This week we’re popping under the Queensland bonnet to have a thorough look at how the state’s property market is actually performing
Round about the time Queensland was preparing for the final game of this year’s State of Origin, Brisbane resident Melissa Paulson was running late for an important appointment. She was due to meet a valuer at her investment property in Beenleigh, on the city’s southern fringe, but on her way got caught in the traffic outside Suncorp Stadium.
Her two-year old son in the back seat, thirsty and crying, the traffic added to an already tense situation for Paulson. She and husband Dave had bought the property five years ago, their first. They had never had it valued since purchase and weren’t sure what to expect. They were hoping to see some reasonable capital growth and use this to leverage for additional purchases. Fingers clenched around the steering wheel, Paulson knew she had a lot riding on this.
When she eventually pulled into the property’s driveway, her heart was beating fast. She caught the valuer just as he was leaving. “He was only prepared to give a preliminary figure that day but what he said was a bit of a surprise,” she recalls.
“He said the house was valued at $260,000 – much lower than we thought. We knew property values hadn’t changed much in Beenleigh recently, but this was close to our original bank valuation of $255,000 in 2008… Disappointment doesn’t even describe it.”
Paulson isn’t alone. After experiencing a once in lifetime flood, during a once in a lifetime recession, growth in property values across many Brisbane suburbs have remained dead-flat over recent memory. It’s a feeling that’s frustrated a lot of investors, who would have, in the past, seen Australia’s third biggest city as one of the better markets for investing.
That there are plenty of investors just like Melissa and Dave Paulson who have not seen recent capital growth speaks volumes about what is happening in Brisbane property markets.
“Five years ago, Brisbane and some of Queensland’s coastal areas were doing very well, now it’s the opposite,” says PRD Nationwide research analyst Aaron Maskrey.
“Some of those coastal markets have been having a tough time since the GFC, and Brisbane, to a lesser extent, has struggled too. We’ve also been seeing a lot of job shedding from the new State Government, which has contributed to city unemployment figures that are already higher than much of the state. This has meant confidence levels remain very low.”
First homebuyers have also been in something of a pickle, with Greater Brisbane’s southern regions such as Logan and Ipswich, seeing among the worst performing mortgage delinquency rates in the country, according to the latest Fitch Ratings report. This has further spurred a lack of confidence, despite Brisbane’s economy showing strong drivers of growth.
ANZ head of property research Paul Braddick agrees that confidence has lagged behind the state’s favourable economic growth.
“Brisbane has strong fundamentals in place, but sentiment has been well and truly down since the GFC and the floods,” he says, adding that sentiment will play a significant part in when property prices show a healthy return to growth. He predicts this may come early next year.
Back to growth
Providing a similar forecast is BIS Shrapnel research analyst Angie Zigomanis. He believes that after having shown a long period of flat growth, Brisbane property prices should recover soon, although the exact timing of such a recovery will depend on a number of factors. Sentiment, at least, should change for the better, he says.
“The Queensland economy is now beginning to turn around,” he says. “Consequently, economic conditions are forecast to rapidly improve, with ensuing employment and income growth to create a greater level of purchaser confidence.”
Zigomanis adds that Brisbane’s decline following 2008 was a result of floods and the GFC, but adds that a third element, an oversupply of dwellings, also caused the slump. A reduction in overseas and interstate migration into Queensland saw demand slip below construction levels, and this resulted in an increase in vacancies that, mixed with the already constrained economic climate, pushed prices down.
With new dwelling constructions now well below GFC levels, Zigomanis estimates that the market has had a deficiency of dwellings since the beginning of the year. Because of this, vacancy rates have dropped below 3% – the level generally considered to show a balanced rental market – and Zigomanis sees this putting upward pressure on rents and eventually on prices.
“We should start to see a return of price growth in 2012/13, which will accelerate into 2013/14 as the underlying dwelling deficiency becomes more pronounced,” he says.
From boom to Brisbane
ANZ’s Paul Braddick sees the key being Queensland’s resources industry and how quickly growth in mining areas can trickle into the state’s capital. “Right now, that’s what we’re seeing in Perth. All the mining that is happening in the north west of WA has resulted in demand for a whole range of professional services, even things like accounting and legal, and this has made the Perth commercial property market red hot.
“We’re expecting a similar thing to happen in Queensland. To some extent we’re already seeing a tight commercial property market in Brisbane, but it is just a matter of time before the investment flows ramp up over the years and precipitate more demand for professional services – just like what happened in Western Australia.”
Braddick is quick to point out, however, that the big difference between Western Australia and Queensland is that the latter is a much broader economy that has traditionally relied on a lot more sectors. Tourism and education are two of them and, with a population almost double that of Western Australia, the retail industry is significant too.
