinced that this is a cause for celebration. “The market is still very constrained in terms of sales volume,” he comments. “In fact, the number of sales we’re seeing at the moment is probably only around 30% of normal volume.”
It seems staggering that the market could be operating at such low levels without seeing significant value falls – however, Morris attributes the market staying in equilibrium to a lack of new building. “Prices are holding up across the state purely down to one factor: Queensland suffered more in terms of lack of development finance than any other state,” says Morris. “Suncorp was the major funder in the region: due to its troubled financial position, it more or less stopped lending on development. We haven’t really seen any other funders step in to fill the gap, so developers have hampered for funds. That’s why prices have held steady – it’s because supply has held up relative to demand, since we haven’t been building new houses.”
While that restoration of market equilibrium may be music to the ears of free marketeers, what does it mean for the future? Dan Molloy, managing director of the Real Estate Institute of Queensland, reckons that increasing certainty could set the scene for better times ahead, particularly in the south-east of the state.
“The Brisbane residential property market has been impacted by a number of negative factors over the past six months, including rising interest rates, economic uncertainty, and the prolonged election campaign and decision period,” he comments. “Agents have reported hesitation among buyers, with many happy to remain on the sidelines until a clearer picture on the economy emerged.
“The Sunshine Coast, while still impacted by these factors, has reported strengthening enquiry and increasing consumer confidence of late, perhaps as buyers recognised that the June quarter could be viewed as the bottom of the market,” he continues. “Across the state, agents are hopeful the market will soon improve given interest rates are currently on hold and there have been more healthy economic indicators, including unemployment, released recently.”
While Brisbane has undoubtedly suffered – with RP Data recording median values in the city falling by 2.5% in the July quarter and by 1% in July alone – there are still pockets of growth. WBP Property Group’s state manager for Queensland, Julian Harrison-Tubb, argues that properties within a “narrow radius” of the Brisbane CBD are going great guns.
“The strongest activity in the market appears to be in the $500,000 to $950,000 range in a narrow radius around the Brisbane CBD,” he wrote in WBP’s recent market update. “This part of the market is experiencing the fastest sale periods and strongest results.”
Harrison-Tubb adds that the rental market also remains tight, putting upward pressure on rental returns. This is certainly the case for the popular inner-city suburb of West End – RP Data reckons the average unit rental price has increased from $380pw to $480pw in a year.