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What will happen to the Queensland property market in 2016

Written on the 24 February 2016 by James Cagney

I am going to be my own harsh critic on previous predictions I made about the property market in January 2015 and show the impact this will have in 2016.   You can simply read below or you can go to the article I wrote in January 2015 which I edited in after Cyclone Marsha,  to cross reference if you wish. Otherwise just continue reading .............

Cyclone Marcia did result in a temporary increase in the rental market in and around Rockhampton and Gracemere as people moved out of their damaged homes and tradies moved in to repair the damage. However, this did not last and property prices and rental yields declined in the second half of the year. One of the major causes of this this decline is the lack of employment opportunities due to the delay in the approval of the Carmichael Mine and Rail link to the coast, which would have injected $16 Billion into the region. The other reason is the drop in the price of coal which has caused many of the marginal mines to close until the prices improve. Property values in the regional towns in the Bowen Basin like Emerald, Dysart, Moranbah etc., have plummeted because of the closure of these marginal coal mines.

Queensland's coordinator-general is proposing to extinguish native title over a leasehold property held by the Indian mining giant Adani, which would allow the company to begin building infrastructure for its $16 billion Carmichael coal mine. Click on the Queensland Government Department of State Development website for the approval of the Project "subject to conditions".  This Government site has information on a number of other large infrastructure projects in Queensland, which will create tens of thousands of jobs around Queensland and is well worth looking up. Even though these projects are bound to move forward,  it will take at least a year for the rental returns within Capricorn Coast and the Bowen Basin, and capital growth,  to improve. Keep this link in your favorites so you can refer to site and be updated on a regular basis.

The delay in the construction at the Carmichael Mine and Rail link in the Galilee Basin has put a dampener on the rental market not only in the Capricorn Coast but also for property investors in and around Mackay and Townsville. The Abbot Point expansion application and compliance is in the final stages of negotiation and this will bring a welcome boost to employment for Mackay and Townsville residents.

The recent  retrenchment of 237 and susequent closure of the mine which affected another 550 workers at Clive Palmer's Nickel mine near Townsville was anticipated and the Queensland government. Although the State government  set aside $6.1 million for an employment program for these and other workers who have lost their jobs in the marginal coal mines which have closed in the last two years, the event is a disaster for Townsville's property market recovery . The problem is that the Nickle price has plummeted over the last year and the mine will not be able to operate to it's previous capacity and workers jobs are gone. Many of these workers will loose their entitlements because the previous mine was placed into admistration. In comes the Administrators who have a reputation of bleeding companies dry with their exhorbatant and ongoing admistration fees and they are in no hurry to settle the matter. Townsville was regarded as the FIFO hub when the coal mines were in full swing in the Bowen basin but those days are long gone. 

Beware of investing in Bowan and adjacent areas because once the  "Construction Phase"  and the "Excitement and Euphoria" is over and the area moves into the "Maintenance Phase"  employment will decline and rental yields follow suit.  This is what happened in Gladstone when one by one the LNG plants on Curtis Island were completed rental vacancies soared and rental yields dramatically declined. The plumiting oil andd gas price is not promising for the exploration and expansion of  oil and gas projects in Queensland. The good news is that the Curtis Island plants have long term supply contracts with japan and other Asian countries. There are  major projects about to start at the port in Gladstone,  which will bring some relief to investors in the area.

The cold  fact is that if the Adani Group, who supply the majority of electricity in India, do not get coal from Australia they will get it from another country. India needs power to expand it's manufacturing capability and to provide electricity for it's burgeoning population. India's population will exceed a billion people within the next few years and they have to provide jobs for their population to avoid starvation and riots which topple goverments. India is more interested in feeding it's population than global warming and they will get the coal they desperately need, despite the protest of concerned groups in Australia. China now has a surplus of coal and is retrenching miners. beware if we take too long India will look to China for their coal and regional Queensland will move furher in recession.

I have always said that property investing is a long term strategy and not a "Get rich quick scheme". if you can afford the weekly shortfall then hold onto the property  because historically property has doubled on average every ten years in Australia since 1980. It may take longer for properties in regional areas to double because of the reasons mentioned above, but if you hold on long enough you will make money.

