In doing the research for this article and revisiting the predictions made a year ago, there was the fleeting temptation to just update the percentages and press ‘print’… The information and sentiments expressed 12 months ago about a region poised for ‘greatness’ haven’t changed that much – neither has the inexplicable, and unanswered, ‘when is it going to happen’.
From everything that we’re hearing and seeing, Tropical North Queensland (TNQ) has all the makings, and the potential to be a smaller version of the south east quarter – it’s just waiting for the starting gun…
Frank van der Heijden of Resort Brokers says: “Scratch beneath the surface however, and as with any real estate market, North Queensland is diverse – some areas are seeing impressive capital growth while other areas are flat, stagnant or even dropping. Historically, and prior to the GFC, North Queensland used to follow developments in the south east by about six-months – at the moment this gap is widening.
With mining in Queensland an unpredictable industry these days, tourism could be the sector to facilitate an uptick in the region’s economy. According to the CoreLogic CHIP (Cordell House Index Price) Report for July 2019, overseas investors are looking to construct largescale resorts in the northern part of the state, as well as new residential properties in 2020. This could foster population growth in the coming years.
It does however, warn investors to be mindful of supply levels in Queensland.
“There’s an oversupply of dwellings in some areas – mainly in the apartment sector – and a dearth in others, and any economic recovery in the state is yet to gain traction.
From a tourism perspective, Cairns International Airport continues to be a major asset for North Queensland, attracting direct services from Asia and from Europe. The region welcomed 849,000 international visitors for the year ending June 2019 with a 6 percent increase in visitors from the US, a 4.6 percent increase in visitors from New Zealand and a whopping 16 percent increase in visitors from Canada. Japanese and Indian visitors are also on the increase and China remained stable with 206,000 visitors.
So with reports ranging from ‘diabolical” (ABC News in reference to Townsville) to ‘Vacancy rates in Queensland are some of the lowest in the nation, particularly in the Far North’ (Smart Property Investment) the only thing that seems clear is that not all areas are created equal, and investors must do their homework before jumping in.
One of the more subdued markets, and falling on the fringes of Tropical North Queensland is Airlie Beach, and while it may be a popular spot for tourists wanting to visit the renowned and picturesque Whitsundays and Great Barrier Reef, it doesn’t seem to hold the same attraction for investors or tenants.
“The suburb, with a population of around 7,600, currently has a vacancy rate of 12.97 percent. While this is high, it has shown some improvement over the past 12 months, down from 16.77 percent this time last year.,” says Frank.
“Unfortunately, for unit owners and management rights alike, recent years have been poor; the median unit price sits at $383,500, having fallen 13 percent over the last five years.
“If we are to find a positive however, the region has recovered beautifully from the ravages of cyclone Debbie; construction on the Airlie Foreshore project is now complete, as is stage one of the rolling development works at the Whitsunday Coast Airport and the $35million Shute Harbour restoration is due to start early this year.”
Moving up the coast, Townsville is presenting itself as part of a positive property cycle – depending on who you speak to. According to the Residential Property Prospects 2018-2021 report by BIS Oxford Economics Townsville’s residential market has stabilised and price growth is expected to last until June 2021.
As the largest city in Northern Australia, and the gateway to mining and agricultural regions, Townsville is perfectly positioned to take advantage of this growth. According to demographer Bernard Salt, ‘no city of comparable size has quite the connection into the future prosperity of the Australian nation as does Townsville’. It offers ‘stability, urban concentration and prosperity’ along with ‘a unique mix of employment drivers’ and ‘the highest average disposable household income among Australia’s 20 largest urban centres outside of a State or Territory capital’.
Geoff Ellis of Premier Sales says: “Townsville has become somewhat of an aspirational destination, with $7 billion spending committed to infrastructure to support the diverse and growing economy and an impressive number of neighbourhoods opening up to the beachfront promenades.
“The proposed new Sealink Terminal Complex is waiting patiently for final approvals to proceed, and the new Stadium – to be opened by Elton John in February – is nearing completion. The Council has also approved a seven-level apartment complex (70 The Strand) and a two-level eatery and entertainment area.
“Townsville has experienced a jump of about 11 percent in demand for properties, despite employment difficulties in the area playing a part. After some dips in 2017, the unemployment rate rose again to where it is now sitting around the 9.6 percent mark; while this appears high, with the transitory nature of employment and nature of FIFO-style work, it’s not surprising to see such shifts in the data,” adds Geoff.
At last census, there were 149,512 people living in Townsville with the median age being 37. This is indicative of a large number of families (38,495) and working professionals in the region – pushing up the demand for a larger cultural and family-friendly scene. A higher proportionate number of the population are university graduates – shaping the face of Townsville to come.
And while not strictly real estate, but still an influencer, the largest government infrastructure investment in this area is the $100 million North Coast line upgrade between Townsville and Rockhampton that commenced in 2019, supporting more than 300 construction jobs. Work is also underway to replace 20 timber bridges between Gympie and Cairns, an $86 million project that will support a further 280 jobs.
And then there is Cairns. With an uncanny ability to reinvent itself, Cairns is emerging as a modern and vibrant tourism hub. In addition to all the natural wonders the area has to offer, travellers are now recording their city experiences…
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The Cairns City Centre Master Plan looks set to deliver a connected, liveable city centre with public spaces that embrace the region’s tropical lifestyle and natural assets. The plan includes additional space for outdoor dining on the Esplanade and the development of the Cairns Gallery Precinct, transforming the iconic, heritage-listed Cairns Art Gallery, former court house and former Mulgrave Shire buildings into a world-class precinct that celebrates the city’s cultural heritage. There is also the Cairns Aquarium, which is the first facility of its type built in Australia for 18 years, and the only one of its kind in the world to concentrate on showcasing the bio-diversity of TNQ’s rainforest and marine life.
