National Property Report – June 2013

QUEENSLAND

Southeast Queensland is Australia’s strongest population growth corridor, with Ipswich continuing to perform, parts of Brisbane looking primed for growth, and the Gold Coast still problematic. Queensland’s massive resources sector offers benefits to Brisbane and Mackay property as FIFO workers continue to spend where they live. Port capacity is key to industry, and cities with this facility and lifestyle appeal have bright futures.

Mackay has emerged from Gladstone’s shadow over the past couple of years and is an excellent investment destination in its own right. Obviously, no two areas or properties are identical, but there are strong similarities in investment and infrastructure. Port cities have a walk-up start on other areas because of the expense and time involved in creating an effective port. Export income depends on being able to get your goods to market, and without port facilities this could not happen.

There are few straight lines in property investment, and even strong markets will experience peaks and troughs in what is an overall upward trend. While we generally advise against trying to pick these short-term movements, we are seeing ebbs and flows in Gladstone, Mackay and Bowen – all key ports in the massive Queensland coal supply chain. Of these centres, Bowen has the most fragile property pricing, given its small population, and we recommend holding off on the town until later this year.

Typically, the construction phase of major projects will employ significantly more workers than are required to operate them, and we’re seeing major projects in transition in all these centres. Combined with the influence of new housing coming onto the market, there appears to be a relatively short-term dip in demand. As production starts to create export income, all these areas o er the promise of more growth, but we can afford to watch them for a few months yet.

FIFO and DIDO workers are an important component of the Queensland mining workforce, and the recent federal government report on FIFO named Brisbane and Mackay as the centres that benefit most from this dynamic. Townsville, Rockhampton and Toowoomba all look good this year – and a case is emerging for a revival of sorts on the Sunshine Coast and the Whitsundays.

NORTHERN TERRITORY

The highest per capita investment in resources of any state or territory around the country has helped make Darwin property more expensive than Melbourne’s. A small population with very strong employment and more workers coming contributes to a compelling case for the ‘Top End’. Darwin and Palmerston should be the focus for property investors.

Strong employment, low rental vacancies, and the prospect of thousands of incoming workers required to support massive investment have resulted in a Darwin median house price that is second only to Sydney’s, among large Australian cities. That’s right. The stats say median Darwin is more expensive than median Melbourne!

Somewhere between booming frontier towns and emerging provincial capital cities, Darwin and Palmerston have unique dynamics. With around 3,000 construction workers expected to start arriving this year for the Inpex gas project, Palmerston seems the logical place for them to live. How the FIFO game plays out at the top end is hard to predict, given the different factors involved here. Many will initially be housed in a camp, but we expect more than a few to stay.

VICTORIA

Inner Melbourne’s oversupply is becoming chronic, with the Reserve Bank of Australia taking the unusual step of warning investors of ongoing weakness. Critical projects such as the Regional Rail Link and the development of Western Port are in influencing areas at a distance from the capital, and this is where the best investment opportunities will be found. It will be worth keeping an eye on any infrastructure development related to the Kipper Tuna Turrum project.

Despite Victoria’s many wonderful lifestyle options, with ‘hand on heart’ and comparing it with the resources powerhouses of WA and Queensland, it’s hard to find much that is positive to say about this state from a macro perspective early in 2013.

Melbourne’s oversupply of housing has attracted plenty of comment in the press, and amazingly enough they keep building. One of the areas of greatest concern is inner Melbourne around the CBD, Southbank and Docklands. A quick search of property for sale in these areas throws up large numbers of units on the market at a significantcant discount to their (relatively recent) sale prices.

Ballarat, Bendigo and Warrnambool are among the centres promoted as regional alternatives for investment, but even these seem to be moving more slowly than hoped due to a general lack of resources to create new infrastructure. The Kipper Tuna Turrum project in Bass Strait is an exception, and centres between Sale and Western Port are likely to see some benefits.

One area that looks set to grow steadily, if not spectacularly, is Wodonga. Along with twin-city Albury, Wodonga is at a key transport juncture and set to benefit from the billions of dollars being spent on improvements to our national road and rail systems.

WESTERN AUSTRALIA

Perth continues to be the capture point for the benefits of WA’s resources revolution. The workforce demands of the Pilbara and other areas have created towns with pricing beyond the threshold of sound investment strategy that should be avoided by most investors. Recent news confirms that Perth leads the nation’s property markets – no surprise at all, given that it is also the leading centre of population growth on the back of mining-related investment.

In dollar terms, WA attracts far more resources investment than any other state or territory in Australia. According to RP Data, 24 of the top 50 long-term capital growth performers of the last decade were found in WA. Of these, 14 were affordable suburbs in and around Perth, which is an even stronger capture point for the wages of FIFO mining workers than Brisbane is in Queensland.

We like affordable areas around Midland, Murdoch and Rockingham, but there are many well-priced areas with strong growth prospects. The consumer confidence returning to parts of Sydney has always been present in Perth. The retail trade is a good example of this: while turnover has been at or dropping in much of eastern Australia, it continues to grow at around 1% per month in WA.