The Cairns property market has not taken off because of the delays in the start of the new casino at Yorkeys Knob. Following stalled negotiations with the Queensland government over the $8 billion project Treasurer Curtis Pitt announced on the 12th September 2015 that the team behind the Aquis Great Barrier Reef Resort project had signed an agreement to re-enter the government's integrated resort development (IRD) process.

The proposed development is planned to start with a $3.5 billion 1st stage and once the resort is fully operational it could create up to 16,000 jobs. Mr Pitt said "The development, to be built  is meant to include 7,500 hotel rooms, a convention and exhibition centre, two casinos, a golf course and an artificial lake and lagoon".

As this is a massive injection of foreign investment from a Chinese investor into the Cairns area I don't believe it will happen for another 12 months because negotiations are far from over and these projects always take longer than expected to get started.

The Gold Coast and Sunshine Coast areas are still on the cusp of the expected capital growth. Both these areas were in the top 10 places for tourists visiting Australia last year. Developers have been furiously building house and land packages on the Northern Corridor between the Gold Coast and Brisbane. However, typical of developers in the area,  they have oversupplied the present market particularly in Pimpama. The long awaited Coomera Town Centre site has been cleared and we await the heavy machinery on the site. The bridge across the Coomera turnoff (Exit 54) is currently under construction. Request  photographs, news articles and information about  the development.

The expansion of the Sunshine Coast airport will bring much needed employment and will bring tourists directly into the area. Look up the project on the Qld State Government website.

Michael Matusik claims that the Brisbane property market has not met growth expectation in the last few years. It has under performed due to the slump of the mining boom and the drop in the population increase in Queensland. In fact the population growth, nationally, has declined over the last 12 months.  Australia's population growth was just 317,000, which  is down some 30% off the peak of 460,000 new residents during 2009. Queensland's actual rate of population growth has nearly halved in the last seven years. The Sunshine State increased by about 59,000 people last year - against over 110,000 during 2009. This significant decrease in population growth  has occurred due to the economic uncertainty since the Global Financial Crises and the more stringent laws on "Skilled and investor"  visas. As usual this is a knee jerk reaction from government about the boat refugees to keep the voters happy and foolishly including harsher Skilled and Investor visa criteria into their immigration policy has contributed to the population increase demise. It is a fact that "Skilled and Investor" migrants bring valuable skills and money into the Australian economy.

Beware of investing in high rise apartments within the CBD of Brisbane, the Gold Coast and Sunshine Coast because  a huge surplus is eminent. Sydney and Melbourne CBD's  will have similar oversupply of these high rise apartments especially those "Off the Plan" with long settlements. Do not listen to property spruikers who tell you the road to fortune is buying these "Off the Plan" apartments and selling them before they settle expecting to make huge profits. Banks are well aware of the looming oversupply and you may not be able to get the loan you want when these properties do settle. And, despite what the slick real estate agent told you, you won't be able to sell it for a profit because thousands of apartments will come up for sale at the same time and you are likely to lose your deposit and the developer can sue you if you do not settle.

The chart below from "onthehouses.com" shows 'Capital growth, Rental Yield and Total Return per Annum" for houses and units. All of these areas were below the average in Sydney & Melbourne.

Brisbane Local Government Areas
Long Term Statistics
Average Over the Last 10 Years to March 2015

Local Council Capital... Growth (p.a) Rental,,, Yield (p.a) Total.... Return (p.a.)
Type Houses Units Houses Units Houses Units
Brisbane 4.59% 4.40% 4.30% 5.12% 9.16% 9.85%
Ipswich 3.62% 4.47% 5.35% 5.57% 9.28% 10.42%
Logan 3.94% 3.52% 5.25% 6.12% 9.50% 10.01%
Sunshine Coast 2.34% 2.06% 4.57% 4.85% 7.11% 7.11%
Gold Coast 2.92% 1.63% 4.70% 5.60% 7.84% 7.45%
Toowoomba 4.38% 4.92% 5.01% 5.50% 9.71% 10.82%

