As tentative recovery gets underway in parts of the country, Jeremy Sheppard finds out if areas once considered no-go zones for investors are starting to stir
Most property investors who’ve had their finger on the pulse of the Australian residential property market for the last several years will know that there are some “no-go zones”. These are markets that have some kind of chronic problem that would put informed investors off buying there in most cases.
The Gold Coast comes to mind as a good historical example.
But is this still the case? Let’s have a look at what recent data is telling us to see if there is light at the end of these dark tunnels. Perhaps it is time to capitalise on the stigma while it is still there.
The Gold Coast
Why it became a no-go zone: It wasn’t long ago that retirees were moving into holiday or resort style locations all up and down the east coast of Australia. This was a phenomenon that property investors were cashing in on – and developers too. It seemed like the whole world was retiring and they all wanted sun and sand.
Developers went crazy in places like the Gold Coast and Sunshine Coast whipping up high rise apartments in particular. So of course a state of oversupply was eventually reached. The frenzy faded from buyers and prices tanked. Then the GFC came along and just made everything even worse.
Chances of recovery: Sooner or later the Gold Coast and Sunshine Coast markets will recover. They are still beautiful places to live after all. But it takes a long time for property markets to re-balance and even longer before they start looking like healthy investment locations once again. Volatile markets like this are what property investors can take advantage of – that’s if you know what to look for and when to make your move.
To analyse these markets to see where they’re at right now, I’m going to use the Demand to Supply Ratio.
Prices will rise if demand exceeds supply. As investors, we want to invest in markets where the demand exceeds supply by the greatest possible margin. In other words, we want the maximum demand to supply ratio.
Both units and houses in the Gold Coast have had an increasing margin of demand to supply for over a year now from quite a low base.
This doesn’t mean now is a good time to invest in the Gold Coast since this ratio is still low. Unless the trend accelerates, it doesn’t look like the Gold Coast will be a “buy” recommendation even by the end of 2013.
The demand to supply ratio over the last three years for both houses and units in the Sunshine Coast is almost exactly the same as for the Gold Coast. The statistics confirm that both the Sunshine Coast and the Gold Coast seem to be suffering from the same thing. Therefore, again, it is unlikely that the Sunshine Coast will represent a good buying opportunity in 2013.
However, existing owners of property in both the Sunshine Coast and Gold Coast can expect the slide of property values in some suburbs to abate in later 2013 – that’s if the strong upward trend in the demand to supply ratio continues. In other words, there is light at the end of the tunnel for those investors hanging in there.
Why it became a no-go zone: The boom in prices in some parts of Victoria over 2010 brought a lot of developers out from their caves. The less informed among them started raising apartment complexes in locations already well supplied. It is now widely held that this market is in a state of oversupply. But what do the statistics say?
Chances of recovery: What we’re seeing is that units were all the rage in 2010. Since then, the demand to supply ratio has dropped. Interestingly, it has increased for houses. The suburbs I considered include...
Carlton, Carlton South, Carlton North, Docklands, Flemington, Kensington, Melbourne, St Kilda Road, North Melbourne, East Melbourne, West Melbourne, Parkville, Port Melbourne, Southbank, South Wharf and South Yarra.
The current demand to supply ratio and the drop in demand to supply ratio for units in Melbourne are not as pronounced as I would have thought given the level of media commentary on oversupply. Perhaps the list of suburbs I considered, don’t match those of other commentators? Perhaps the state of oversupply is still yet to play out completely?
It does take a long time for significant movements in large markets to take place. Note that the demand to supply ration is not really a cause for concern and is slightly better than the markets we looked at in Queensland. But it does tip the scales into the realm of oversupply.
From what I see of the Melbourne statistics, I’d be in no panic to sell if I already held property in this market. Similarly, if I already held property in the Gold Coast or Sunshine Coast, I would be in no hurry to sell. However, I would definitely not be entering into these markets right now with a new investment – there are simply too many other better opportunities out there.
Both investors and developers have been hurt by not paying attention to the state of supply and demand. Don’t be caught out, make sure you check the DSR for your target market. Go to www.DSRscore.com.au for a more comprehensive list.
Jeremy Sheppard is the inventor of www.DSRScore.com.au (demand-to-supply ratio) and is research director at Redwerks.