The Sunshine State’s poor performance has left property experts scratching their heads.
How did it happen? How did a resource state powerhouse with significant population growth and great potential not meet expectations? Brisbane’s unit and house markets are the worst performing in Australia, on both annual and three-monthly calculations, according to Residex. The median price for units fell almost 1% in the three months to July, while the average house price grew an anaemic 0.09%.
“To get into the position we’re in, you actually have to work at it,” says David Hyne, director of residential at Herron Todd White. “Part of you has to point the finger towards government. We’ve got considerable resources and yet we find ourselves at the bottom.”
Queensland’s Labor government, now in its fifth term, is very unpopular amid allegations of mismanagement, incompetence and squandering of the state’s natural assets.
One of the major issues is the capacity of ports in the north of the state. “Our port facilities are absolutely choked,” says Hyne. “Had we spent serious infrastructure money in that part of the world, rather than just on where the population base is, there would have been much more revenue coming through.”
It is not unusual to see 30 or more boats waiting to load coal off Mackay’s main port. Hyne estimates there are now over 100. This bottleneck has seriously dented Queensland’s economy, with the damage flowing through to employment and property markets.
“The drop in tourism hasn’t helped us either,” says Hyne. “Hot spot tourism places like the Gold Coast and Airlie Beach are off the boil. So many of the construction people like Leighton are saying, ‘If we didn’t have the schools project, we would have nothing to go on with.’ The Federal stimulus is helping big-time.”
Amidst the doom and gloom, there are some bright spots – areas close to the city where market fundamentals remain strong. Queensland investors should now be getting back to basics and focusing on long-term growth prospects.
“The strongest is … near the city, house and land,” says Hyne. “It’s the market consisting of your cottages, your traditional-style pre-war homes. It’s a bit patchy, but it’s not weak like it is in the mortgage belt.”
Robert Kopp, an expert in south-side real estate with Re/Max Colonial Annerley, says the outlook is bright from where he is sitting. “Our experience in the south side – Annerley, Fairfield, Salisbury, Tarragindi, Moorooka and Yeronga – is that it’s not in line with Brisbane statistics. It’s above the line,” he says.
Kopp calls greater metropolitan Brisbane “a very interesting soup”, with quite a few tenants defaulting on their rent payments in the south-eastern suburbs (near Logan), while in Annerley, tenants pay above market and rents remain strong.
A major rail tunnel is about to begin construction on the south side, while Woolworths have just started building close to Kopp’s office. This is proof, he says, that the area is still booming. “Those people are not stupid. They crunch the numbers before they make the decision to whack down shareholders’ money.
Holiday towns suffering
Further south, on the Gold Coast, markets are still in the doldrums. “The Gold Coast is a completely different story; it’s a basket case,” says Hyne. “The prices there always get to a level where they’re unsustainable. You get a lot of people breezing in, buying investments, with people from overseas getting involved. The demand can get really high in the good times, and the funny money gets sprayed around. And then when it retreats, it’s the opposite end of the spectrum. So it’s big ups and downs.”
Lifestyle towns up and down the Queensland coast are suffering from the same conditions. “Airlie Beach, Noosa, Port Douglas – they’re all struggling,” says Hyne. “They’ve copped it the hardest. I wouldn’t recommend the resort towns because the vacancy rates would be too high.”
In difficult economic circumstances, it is discretionary spending that gets hit first, Hyne warns. “Big concentrations of prestige homes on canals and those holiday units and beachfront homes have been the first to be listed, but it’s very hard to get finance for these properties.”
Chasing the yields
With the Gold Coast and Redcliffe unit markets underperforming and Brisbane’s inner-city units plodding along slowly, many savvy property investors are turning towards high-yield properties in order to keep their heads above water until the market recovers.
“There are still good opportunities for yields in resource towns,” notes Hyne. “The entry points are certainly a lot higher than they used to be – fairly modest homes for between $400,000 and $500,000 are the order of the day – but there is good potential for yields. Those yields are justified, because you are taking on a property with less growth prospects than an inner-city Brisbane house-and-land.”
Rent returns near the city are in the vicinity of 3.5%. “Somewhere in the early 4s is the best you could hope for,” says Hyne. In regional Queensland, however, Residex figures show that yields on houses are among the highest in the country at 4.88%.
“We’ve seen better times, and we’ve still got a little way to grind through,” says Hyne. “It’s not going to turn around any time soon, though.”