by Trish Riley - Resort News Editor
17th October, 2018
The Gold Coast property market: a cautious confidence prevails
Depending on who you speak to, the Gold Coast property market may be slowing after the beat up of the Commonwealth Games, declining in line with the rest of the country or stoically holding its own – a trend that most are quietly hoping will continue.
According to a recent CoreLogic report, the Glitter Strip recorded the second highest property value growth across regional Queensland in the last financial year with median house prices increasing by 4.8 percent and the unit market up 4 percent.
CoreLogic analyst Cameron Kusher said the coastal and tourism markets in Queensland are performing reasonably well.
Michael Philpott, director of MR Sales believes the infrastructure legacy of the 2018 Commonwealth Games did more good than harm. “In addition to being able to present and market the city to over 1.5 billion people world-wide, the Games delivered around $1.8 billion in new and upgraded sport, transport, community, digital and event infrastructure as a permanent city legacy and launch pad going forward.”
Investments in the Gold Coast, from both from the public sector and major corporate players, include:
- $400 million Commonwealth Games legacy infrastructure
- $2 billion Star Gold Coast masterplan
- $3 billion Light rail network (ongoing)
- $1 billion Jewel Towers, Surfers Paradise
- $500 million Gold Coast Airport revamp and expansion
- $5 billion, 200-hectare Gold Coast Health and Knowledge Precinct
- New Gold Coast Cultural Precinct including museums, galleries and performance space
“Combined with the essential infrastructure and the vision of all levels of government, the Gold Coast is well positioned to capitalise on the market positioning and growth. Benefiting from recent multi-million Dollar upgrades to the Gold Coast airport (one of Australia’s primary regional hubs and the fifth biggest international airport in Australia) where we see 6.6 million passengers per year and the extension of the Gold Coast light rail project, we are expecting more visitors than the traditional 12-million domestic and 1.1million international visitors per year. If we see a trade war erupt going forward and the Australian dollar dropping, the benefits to the Gold Coast and tourism will be huge and create a real 'game on' for the industry and area generally, as one in six jobs are either directly or indirectly resulting from tourism,” says Philpott.
Recognised as the third largest destination in Australia, the Gold Coast has also been identified as one of the most desirable places in the world to live ranked on political, social, economic and environmental factors, personal safety and health. It is an international gateway to 26 destinations worldwide serviced by 30 airlines and offers one of the largest choices of themed attractions in the southern hemisphere.
According to Tourism and Events Queensland the Gold Coast region remains Queensland’s domestic holiday destination attracting 2.1 million holiday makers representing 7.9 percent year on year growth.
A leading demographer, Bernard Salt has stated that “the Gold Coast needs to prepare for a population of 1.2 million people by the year 2050”. That is almost double the 2017 actual from the ABS of 607,282 and is expected to grow to a population of 820,000 in the next 20-years. In the 2016 / 2017 financial year more than 3000 development applications were made with Gold Coast City Council and there were 6,891 residential building approvals through Council.
Last year, REIQ Gold Coast chairman John Newlands stated that strong property growth was a major milestone for the Gold Coast. He said the driving forces behind the increase was population growth and employment.
Queensland has led the nation in net interstate migration over the past year, and job creation is quite strong, in part because of the many significant infrastructure projects being built.
Tod Gillespie, director of Heron Todd White said: “With Tourism as the Gold Coast’s main industry being consistently strong over the years, we have seen a considerable number of jobs created. As a consequence, we have seen increased population growth as people move to the Gold Coast for work, and in fact, the latest occupation figures show an average year on year increase from 2017 of approximately 3.2 percent for the last three months.”
According to McCrindle Research, ‘baby boomers’ collectively make up a quarter of Australia's population (5.3 million) and own over half of the nation's wealth. Australian ‘baby boomers’ make up 40 percent of the workforce that is going to reach retirement age over the next 15 years and the Gold Coast is going to get a significant portion of the market on offer. A number of specialist areas, retirement villages and unit developments will be created to service the demand and these properties will gain considerable marketing benefits from the enhanced services available through management rights continuing to grow the industry.
