In September 2015 the property spotlight on northern Queensland noted that “the Cairns area is a smouldering hotspot awaiting the catalyst that will fully ignite the area to its full potential.” Three years later there is still a sense of optimism about the region and they are just waiting for that elusive spark.
Growth across northern Queensland, both in tourism and the general economy, continue to be positive. Tourism arrivals are still rising and thankfully, as conditions contract in the southern states, there is a steady stream of people looking for a ‘sea change’ – a new start, warmer climes, and relaxed living.
Accommodation providers are experiencing strong trading despite the occasional ‘rogue’ month and overall year-on-year trading is better than ever. It stands to reason therefore, that with the market moving ahead positively and a sustained growth in profits there would be a strong sales demand for property and management rights.
So what is everyone waiting for?
Geoff Ellis, of MR Sales, Cairns (serving north Queensland) believes the biggest issue facing the region is finance – or rather, the lack of it.
“Because the banks appear over-committed to investor loans in over-cooked major cities, their lending policies in the regions are not attractive. The vast majority of strata titled apartments, that constitute the backbone of the tourism accommodation industry in north Queensland were developed and sold to investors in pre-GFC times, and there was never any problem attracting investors back then.
“Those investors could even visit their investment properties occasionally and write off some, if not all, of the expense against their rental earnings. The government closed that option off last year.
“So, with investment in north Queensland now adversely impacted by finance and government policy constraints introduced primarily to dampen major city investment excesses, development in a region such as north Queensland appears to be on the back foot.
“On top of this, this area is not immune to the impact of the Banking Royal Commission,” said Ellis. “Financing on any property purchase and on the purchase of management rights is a lot more protracted than it was before. It appears the financiers have changed policies, processes and people in the wake of the Royal Commission and this has deterred, or at least delayed several deals in 2018.”
Calvin Bailey, owner of Calvin Bailey Management Rights agrees and says the region is still waiting on a full return of developer confidence in apartment construction.
“The previous trend of northern Queensland following the boom and bust of southeast Queensland development has not eventuated and even though the southeast markets are now known to be overheated, our growth spurt has not started yet,” he said.
Housing supply has been quite tight in Cairns for several years. Residential vacancy rates have been consistently below 1.5 percent for five years, easing even further over the last 18 months to about 1.3 percent.
“There is also a shortage of quality new listings coming onto the market,” adds Geoff Ellis. “Strange as it seems, were one to compare advertised listings for sale today it almost replicates what was for sale almost a decade ago. This is not to say these listings have been for sale for a long time but rather that the same properties keep coming back to market. With less than 200 schemes in north Queensland, it may appear to the prospective buyer that the pickings are slim.”
Frank van der Heijden, of Resort Sales concurs: “We do not have, and haven’t had any off-the-plan properties for a long time due to nothing getting built for a long time in the Cairns and Port Douglas area.
“The age-old scenario of supply and demand is in play. The market is very competitive and we see the high-quality properties getting good interest and selling quickly.”
“It’s hard to understand why we are not building like crazy, and why almost nothing has been built for the last decade?” adds Calvin Bailey. “Median unit prices remain on average about $100,000 less than the southeast quarter, therefore returns on investment are far better. Why are investor buyers not flocking to town to snap up these bargains?
“Northern Queensland, and Cairns in particular, has been at the tipping point of going from ‘good’ to ‘great’ for some time, experiencing near record-low rental vacancies, increasing yields, tight supply in many areas and the added benefit of interest rates being at some of their most affordable levels.”
Simon Pressley, head of property market research, Propertyology said: “If we were to draw a line in the sand at the moment, I believe that the property markets of northern Queensland will perform better than most locations in Australia over the next three years, including that of Queensland’s capital city.
Recent economic data obtained from the Australian Bureau of Statistics shows a number of the towns in northern Queensland are showing signs of turning a corner.
According to analysts, Townsville and Cairns are areas to watch, where both markets are in a 'recovery' phase and on the verge of growth. Even Mackay house prices rebounded strongly over the last quarter, suggesting a sustained revival in prospect.
“We see every opportunity for the property markets to perform well as we move towards the end of the year, and look to increased development and construction to be the catalyst that will make the difference between a mediocre finish and a fantastic year ahead.”
