IS QUEENSLAND THE NEW INVESTOR'S PARADISE?

OCT 2010

A NEW research project that positions Queensland as the growth capital of Australia suggests investors should pay more attention to the Sunshine State.

The white paper Queensland Investment Case: Why Queensland? Why Now? argues the Queensland economy is on the verge of strong and sustained recovery, led by major engineering, construction and infrastructure projects.

The project supports widespread forecasts that Queensland will deliver significantly higher economic, population and employment growth than other states over the next few decades.

Property researchers and commentators agree that it’s perhaps time to look at Queensland in a new light.

Research director Leigh Warner, says investors should have confidence in the Brisbane and Queensland property markets.

“This should be seen as a very strong marker for the international investment community to look at the state in terms of their total investment in Australia and increasing their exposure in Queensland,” he says.

“The availability of well-leased quality new office stock from the recent strong construction cycle also adds to this opportunity for investors.”

CEO of Ray White Surfers Paradise Andrew Bell, says investors are up 11 per cent on the same period last year. He says the market is ‘probably at the bottom’ and some parts of prestige property have definitely bottomed out, while central areas will always remain attractive.

“There are not as many speculators, but we are seeing an increasing number of investors. We are three years into this (downturn), you can’t sit around on your hands forever,” he says.

“There is a tendency to play it safer and real estate will be the beneficiary. There has been too much weighting to capital gain instead of annual return which has put upward pressure on rentals.

“There’s a rationalisation of thinking about prices. Most of my career has seen a focus on capital gain rather than returns. In the past there has been buying to make money, not necessarily because it was the right home to buy. That’s no longer realistic, it’s not sustainable. We are seeing investors move back into sensible thinking and a more pragmatic approach to real estate.”

Property researcher Colleen Coyne, urges caution. She says the residential market is experiencing a patchy recovery, ‘not unexpected’ at this point in the cycle.

“Where people get their fingers burnt is buying one day and then flicking out the next,” she says.

“Many who do this are probably more lucky than astute. You often hear horror stories, but one person’s horror is another’s joy to behold.

“For those able to enter the market now, there are opportunities to buy well, which remains one of the golden rules of property investment. It is important for investors
to remember however that property is best viewed as a long-term investment, not to rely upon a quick turnaround in values.

“This said, the upside of the current situation with construction finance is that in many areas, the supply outlook for new product continues to be limited. This could result in a rebound in prices more quickly than would otherwise be anticipated.”

Bell highlights a recent study that shows three out of five residential investors borrow money.

“As far as lenders go, people should shop around. There are huge differences in the top four,” he says.

Commercial outlook

Jones Lang LaSalle Queensland managing director Geoff McIntyre, says local institutional investors and offshore investors have historically assigned Queensland a relatively low weighting – around 15 per cent – within their commercial property portfolios.

“We believe that there is a strong long-term case for investors to increase this allocation to Queensland and Brisbane in particular,” he says.

“Obviously, stronger economic and population growth will also require higher levels of development, which not only benefits developers, but will create a greater number of quality assets for investors that will meet their investment mandates in terms of age and sustainability.

“The bottom line is that Queensland’s share of the pie – across key variables such as output, population, industrial production and employment – is growing and is likely to result in the eyes of the investment world coming to rest on Queensland as a key target for funds.”

Coyne says a glut of office space on the Gold Coast has also broadened the playing field.

“The Gold Coast’s high office vacancy rate represents a great opportunity for both tenants and owner occupiers to secure lower occupancy costs in some of the prime office buildings completed this cycle,” she says.

“Retail sales continue to be slow, due to more hesitant consumer behaviour. This follows the global economic uncertainty, not helped by the rising interest rate environment.

Mining regions

As for the mining regions becoming the hot investor pick on the block, Coyne says long-term strategy is still the most sensible.

“There’s volatility there but enormous opportunities for those that can afford it. In mining locations you need to be just as wary as investing in a small coastal resort area,” she says.

Bright future

Despite the naysayers, the Gold Coast-Tweed has averaged population growth of around 17,000 residents per annum over the past eight years. The Gold Coast and Northern Rivers tourism regions attracted 30 million visitor nights over the year to June 2010, with represents an additional daily population of around 80,000 people on average, bringing the region’s population to around 650,000 people.

“This level of growth and the strength of the Gold Coast brand as a destination will continue to underwrite long-term property prices and the demand for retail and in fact all types of property to service the needs of the region,” says Coyne.