In this regard, a positive sign, albeit a modest one, is that the Brisbane retail sector remains healthier than the national average, according to a report by Deloitte Access Economics. The report says that the news is a sign of improving confidence among state residents, who have been cautious in their consumer spending for a while.
“There has been a lot of talk about the resources boom, but the truth is that Queensland has been struggling as an economy for the last few years,” says Braddick. “WA may be well into boom mode, but Queensland hasn’t done the same. Areas such as Emerald and Gladstone might be booming, but this hasn’t spread as much as it has in WA.
“That said, with some of the gradual improvements we’re seeing in a lot of indicators, the general consensus is that the state is going to improve. It is probably just 12 to 18 months behind Western Australia in that regard – then the jobs and money will start to flow into Brisbane and elsewhere.”
Fence sitters dig in
Forecasts of a return to capital growth may be one thing, but for people in the same boat as Melissa Paulson, it’s an idea that’s becoming hard to swallow. “We’ve had four tenants in our property and every time they moved out, we bumped up the rent. We we’re getting great rental growth, actually, so no capital growth was quite a shock.”
Paulson adds that economic forecasts won’t do much to change the view she’s recently developed about Brisbane property investing. “Our valuation has kind of put us off investing for now. We’d rather wait a couple more years for the market to improve,” she says.
PRD‘s Aaron Maskrey says that Paulson’s wait-and-see attitude is typical of what many Brisbane-based investors are thinking. What makes her and others’ stance significant is that Maskrey says it affects the entire Queensland market.
“The majority of investors in regional Queensland come from Brisbane. If they’re not feeling confident about their city’s property market, they’re less likely to invest in some of Queensland other destinations,” he says. “For Queensland, as one market, to show good growth, things often need to be good, or perceived as good in Brisbane.”
The rest of Queensland
As confidence trickles from Brisbane into the rest of Queensland, Hotspotting.com director Terry Ryder points out that certain regions have pre-empted Brisbane growth and are already doing well. He says the fact that mining regions are booming is no secret, but says that many investors don’t realise just how well centres such as Townsville are (and will be) doing.
“In many ways, Townsville is Queensland’s strongest regional economy. It’s the unofficial capital of northern Queensland and has a large amount of public administration offices,” he says.
“Townsville is also very strong for tourism and the military centres there are being expanded. There’s been a lull in the property market for a couple of years, but the city’s links to the resources industry are also strong, so the economy is doing well.”
Generally, Ryder believes that regional centres offer a much better prospect than mining centres. He says that even though areas such as Moranbah and Dysart top capital growth figures for the state, they remain risky. “Places like Mackay and Emerald would be stronger choices,” he says. “There are major mining companies there and the mines are close by, but the economies are more diversified.”
Mining regions could peak early
Further question marks over mining areas as investment destinations were recently brought up by Deloitte Access Economics in their Business Outlook report. The researcher found that there are rising risks to the resources investment pipeline, due in part to rising construction and operations costs. The report also states that a slowdown in the economic growth of China could see a lull in the demand for resources a few years down the line, making the future of resource-driven property markets dubious.
“The current resources boom may peak sooner than earlier expected,” the report says, adding that this won’t stop Queensland seeing good growth in the short-term. “There’s already a heap of investment in the pipeline, and Queensland’s economic growth will be a considerable short term beneficiary of that... We continue to see the state carving out a larger share of Australia’s economy and population over time. Yet it does suggest that the recent surge of growth – great as it has been – has also been too good to last,” the report says.
The coastal regions
If the property markets in certain mining regions have an uncertain future, the same could be said of Queensland’s most hard hit markets since the GFC – the Gold and Sunshine Coasts.
BIS Shrapnel’s Angie Zigomanis believes that house prices in both regions have moved largely in tandem with Brisbane, benefiting from interstate and overseas migration. Because both drivers are now at long term lows, he says the Gold Coast and Sunshine Coast residential property markets remain weak.
Propelling the situation, Zigomanis adds, is the fact that these centres do not have the same employment drivers as Brisbane and will thus see price growth that is lower than Brisbane until at least 2015.
PRD’s Aaron Maskrey also sees the two regions being behind Brisbane. “The Gold Coast and Sunshine Coast will follow Brisbane’s lead, but there are some bright spots,” he says.
One of these is the Sunshine Coast’s Kawana Health Precinct, a large, ongoing development that Maskrey tips to be a long term employment benefit for the region. For the Gold Coast, a bright point is the spike in construction levels that will be brought about by the city’s hosting of the Commonwealth Games in 2018. “This will be good because about 12,000 Gold Coast construction workers have lost their jobs since the GFC, though the games will probably be just a shot in the arm for construction levels,” says Maskrey.
Generally speaking, Maskrey adds the Gold and Sunshine Coast property markets are not the best places to invest in at the moment.