It is fair to say,” adds Calvin Bailey, “that the pipeline of major construction projects planned for the Cairns, Port Douglas and Tableland areas are being viewed as a confidence booster. It doesn’t need much to move forward and these projects are providing improved conditions for employment and the economy.
“The projects mean that an additional 10,000 new jobs in the next 12 months, driving employment growth, local confidence, and property prices for a few years.”
Among major projects underway are the $120 million port expansion, three new 5-star hotels, and a $650 million eco resort.
The newly named Hotel Riley will be the first to open under the Crystalbrook Collection banner, providing high quality tourism accommodation and infrastructure and once operational, will employ more than 175 staff. Next in line is the Abbott Street project called Bailey, due to open in 2019.
And fuelled by the Crystalbrook Collection hotel bonanza, other local hotels have announced the roll out of significant renovations and refurbishments including a $13 million renovation of the Shangri-La, and while it’s been a long time coming, construction of the first two towers at the Nova City development in the Cairns CBD is expected to start soon.
Government have pledged $475 million to be invested on three major renewable energy projects (Mt Emerald wind farm, Lakeland solar farm, and MSF Sugar’s bagasse-fuelled power station and a $175 million expansion of the Cairns Convention Centre will increase capacity for major events such as the Amway China Leadership seminar for 8,000 delegates in 2019.
The popular tourism mecca has also added important economic diversity over the last decade. Education, health, and the construction sectors have evolved. The navy is Cairns’ biggest employer and the federal government recently committed $120 million for new infrastructure and a major naval base expansion. Additional marine manufacturing and maintenance jobs are expected from the $200 billion fleet upgrade for Australia’s defence force.
James Cook University and, more recently, CQ University have expanded their infrastructure and are attracting more domestic and international students.
“Changes in job volumes at an individual city level – as opposed to just looking at an unemployment rate in isolation –provides more insight into future performance of property markets,” says Simon Pressley.
Mr Pressley says that employment trends are often a precursor to property market trends: “The relationship between the percentage of national job creation and percentage of total Australian population for all capital cities is remarkably consistent with how their respective property markets have performed over the last four years.”
There have already been 11,700 new jobs created in Cairns over the last two years, a 11.2 percent increase that is well above the national 3.7 percent and state 3.4 percent average.
“The greater construction activity and welcome influx of economic activity (and greater local spending), are all factors that contribute positively to the property market,” adds Calvin Bailey, “and as these projects multiply, their impact on the region should begin to be more keenly felt.”
Echoing this sentiment, Troy McGuane, managing director of Elite Real Estate Services Cairns, said growth in the local property market is imminent.
“Traditionally northern Queensland takes a while to respond to changes in the market; I do however, believe that the commencement of construction work within the CBD will lift the property market in the coming months as confidence grows,” he said.
“In the meantime, tourism is flourishing in the north and hotel occupancies in the Cairns CBD are amongst the highest in the country. Room rates also continue to rise and we are seeing 7 percent year on year growth in the industry. Accommodation in the Cairns region is now difficult to find at peak times with ‘No Vacancy’ often now being the norm.”
“There are several factors that underpin our confidence,” agrees Geoff Ellis. “Australia’s sixteenth largest city is home to the nation’s fifth busiest airport (approximately five million passengers per year) and more and more international visitors are recognising the advantage of using Cairns as a gateway into or out of Australia. North Queensland has overtaken the Gold Coast as the preferred destination for international tourist arrivals and more international airlines serving the growth markets of Asia and Europe are seeing Cairns as the logical destination given the savings in time and cost for tourists wanting to see Australian icons such as the Great Barrier Reef and the rainforest.
“In addition to the airport, Cairns boasts a major sea port, a number of unique tourism attractions (on land and offshore), world-class facilities for hosting major events and business conferences, recent investment in universities, and an abundance of agricultural assets in the region.
“As tourism numbers rise, and as more young people move north for work, the demand for beds and apartments supports steady growth in tariffs and rentals. In turn that leads to better profitability for management rights operators.”
Andrew Morgan, motel broker of Queensland Tourism & Hospitality Brokers (QTHB) agrees: “The market for motel and caravan park sales throughout North Queensland has been very strong over the past 12 months commencing November 2017. There has been a large number of successful transactions completed by QTHB alone, with in excess of $30m worth of sales by the firm during this time in north Queensland. This is a significant result which has been on the back of demand strengthening and business and property values have been increasing as a result.