 

The property value (capital growth) must grow by 7.2% per Annum for a property to double over 10 years. This has not happened in the above areas during the last 10 years to March 2015. Although the capital growth is very disappointing  the yields are reasonable. Taking the "Rental Yield into consideration the "Total Returns"  are over 7% in these ares, which is some consolation for investors. If you bought in these areas  "do not beat yourself up". Hindsight is 20-20 vision and we all should have bought in Sydney and Melbourne 10 years ago. However, the entry price would have been higher as well and it is not a good idea to purchase investment property over $500,000. I say this because the property has to double to over $1 million in 7.2 years, which is asking a lot and there are barriers in investors minds as to how much they are prepared to spend. The other question you need to ask yourself is will renters pay $1,000 a week? And surely, if they could pay that price, would they not be buying their own property to live in?

Tim Lawless of Corelogic / RP Data says "Growth conditions across the national housing market during 2015 can best be described as diverse. While the headline figures indicated that the combined capital cities recorded strong capital gains, the reality was that Sydney and Melbourne were the only capital cities to see substantial increases in values. While the CoreLogic RP Data Home Value Index showed combined capital city home values rose by 8.7% over the 12 months to November 2015, only Sydney (12.8%) and Melbourne (11.8%) recorded double digit growth. Brisbane (4.0%), Adelaide (3.3%), Hobart (1.1%) and Canberra (4.5%) each recorded relatively moderate value rises while values fell by -4.1% and -4.2% respectively in Perth and Darwin".Tim Lawless does go on to say "As we head into 2016, early signs indicate value growth in Sydney and Melbourne is slowing, whether this results in further value falls remains to be seen, however the rate of appreciation next year is likely to be more moderate than the 2015. Elsewhere it looks as though housing market conditions are starting to pick-up in South-East Queensland and potentially other markets like Canberra and Hobart.  Of course the changed lending environment will continue to be a factor in the market in 2016, however, interest rates are set to remain at their historically low setting which will continue to spur demand across the housing market".

Having said all this the property market is cyclical and we need to understand that property prices can not continue to grow 'ad infinatum'. There is a "Correction" and Stabilisation" phase and you ideally should invest before the "Rapid Growth" phase.  At the end of November 2015 the median price in Sydney was $810,000 and Melbourne was $602,500.  Brisbane's's median price was $467,200 and the combined average across all capital cities in Australia was  $595,000. Therefore, Brisbane, the Gold Coast, Sunshine Coast, the Northern Gold Coast - Brisbane Corridor, Ipswich and Toowoomba have room to move upwards and in my opinion about to enter the "Rapid Growth" phase.

You need to understand how the property cycles work and where the infrastructure in the next few years is going to happen. To know how property cycles work click on The Property Cycle and Market Emotions , which James has designed and copywritten.  If you need more explanation please click >>>>> HERE

Now that you have read the above you will have an idea of my comments of January 2015, what happened and where the property market should go in 2016. If you would like to ask any questions, make any comment or suggestion please click >>> HERE.

For my "NO....BS predictions on the Australian property market in 2016" click >>>> HERE

Appreciation to Terry Ryder, Michael Matusik, Heron Todd White, Property Monitors, Core Logic / RPData and "onthehouse.com",SQM,  the Bereau of Statistics for their contribution to the above research and information.

DISCLAIMER
Please note that the information herein is of a general nature only and is not intended as formal  advice for any particular person or entity. The contents of this Property Update has been prepared without taking into account the objectives, financial situation or needs of any particular individual.   Information herein includes material obtained from third parties considered to be reliable. Whilst this information has been diligently compiled, no warranty or promise as to its correctness is made or intended. Investors should undertake independent research to satisfy themselves that any details herein are true and correct. In addition, no predictions have been made about an individual's potential profit, loss, capital gains or rental returns.

You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government policy and legislation occur frequently and without prior notice and financial markets are unpredictable.


Author: James Cagney
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