Movement on the resources front suggests there’s light at the end of the tunnel for the Sunshine State.
If you were to liken the current Queensland economy to a person, it’d be a battered but resilient boxer.
It seems that every time recovery appears on the horizon, a fresh blow knocks it for six. First, the GFC saw the mining and resources boom curtailed and property development cut off in its prime, rising interest rates and the end of the First Home Owner Grant Boost put the brakes on the residential market, and the ever-strengthening dollar has seen the tourism industry suffer more and more.
On the face of it, it’s all quiet on the eastern front, says BIS Shrapnel senior project manager Angie Zigomanis.
“It’s very much the case that projects like mine expansions and large commercial property construction projects have wound down now,” says Zigomanis. “We’re in something of a lull now, effectively waiting for the next round of projects to kick in and stimulate the economy.”
The property and employment slowdown has had a knock-on effect on population growth, too: without jobs, there are fewer reasons to move to Queensland, so migration has fallen significantly. According to the state government, net migration in 2008 was 84,275 people, with 21,228 arriving from interstate. For the 12 months leading up to March 2010, net migration fell to 55,845, with the interstate figure just 11,012 people.
That fall in population growth has led to a general slowdown in market activity, especially in South East Queensland, says Real Estate Institute of Queensland president Dan Molloy. “Frankly, the market has been flat,” he comments. “There’s been a reduction in sale numbers, an increase in properties on the market, and the days taken to sell a property have increased. However, there isn’t market volatility in terms of wholesale price reductions.”
If anything, Molloy adds, the market is finding a new equilibrium – albeit at a lower level.
“It’s not as though we suddenly don’t have a structural undersupply of stock, but the number of transactions has dropped. The expectations have shifted downwards across the market: I think we’ll see vendors – especially upgraders – adjusting their expectations down, but also expecting to be able to pick up a better deal than they may have previously done when buying. The market is finding an equilibrium, and if anything it’s favouring buyers.”
What the new year brings will be crucial, adds Molloy – especially in terms of how investors react. While REIQ isn’t seeing “huge signs” of investor interest – partly due to concerns over rental yields following interest rate rises – he suspects that they are keenly watching the Brisbane market, waiting to see when the city hits the bottom of the cycle. That, he thinks, isn’t far away – if it hasn’t been reached already.
“We’ll know for sure by the end of February,” he comments. “If there’s an absence of the usual surge in activity, then we’re probably at the bottom. Even so, I think we shouldn’t be under any illusions that there will be substantial growth in 2011: however, it will present good opportunities for buyers and cashed-up investors in the right place.”
The road ahead
In fact, it’s the long view that investors should be keeping tabs on: while 2011 isn’t shaping up to be a boom year, 2012 and 2013 are looking much brighter – not least because the resources activity is starting to ramp up again in a big way. Major projects announced include BG Group’s $15bn coal seam gas (CSG) project, which will expand existing CSG production in the Surat Basin in southern Queensland, and the construction of a 540km underground pipeline network linking the CSG fields to a new two-train LNG plant on Curtis Island. A second CSG project led by Australian gas producer Santos is also set to launch pending federal approval – between them, the two projects are expected to create more than 12,000 jobs and generate billions of dollars. Also planned is a $274m expansion of Xstrata’s George Fisher zinc mine in Mount Isa, which will create another 400 jobs. While Molloy welcomes the announcement, he cautions that “announcement and delivery are two different things”.
Zigomanis says that it’ll take a while for the impact of projects like these to seep through to the wider economy, but that they’ll have benefits for the entire state.
“Of course, the regions will see an increase in direct jobs, so there will be potential in pockets like Gladstone. However, support roles – accountancy and administration – generally come back to the capital city, so I’d expect Brisbane to benefit significantly too. After 12 months, I’d expect migration to pick up on the back of jobs growth, the economy to pick up, and prices to recover.”
But be careful
Even so, Zigomanis cautions that there’s a wild card factor – interest rates. The RBA’s November move has already caused a fall in consumer and business confidence – not least because it’s seen as a harbinger of more increases to come. “If the RBA comes in aggressively on interest rates, it may well slow the upturn,” he adds. “Our view is that the RBA may be more conservative in the short term, but it’s possible that, by 2013, that upturn could stall.”
Molloy is more optimistic – and urges investors to make the most of the current buyer’s market. “There’ll be opportunities presenting themselves for investors over the next 12 months,” he says.
“Investors looking to identify good opportunities, either in South East Queensland or a regional area, should be able to position themselves for a reasonable upturn in activity in 2012 and 2013. As always, those who can identify the bottom of the cycle will be well-positioned to benefit from higher growth in the years afterwards.”