Remote mining areas such as Port Hedland and Newman in the Pilbara have attracted attention for their outrageous prices. Perth was identified in the federal government report on FIFO workers as the area in WA where these well-paid transient workers spend their dough, and that’s where you can take advantage.

SOUTH AUSTRALIA

The specter of last year’s postponement of BHP’s Olympic Dam development has continued to keep the SA economy relatively subdued and real estate markets along with it. The tide will inevitably turn one day, but it’s di cult to predict when this will be. Areas of Adelaide with infrastructure enhancements in transport, education and medical facilities present opportunities for investors to prepare for impending growth.

At the macro level, BHP’s Olympic Dam project has long been seen as the ‘make or break’ issue for the entire SA economy. While this has been proven to be not entirely correct, there is no doubt that the decision by BHP to delay development of this massive resource has restrained short term growth.

Ironically, the delay has prompted action that makes the long-term future appear more secure, but the benefits are some way o yet. Rio Tinto has started exploring the Vulcan site virtually next door to Olympic Dam, and the SA government has opened up the Woomera area for resource exploration. Even disregarding Rio’s current issues, the process to begin construction, let alone see production benefits, takes time.

We think SA will come good, but we’re waiting for the signs of when.

Parts of Adelaide stand to perform well in the long term, typically areas with lifestyle appeal, recent transport improvements and, most critically, affordability.

NEW SOUTH WALES

Sydney property is showing a return to confidence across the board – western Sydney still offers the best long-term investment opportunities and there has been even more activity at the top end of the market. Newcastle and the Lower Hunter remain the strongest capture point for investment, with growth continuing along the corridor to the state’s emerging new centre of resources activity in the Gunnedah Basin.

Things are looking more positive for property in the nation’s most populated state in 2013. Consumer confidence seems to be returning and property pricing is picking up, with the Sydney basin recently hitting record high median pricing at $656k. Auction clearance rates have remained steadily above 60% for some months – the level generally seen to be reflecting a ‘balanced’ market. In other words, for the first time in a couple of years, conditions are slightly in favour of sellers, not buyers. We expect the greatest growth to be in western Sydney, with signi cant new employment hubs in places like Minchinbury and Hoxton Park.

Several regional centres continue to promise stronger growth than most parts of Sydney. Newcastle and the Hunter service one of the industries in NSW that is definitely growing – thermal coal production – and, like it or not, the reality is that the coal seam gas to liquefied natural gas (CSG-LNG) industry is on its way. Towns like Gunnedah and Narrabri look set to benefit from this process. Remember that the smaller the town the more patchy the growth tends to be.

All the ‘Evocities’ (Armidale, Tamworth, Bathurst, Orange, Dubbo, Wagga and Albury) have a good story, and both state and federal governments are pursuing decentralisation policies.

AUSTRALIAN CAPITAL TERRITORY

The national capital is more or less seeing the inverse of Sydney’s current surge of consumer confidence. Historically strong and almost certain to come good again, the market stands a chance of weakness after this year’s federal election. A Liberal National Party (LNP) victory, which looks probable at the time of writing, would see the loss of thousands of public service jobs and areas of weakness in real estate pricing.

Canberra’s residential property market has been one of the most consistent performers of any major city in Australia over the long term. It is a city purpose built for the business of government, and one long-standing quip is that there “are no recessions in bureaucracy”.

About as close as Canberra gets is when there are large-scale retrenchments in the public service. It’s a widely held view that the Howard government’s sacking of over 10,000 public servants in 1996–97 was largely responsible for a drop in house prices of up to 20% in some areas over that time.

Potential LNP Prime Minister Tony Abbott has recently affirmed his view that Australia has around 20,000 too many public servants.

Whether or not property prices in some areas were dropping towards the end of Keating’s term as prime minister or not, the Howard government’s cuts to the public service were clearly a contributor to the process. It’s also likely that many public servants could see the writing on the wall in the twilight of the Keating government.

This is not political comment, just investor reality. Pricing is unlikely to run o anywhere in a hurry, and there’s a strong chance of cheaper stock being available later this year.

TASMANIA

Tasmania has little to recommend in the form of emerging property hotspots. The high value of the Australian dollar is crippling many of the state’s key industries, and until it falls back the property market will mirror the struggles of the economy. Investors should ultimately keep in mind that there are few supply-and-demand drivers to push up property values at the moment.

We love Tasmania as a place to live or visit. In fact, we’ve been lucky enough to visit the Apple Isle twice in the last three months. Investing is a different story, and one that demands a cold absence of emotion. In the big picture, Tasmania has been an economic struggler, and the signs are that this won’t be changing in a hurry.

Recent reporting from Deloitte Access Economics has confirmed a grim outlook. Tasmania is essentially an export economy and, apart from any other factors, a high AU$ hurts. Even the potential ‘bright spots’ of the state economy (dairy, aquaculture and tourism) are export based and therefore likely to continue to swim against the tide.

If you are a local and know your area well enough to identify opportunity, fair enough, but we see better areas of growth for most investors.

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