Calvin Bailey of CBMR is upbeat. “Apart from a low vacancy rate, the most visible sign that the city’s fortunes appear to be on the turn is the foresight demonstrated by the $500 million Crystalbrook developments in the Cairns CBD. Their first hotel Riley opened in 2019 to rave reviews, and the second and third, Bailey and Flynn are set to open early next year.
“We are also waiting for the first of Nova City’s $550 million ‘seven towers’ to start. With operational works under way, and the proposed billion-dollar Cairns Global Tourism Hub in the pipeline, this project is anticipated to transform the city and create thousands of jobs, with residents suggesting the creation of up-market restaurants, a casino and the city’s first six-star hotel,” he says.
Port Douglas, Cairns and the Whitsundays will also benefit from legislative changes that will allow superyachts to offer charters off the Australian coast – something the current system does not allow. These changes alone are expected to deliver a $580 million boost to the North Queensland economy and create around 4500 local jobs.
“Despite these positive indicators there has not been any significant growth in new residential apartment development,” says Geoff. The primary reason for this still centres around tough investment finance criteria, and as North Queensland does not attract the same international investors that buy in the big cities, developers of new large-scale apartment stock are thin on the ground.
“Consequently, while rental demand remains in a steady growth phase, the availability of rental stock remains unchanged. This is providing good growth in rental yields and maintaining very low vacancy rates in most permanent letting complexes.”
Calvin agrees: “This is good news for investors and management rights buyers entering the permanent let industry – in the year to June 2019, 14 percent fewer properties were advertised for rent.”
According to Herron Todd White’s May 2019 report vacancy rates for houses stood at 1.7 percent, and units at 1.8 percent, though anecdotal evidence in the marketplace puts it even lower. The same report shows that the average median rent for a house is $420 per week and units at $300 per week.
Propertyology believes that the emergence of Airbnb as an alternative accommodation option may be having an influence on the supply of property to let. It’s not a coincidence that the common denominator among locations with low vacancy rates is tourism popularity.
So what else is influencing this market? The obvious pressures exist; low new building starts, an increase in population and higher employment, but Calvin believes there is another factor at play. “What is not being seen is a high level of investor activity, and it’s not surprising,” he says. “The investment market has not been supported by APRA regulation and bank lending policies, so they have just not been active.
“It’s normal in our industry for investors to divest themselves of their investment property when it is time for them to capitalise. What we are seeing however, is that owner occupiers are buying and taking the properties out of the rental market and they are not being replaced with new investors. What people need to understand now is that there have been changes to the APRA guidelines and with interest rates as low as they are, now is a good time to borrow.”
Geoff concurs. “Twelve months ago, there were a number of quality properties under contract to buyers from down south looking to use other people’s money to fund their big dreams – it didn’t happen, and while the finger was pointed at the finance sector, it’s probably fair to say that they may have been more dreamers than doers. The negative impact of those unsuccessful forays however, was a subsequent reluctance to consider selling.
“That quality listings were not coming to market is, in itself, not a bad thing, for the better businesses are generally trading well and there is no strong desire to exit the business. Certainly, trading conditions in North Queensland have the right fundamentals.
“A moderate 2019 for sales means that buyers will get more ‘bang for their buck’ when investing here. Multiples have flat-lined and remain at least a full point – if not more - below multiples paid for similar businesses in south east Queensland, and as is happening throughout the industry, the time required to see any contract through to settlement is taking more than three months as lenders impose more scrutiny on their lending decisions,” says Geoff.
“There are approximately 2,350 management rights properties in Queensland with less than 300 being in Cairns, Cairns Beaches, Port Douglas, Townsville and the Whitsundays,” says Calvin, “and in 2019, the total number of management rights properties sold in Queensland for the calendar year was about 150 properties; 2018 was approximately 148 properties compared with 177 in 2017, 186 in 2016 and 244 in 2015 – a downward trend overall if one considers that about 10 percent of these sales were in North Queensland.
“All in all, far North Queensland remains a buyer’s market. The corporates are around looking for the right properties but there is a shortage of the ‘mum and dad’ buyers, especially in the $1.5 to $2.0 million market.”
Ever the optimist however, Calvin believes the tide is turning and the smart operator should be planning an exit strategy.
“Interest in good quality, well-run ‘mum and dad’ properties remains high. Managers are generally enjoying improving occupancies and room rates, and with little additional serviced apartment construction coming online, they are set to reap the benefits.
“In the last quarter of 2019 we noted a surge of interest in management rights properties
from quality new buyers who recognise the value of obtaining a low risk management rights business in this beautiful area at a multiplier that is a lot less than the south east quarter.
“We believe that we will see further stabilisation in the market next year, and if the government delivers on what it has promised, then the start of a whole new cycle for Australian tourism, and North Queensland in particular,” says Calvin.
Geoff Ellis agrees. “There is definite interest from buyers looking to secure ‘off market’ deals for they see, not only some very attractive properties, but also realise that buying in a subdued market has its attractions.
Our expectation is that 2020 should see more positive growth in market activity. Nationally the economic and political climate is settling down and apart from within the rural sector there should be better conditions for prospective investors looking to move into, or add to, their current investments in the management rights industry.