When asked about the current management rights situation, and more particularly with holiday and permanent sales, the legal profession concurs. Col Myers, Partner of Small Myers Hughes said: “Sales in both holiday and permanent properties slowed about six to seven months ago and there are certainly not as many ‘off plan’ sales occurring as there were in the preceding two years.”
Matthew Manz of Mahoneys Lawyers agrees: “There has been a slow down over the past few months and some of the reasons for that include a tightening by the banks, an uptick in body corporate/manager disputes, and that there are simply a number of managers who aren’t ready to sell.”
Trudy Crooks, national sales manager of Resort Brokers remains positive however, saying:
“The Gold Coast is literally the birthplace of management rights, a concept that was introduced here in the mid-1960s and it has always been a really strong market. We are still seeing very strong demand for both holiday-letting and permanent residential complexes, particularly for properties of scale.
“Year to date, Resort Brokers has settled seven significant management rights sales for prices ranging from close to $1 million up to more than $12 million. A further nine deals are contracted worth a total of close to $23 million.
“We continue to see a shortage of new apartment stock on the Gold Coast and expect returns for the short-term accommodation to increase as the tourism market fires and the Australian dollar declines. We did see some adjustments in the market place with the exit of a number of foreign buyers for some of the properties, in particular the Chinese market but that seems to have stabilised now.”
“With a general shortage of quality stock and increasing demand, we expect opportunities to be created and additional listings to come through as a result of some of the banking facilities changing from interest only to P&I facilities,” adds Michael Philpott. “Potentially this may have a significant impact upon syndicate ownership structure investors with many seeking a higher cash flow return on invested funds rather than paying down bank facilities.”
“Partnerships and large Corporates have been significant purchasers of the top end of properties with income of $450,000.00 upwards,” says Charles Nurse, director of Stratacorp. “We have an extensive database of major corporate operators coming to the table on decent scale businesses along with additional new organisations looking to get into the space which are retaining strong multiples”.
“Stratacorp have specialised in medium to large scale opportunities, in particular “Off Market” transactions. We have had absolutely positive results for our vendors by methodically and strategically getting all of our deals across the line. The financial banking system has changed the process slightly, however ensuring our purchasers are well placed with the right industry specific specialists is critical to everyone’s success.”
“The time to process a loan has blown out considerably,” agrees Matthew Manz. “The usual period for finance approval was around 28 days. At the moment, that is now taking 35 to 42 days and in some cases longer. This of course pushes out the time between going to contract and settlement.”
What it does highlight though, says Trudie Crooks, “is that it is more important than ever for sellers to work with expert industry specialists able to properly identify and qualify buyers who are capable of meeting the finance requirements.”
Darren Brent, managing director of Property Bridge agrees: “We vet our potential buyers as a part of the initial qualification process, which includes ensuring they seek advice from industry specialists in the finance and accounting arenas. That being said, we are aware that, given the current climate of upward interest rate pressures coupled with the knee jerk reaction of banks around credit processes in the midst of the Banking Royal Commission, financiers are taking a far more conservative credit assessment approach.
“A good percentage of our buyers are well-established Australian Chinese,” says Brent. “Property Bridge still has a pool of well-qualified and financially-sound buyers that are still looking to accumulate or upsize their current management rights businesses, or alternatively have extensive previous business experience and wish to move into a management rights business.”
Trudie Crooks agrees: “Thirty percent of enquiries for permanent complexes is coming from Chinese buyers, though they are people who are already settled here, not the migration market.
“The low Aussie dollar does however, make Australian property appear comparatively cheaper to foreign investors which is resulting in many seeking out a bargain. Whether we like it or not, foreign investors have been are buying our property our investing in major developments.
“The New Zealand market has always been a mainstay of the Gold Coast management rights industry and we are seeing something of a resurgence in interest from across the Tasman. That said, the traditional ‘Mom and Dad’ market is still strong for the smaller and mid-scale properties.”
