august 2014 - amazon s3 · 2014. 8. 18. · month in review august 2014 feature. 4 following the...

August 2014Month in Review

Feature – Warning bell! What not to buy 3

Earthtrade 4

QS corner 5

Commercial – Office 6

Residential 22

Rural 46

Market Indicators 55

Contents

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Get the message?

There are plenty of smiling faces throughout the property advisory field who are all too eager to tell you where to go… in the nicest possible way of course. It’s a world full of analysts with their eyes on hotspots and boom towns ready to get investors and homebuyers on board. Certainly most of us want to hear the good news – there’s enough negativity about the place already, but let’s face it, we all need a friend who’ll tell us when we’re about to mess up.

At Herron Todd White, we keep a critical and analytical eye on how our markets move, and if there is one certainty other than Kanye self-promoting, it’s that a centre’s real estate market has different sectors, and some are best left alone.

This month, our knowledgeable team has taken a look at the dark side. We’re keen to travel into the belly of the property beast and see what areas to steer well clear of. A guiding light armed to the teeth with street smarts and ready to provide safe passage.

For some of our offices it’s concerns about potential oversupply, for others its poorly designed stock or secondary locations. Each and every area has spots to avoid and you only really get the lowdown from well-informed locals like our Herron Todd White teams on the ground.

For the commercial section on office markets, we’ve decided to keep the theme. The commercial experts have considered the big drivers including the Federal Budget fallout, employment gains and losses, interest rates and broader economic issues just to name a few. They’ve laid it on the line so you can get a bit smarter about the things to watch out for.

So dig in dear reader – it isn’t all bad. A little darkness will be highlighted by our gals and guys so you won’t have to feel the pain of buying property that should really be out-of-bounds. Come along and we’ll see you through.

Warning bell! What not to buy

Parry, sway, avoid, swerve, sidestep, duck, cover, run, ignore, deflect, drop, block, dodge, fend, shield, evade, shun, elude, escape, circumvent, veer, deviate, disregard, flout, snub, ricochet, repel, dump, move, shirk, bypass, flee, spurn, reject, shirk, eschew, turn, discount, defy, scorn, scoff, bounce, deter, resist, scrap, detour, bolt-from, slight, repulse, despise, disdain, throw away, cull and abjure.

Month in ReviewAugust 2014

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Following the article in the June MIR, this month we have a brief look at carbon offsets and some of the fundamental differences between carbon and biodiversity offsets.

Biodiversity offsets are underpinned by Australian, State and Territory legislation and some local governments also have requirements built into their planning schemes.

Biodiversity OffsetsBiodiversity offsets are different contractually in a number of ways to carbon. Biodiversity offsets have an associated management plan noted on the title of the property along with a legally binding mechanism. These may be in the form of Covenants, Nature Refuge Agreements, Environmental Protection Offset Areas (Queensland), Bio-banking Agreements etc and may have a set life or be in perpetuity. This is a key difference to carbon offsets. Note that the legally binding mechanism on the title may be removed, however the environmental factors generally remain protected from clearing under other Acts and policies. If the offset area is to be impacted at some time in the future, then the area has to be replaced. Contractually, the terms of the financial contract can often be negotiated directly between the project proponent requiring the offset and the land owner. In some states and in some circumstances, a Trust may be utilised to hold monies for the maintenance of the offset over a period of time.

There are opportunities and complexities of a legal and financial nature around carbon and biodiversity offsets that should always be considered in depth during the planning, designing and negotiation of a project.

At Earthtrade, we are in the process of providing offsets for our 50th project and therefore bring a depth and breadth of knowledge to assist both landholders, project proponents and the financial, legal and valuation communities to provide and design offset projects that are environmentally and commercially sustainable.

Carbon OffsetsCarbon is legislated at the international and Australian government levels and comprises a voluntary as well as a regulated market. The carbon pricing scheme in Australia, commonly referred to as a carbon tax, was introduced by the Gillard Government and became effective on 1 July 2012. The Abbott Government has introduced legislation to repeal the carbon tax effective as at 1 July 2014 and commenced implementation of the Direct Action Plan. The Clean Energy Legislation (Carbon Tax Repeal) Act 2014 received Royal Assent on 17 July 2014 after passing the Senate earlier that day.

The Abbott Government’s Direct Action Plan will be designed to efficiently and effectively source low cost emissions reductions. The Direct Action Plan will build on the Carbon Farming Initiative (CFI) and includes an Emissions Reduction Fund (ERF) to provide incentives for abatement activities across the Australian economy.

The goal is that together with targeted funding for urban trees and one million solar roofs, the ERF will reduce Australia’s greenhouse gas emissions and deliver improvements to our environment. This is a mixture of a reduction of carbon emitted and

abatement – or the storing of carbon in vegetation, soil etc.