“As with other sectors of the property market, buyers for motels and caravan parks have been predominantly based in Australia. Sydney and Melbourne have been hotspots with many looking to benefit from acquiring strategically located accommodation businesses in the greater north Queensland area.
When asked if financing is having as big an impact as the investor and MLR sectors, Andrew said: “Yes and no. I believe lending criteria has tightened and more applicants who were marginal to gain approval are being declined. The majority of our clients however, are experienced owners or operators who are cashed up and who have good relationships with their financiers. Those who are gaining approvals for finance are dealing with experienced finance brokers and bankers as opposed to walking into a bank off the street and dealing with someone not skilled and experienced in the accommodation industry.
“2018 has seen the motel and parks market more competitive than it has been for a while,” adds Morgan. “Competitive bidding from the market is the best situation for the sale of any business or property and we are seeing more competitive tension now in the market than before. Once a property is under contract there is pressure on the buyer to complete. If conditions are not met on time we are seeing more under bidders waiting for the contract to fall.”
“The same appears true for management rights businesses,” adds Bailey. “With the general shortage of quality stock and vendors lengthening their time in existing businesses, we expect greater opportunities to be created.
“Astute accommodation business buyers should be taking advantage of the current business selections available, the low multipliers in the 4-times range, the ever-increasing yields and the great lifestyle and climate available in this lovely part of Queensland. The pre-GFC days must eventually return, when sales of over 5-times multipliers were recorded and confident buyers were abundant. When it does, those who got in early will be smiling.”
When asked about the impact of OTA’s and ‘shared economy’ schemes in northern Queensland, Geoff Ellis said: “There has been a lot of debate on the impact of disrupters such as Airbnb but it is difficult to find credible research that can be relied upon as by and large Airbnb as an organisation dictate the narrative and lead the debate.
“A University of Sydney report in September 2018 claimed one in ten properties within the Douglas Shire (Port Douglas and surrounds) were listed as Airbnb properties. In Queensland there are supposedly 28,900 Airbnb properties earning $5,300 per annum. My anecdotal feedback around northern Queensland is that whereas several on-site managers have lost a couple to Airbnb, invariably the owners have the property back in the rental pool within twelve months. If there were no Airbnb properties a decade ago and there are now 28,900, where are all the guests coming from? And of course, $5,300 earnings per annum would not cover the average body corporate levy. Furthermore, as the vast majority of apartment owners in north Queensland are not resident, they are reliant on hiring someone else to manage the property. For most, it just doesn’t stack up.”
Frank van der Heijden agrees: “Resort Sales have noted a reverse in the trend of individual owners operating Airbnb or private lettings in their holiday properties as they cannot give the same quality operation or holiday experience as an onsite manager. Unlike the consolidation we’re seeing from investors in the south, this shift bodes well for the industry.
“Overall, we think that the market for 2019 is looking very good. Cairns, the beaches and Port Douglas have seen good numbers over the last couple of years and they are still increasing.”
Looking ahead, Geoff Ellis is also positive. “Despite being a comparatively small market if compared to the Gold Coast and southeast Queensland generally, the tourism industry and the region continues to demonstrate good growth and the numbers are such that North Queensland still offers the best return on investment and sustainable growth opportunities in management rights.”
Cavin Bailey concurs: “During a nationally broadcast Sky News interview, Cairns was chosen as the nation’s real estate investment hot spot and named as “the place to invest in property in 2018”. Recommendations don’t come much bigger than this.
“Buying the right property in the right place is not just luck - it is also about timing and I believe that time is now.”
When asked how he sees the 2019/20 market for motels, Andrew Morgan agrees: “We see the market going forward continuing to strengthen. The appetite from the buying market is growing and finding suitable accommodation businesses and properties to satisfy the demand is a challenge. Experienced owners and operators advise they will continue adding to their accommodation property portfolio’s over the next 12 months which reaffirms our market predications.
And as Geoff Ellis is proud to say: “Most people spend their entire lives being good in the hope it will enable them to reach paradise; the smart ones simply move here.”