“The management rights sector tends to follow a rolling sales process with the ‘Mom and Dad’ properties revolving every three to four years,” says Tod Gillespie. 2016 and 2017 were big years in management rights but it has quietened, agents are reporting that foot traffic has fallen and they are having to work harder to achieve the same results.
“The current market is seeing less volume of transactions as vendors lengthen their time in existing businesses and when they do sell most of the demand seems to be coming from interstate locals - primarily Sydney, Melbourne and expats – all buyers that can and are taking advantage of the “lower” prices on the Gold Coast and the sought-after lifestyle.
“While nothing to be alarmed at, the general property market appears to be shifting. The investor market appears quieter than the owner occupier market and for management rights that translates to a loss of value. In order to avoid ‘buying a job’, the ideal properties are those with a stable mix of residents and a strong salary to keep the onsite manager going.
“So saying, there are definitely suburbs that are out performing others,” adds Gillespie. “There is still a very strong demand for properties within two kilometres of the beach – such as the Isle of Capri and Palm Beach. Sometimes, we are even seeing the right property in the right location realising up to $100,000 more than reserve while investor stock in suburbs like Pimpama and Yatala are getting less than what they cost to develop.”
Mike Philpott agrees: “We are seeing strong support by investors of new properties from historical sales, but the ramifications of the Royal Commission are just starting to be seen with interest only funds extremely difficult to secure and P&I loans making investors more conservative. As a result, we are increasingly seeing developers design more of the stock for owner occupation rather than tourism with larger upmarket two- and three-bedroom apartments with side by side carparks. As some of the demographics alter and we see areas like Mermaid Beach (Cerulean), Broadbeach and Surfers Paradise increase in popularity for owner occupation.
“In addition to the changes from the banks' lending policies there are also less investors in the second-hand real estate market as a result of the changes of negative gearing on any second-hand properties and some related items purchased after budget night (May 9) with the exception of existing investments that were grandfathered (exempt from the change). The turnover in that segment of the market has slowed and investors are now seeking higher returns from rental.”
So, if the purported value of the management rights industry is ‘shifting’ what impact is this having on multipliers?
Multipliers across both permanent and holiday businesses seem to be fairly stable at present,” says Matthew Manz. “They appear to have peaked and whilst there is no downward spiral, they are certainly not going any higher.”
From a sales perspective, Darren Brent and Trudie Crooks agree: “Sales multipliers for both holiday and permanent complexes are at record highs at the pointy end of the market with permanent complexes tracking slightly higher than holiday businesses. This is largely due to a shortage of supply, particularly of properties of scale.”
When asked whether there are other factors influencing the market, Col Myers says: “The assignment process with bodies corporate has become a significant issue in the management rights industry. Bodies corporate are placing incoming managers under greater scrutiny and they are conducting a much higher level of investigation prior to consenting to assignments. We are regularly seeing conditions imposed by bodies corporate on new managers who have little experience, such as requiring that they complete induction courses with the Australian Resident Accommodation Managers Association (ARAMA) or similar, or engaging with industry consultants to assist them with the changeover as well as to provide assistance for the period post-settlement.
“Right now, sellers and buyers of management rights have to be very patient. Sales have become a protracted process that has to be methodically worked through and vendors and purchasers with unrealistic time expectations will be sadly disappointed.”
“Despite the assignment process taking significantly longer and being more expensive than it was in the past, the additional training and preparation of applicants is not necessarily a bad thing, says Darren Brent. “Most assignments that we are involved with proceed relatively smoothly as we assist buyers and sellers in engaging the most reputable professionals prior to contract. The need to engage additional service providers in this process can however, lead to unreasonable hurdles and price gouging by unscrupulous operators so we urge our clients to be pedantic about only working with recognised professionals.”
And talking matters legal, are the reforms and reviews occurring across other states, primarily with regard to accommodation industry disrupters like Airbnb, having an impact in Queensland and the Gold Coast?
