Economically, Queensland is between a rock and a hard place. Like WA, its fortunes have been largely tied to the mining industry: the slowdown in the resources sector and falling commodity prices have seen the brakes put on the previously runaway industry.
In addition, the fact that most of the major projects in the state have either completed construction or are nearing completion means the manpower required by these projects has fallen off.
That’s not to say that existing projects won’t be profitable: Deloitte Access Economics states that “gas exports will see Queensland’s growth accelerate, but low world prices mean neither coal nor gas will attract new construction for some time”.
However, the cooling resources climate, with a corresponding drop in the value of the Aussie dollar and interest rate, is likely to revive the fortunes of Queensland’s other signature industry – tourism. More expensive foreign holidays for Australians, plus cheaper stays in Australia for overseas visitors, are likely to boost the Sunshine State’s tourism sector in the medium term at least.
Deloitte Access Economics also highlights that housing construction is rebounding – although this could be a double-edged sword where investors are concerned, especially in the Brisbane CBD.
Brisbane
Thanks to the state’s economic travails, the Queensland capital hasn’t seen anywhere near the same amount of growth as its southern counterparts, Melbourne and Sydney. CoreLogic RP Data’s September figures show an average capital growth of 3% between October 2014 and September 2015.
CoreLogic RP Data research director Tim Lawless highlights that the average growth for Brisbane has been around 15% in total since 2012, but says this meandering rate of growth could improve in the coming months.
“Brisbane’s had what you would call a ‘sustainable’ rate of growth,” says Lawless. “However, it’s a market to watch as it could be one of the better-performing housing markets. It’s also quite early in its growth cycle.”
There are a few factors in Brisbane’s favour: number one is that rental yields look favourable at 4.3% for houses and 5.3% for units, especially when viewed in comparison to Sydney and Melbourne. Those higher yields could make Brisbane a better option for investors, especially as lenders tighten their lending criteria.
Another positive for Brisbane is that population growth, especially interstate migration, looks like it will increase throughout 2016 after the post-mining-boom exodus. Again, this may be driven by Sydney and Melbourne buyers seeking a more affordable option after the market booms in those cities.
However, Domain senior economist Andrew Wilson thinks the coal sector downturn will continue to put a dampener on capital growth in Brisbane, at least in the medium term.
“Confidence is still quite fragile, and there’s nothing which will really lift the economy as the shakeout in the resources industry continues,” he says. “There’s no real sense that the Brisbane market will pick up.”
Wilson also points out that while Brisbane has high rental yields it was the only capital city that didn’t record an increase in rents in the third quarter of 2015. Vacancy rates are also creeping up, something he attributes to the increasing number of first home buyers in the market.
Angie Zigomanis of BIS Shrapnel highlights the relative lack of any major infrastructure projects as a potential brake on growth, commenting that “the new casino is the closest you’ll get to a big infrastructure project”.
He also warns that there are some areas of concern around the Queensland capital.
“There are cranes everywhere in the CBD building apartments,” he says. “I think there’s a strong risk that the market is moving towards an oversupply.
“However, that construction is concentrated on inner Brisbane, so middle Brisbane has a more positive outlook,” he adds. “There’s good potential for houses close to the city.”
Wilson agrees that houses close to the CBD are the best bet for investors, offering the best opportunities for price growth and gross yield. Even so, he predicted that Brisbane prices would grow by just 2–3% on average in 2016.
Our other experts were more bullish about 2016, with Lawless predicting average capital growth of 5–10% and AMP economist Shane Oliver predicting 7% growth across the city.
The Gold Coast and Sunshine Coast
The outlook for the Southeast Queensland satellite cities is also benign going forward.
Zigomanis suggests that the Gold Coast – famous for its volatile market and bouts of massive overdevelopment and oversupply – is somewhere near balanced at present.
“The Gold Coast is picking up strongly after one of its cyclical periods of overbuilding, then underbuilding,” he says. “The lower dollar should also help the area’s tourism industry, improving the local economy.”
There’s also likely to be a fair amount of infrastructure spending in the Gold Coast as it prepares for the 2018 Commonwealth Games. The $670m Pacific Fair redevelopment will also make that shopping centre the biggest in Queensland.
BIS Shrapnel’s Residential Property Prospects 2015 to 2018 report forecasts price growth of 13% on the Gold Coast over the three years to June 2018.
Meanwhile, Century 21’s Charles Tarbey highlights the Sunshine Coast as an option for investors looking for a less-developed option. “The Sunshine Coast has a higher proportion of owner-occupiers, but it’s not as overdeveloped as the Gold Coast and less volatile,” says Tarbey, who recommends coastal suburbs that are “nicely placed” between Brisbane and the luxury coastal resorts at the north end of the Sunshine Coast, such as Noosa.
The Sunshine Coast is also benefiting from an expansion of the Sunshine Coast hospital, bringing more jobs to the area. An influx of sea-changer retirees moving from Brisbane, Sydney or even Melbourne may also help improve values.
Regional Queensland
AMP’s Shane Oliver says property markets elsewhere in the state fall on one side or the other of a “dichotomy” between mining and tourism. “Mining towns and coastal ports linked to mining may not do as well in future,” he says. “Meanwhile, tourism towns will do better.” As flagged above, the lower dollar means it’s more cost-effective to holiday in Australia for domestic tourists, as well as more affordable for overseas tourists to make the trip down under. That also brings more jobs and people to those areas, as mining zones see their workforces disappear.
The retiree and sea-change market may also be about to make its long-delayed move out of the cities, as super funds and term deposits have been topped up thanks to an improving share market and the Sydney/Melbourne booms.
Zigomanis, Wilson, Lawless and Oliver all highlight Cairns as a future performer, especially as many suburbs feature rental yields of 5–7%. The $8.15bn Aquis mega-resort and casino project is still under discussion too, which would provide a huge boost to the area if it were to go ahead.
Lawless also highlights that Cairns is “very affordable” at present.
“Cairns especially is a bright spot,” he says. “Prices are recovering after large corrections, and it’s really affordable at the moment.
Wilson identifies new developments to the north of the city as areas to consider, as well as developments in the southwest. However, he warns the unit market is ‘non-existent’ as a result of swingeing body corporate insurance premiums due to cyclone risk.