“While Queensland has no immediate legislative agenda tabled, both NSW and Victoria are moving ahead with regulatory reform processes,” adds Brent. “We’re confident however, that ARAMA’s regulatory committee is proactively managing the industries interests to ensure the best possible outcomes.”
“Exceptional opportunities are ahead for the industry with an increasing consumer appetite towards serviced apartments (the key being serviced) where guests can have more space and make the stay more homely,” says Michael Philpott. “Guests still expect to have an onsite manager and available services / minimum standards in the case of issues and that is a competitive advantage against offerings like Airbnb.
“Research and consumer demand are continually showing that more and more people are desiring to mix business with pleasure and have an entirely different experience to that of a traditional hotel. Technology is mobile and easily used allowing services to be better utilised by guests. All this augurs well for the development market and existing property owners as there are a number of competing interests attempting to secure similar opportunities with some serviced apartments used by owner occupiers. As the growth in both sectors increases (i.e. owner occupiers and holiday / business guests), that will force through increased demand, increasing prices of available stock.”
“Management rights is too big an industry not to prevail,” says Charles Nurse. “The shared economy and services like Airbnb are disruptors not killers, and they exist essentially to make use of otherwise under-utilised goods. The secret is to learn how to work with not against these influencers.”
Property consultants Urbis reported 21 new projects launched to market on the Gold Coast in the first half of 2018, equating to a total of 2,554 new apartments. Over that period, six projects sold out.
In Q2 2018, Urbis reported the Gold Coast recorded the highest number of surveyed sales nationally, despite being the smallest market with only 7,333 units in the future pipeline. This is in strong contrast to the national apartment sales trend, which has slowed.
“A number of developers of both permanent and holiday complexes are speaking with Resort Brokers about establishing new management rights with a view to taking them to the market off-plan,” says Trudie Crooks. “Once complete, new developments are letting very strongly. It appears that the local economy is strong with a number of major public and private infrastructure and projects underway.”
Echoing this sentiment, Philpott adds: “There are a number of significant growth hotspots on the Gold Coast. The $1.5 billion Coomera Town Centre and entertainment precincts, the $970 million luxury Jewel project at Surfers Paradise, Harry Triguboff’s Meriton ‘Ocean’ beachfront tower in the heart of Surfers Paradise and the $550 million retail, dining, entertainment and residential Queen Street Village just to name a few. Also having an impact on the Gold Coast is the construction of the light rail; a number of areas have already benefited from the enhanced transport and services spreading the concentration of guests more evenly for the greater benefit of the coast generally.”
Brent elaborates: “There is also the upcoming $340 million expansion to the main passenger terminal, and the proposed development of the Palaszczuk government’s one-billion Dollar global tourism hub.
“Helping out tourism and high rollers, we are also benefiting from a new, six-star standard tower as one focal point of a huge redevelopment of the Star Gold Coast, with an overall investment in development and existing property refurbishment worth about $850 million, and more is on the way.”
Everything is pointing to continued market strength, with infrastructure investment and interstate migration fuelling the residential sector and record tourism growth driving the holiday letting market,” says Trudie Crooks. “The Gold Coast is now a major city underpinned not only by its thriving tourism sector, but by a very broad economic base including construction, business and events, knowledge-based industries and health.
While the presence of multiple cranes and scaffolding along the breadth of the Glitter Strip is certainly indicative of a positive market, and it is likely that it will still get a delayed boost in tourism following the Commonwealth Games, the overall sentiment is one of caution.
“Myers and Manz believe that with the current position of the major banks and further interest rate increases, the market is likely to soften in the next 12 months and a patchy sales market will continue in the immediate future.
Gillespie is forecasting a decrease in property values of between 10 to 15 percent but acknowledges the ongoing development strength in the industrial strata sectors, service stations, childcare facilities and over 55 lifestyle complexes.
Australia’s property markets are very fragmented at the moment so correct asset selection is more important than ever. A region such as the Gold Coast where there are multiple growth drivers such as employment growth, population growth or major infrastructure changes seem to tick all the boxes.