Carbon sequestration refers to the process of removing carbon dioxide (CO2) from the atmosphere and storing it in another location, called a carbon sink.

Carbon credits can also only be issued for activities that bring lasting environmental benefits. This could be achieved by preventing greenhouse gases from entering the atmosphere or permanently storing carbon in soil or plants.

The CFI permanence rules underpin the market value of credits. These rules give buyers confidence that carbon credits represent genuine and lasting reductions in greenhouse gases. There is little or no demand in carbon markets for credits that do not represent permanent abatement.

The CFI permanence rules mean that landholders should only consider environmental plantings or soil carbon projects that improve productivity or have benefits for natural resource management. For example, landholders could consider plantings in unproductive or eroded areas, or plantings that provide shelter for stock, create corridors for wildlife or improve water quality. The CFI permanence provisions discourage tree planting on land that has better or more profitable agricultural uses. This is a key contractual consideration for landowners.

Other considerations are the financial considerations of payment for management actions required, and if the carbon project is for regulated carbon credits, the costs of the required monitoring and reporting.


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Earthtrade – Specialists in offset solutions

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If you are an existing or potential property investor, then chances are you’ve heard of negative gearing. In a nut shell, negative gearing is where the expenses incurred in owning a property are higher than the income the property produces through rent.

So why would a person buy an asset to make a loss? Isn’t the whole purpose of owning an asset to make money? Not when owning that asset offers immediate tax offset benefits and the promise of capital growth in the future. If the capital growth is greater than the negative loss, the investment is a success.

To help offset the amount of tax payable, an investor is entitled to claim deductions and depreciation against any income generated from that property. These deductions include interest paid on the loan for the property, repairs and maintenance, agent’s fees, council and water rates, strata fees, property insurance and other directly related expenses. Records of all these expenses need to be retained and can be written off against that financial year’s tax claim. The Australian Taxation Office (ATO) makes it very clear that you must keep records of your rental income and expenses for a period of five years from 31 October of the year you lodge your return or, if you lodge your tax return later than 31 October, for five years from the date you lodge your return.

The deductions mentioned above are generally well known to most investors. The depreciable loss of a property however, still goes unclaimed by many

investors and as a consequence, those investors are missing out on a tax deduction that may be worth thousands of dollars.

Properties constructed after 16 September 1987 are eligible for Division 43 deductions, that being depreciation of the main building structure at 2.5% per annum over 40 years from the date of construction. There is a misconception that only new properties qualify for depreciation, however older properties do provide some form of depreciation (Division 40) in the form of plant and equipment items such as carpet, cook tops, blinds, etc, regardless of whether the building age precedes the Division 43 date of 1987.

The best way to have your property correctly assessed for depreciation is to engage in the services of a fully qualified and appropriately licensed Quantity Surveyor who is also a registered Tax Agent. This way, what your claim will be in accordance with the ATO guidelines and you have the reassurance that a qualified professional is ensuring that all depreciable items are accounted for, thereby maximising your return and reducing your tax liability. The cost of the report is 100% tax deductible.

Herron Todd White has fully qualified and accredited property advisors in all areas and classes of property. If you or someone you know needs advice on Tax Depreciation, please contact us at [email protected].


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QS Corner – Nagative Gearing and Tax Depreciation

Commercial

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OverviewOffice markets have plenty to contend with. There has been a tough federal budget, future interest rate movements and international economic events all impacting both landlords and tenants. This month, rather than try and find the gold seems in the office sector, we’ve considered some of those areas that have been a little soft. Our August submissions are tales of caution for commercial investors.

SydenySeveral key themes continue to set the scene for the Sydney office market. One of the major themes is the current divergence between leasing and capital market trends surrounding Sydney’s office assets. Recent measures of investment demand by major real estate agencies indicate that a historically high level of office sales occurred in the Sydney market last year, with a number of significant sales occurring in Sydney’s non-CBD markets. Sydney office assets have attracted this historically high volume of capital during a period of falling average rental levels and a slow rental growth outlook. However, a more detailed look into the types of assets being purchased reveals that only the best quality assets with strong lease profiles are attracting this capital, whether the asset lies within Sydney’s CBD or suburban submarkets.

Another key theme is the encroachment of residential development projects on Sydney’s office market footprint. While the phenomenon

has always some presence in the market, it has become increasingly prominent in recent years. Market response to housing undersupply issues, historically low borrowing rates and a high level of investment demand from offshore have placed a high level of interest around residential redevelopment opportunities in Sydney. The interest has led to a number of sites within the CBD and fringe suburbs becoming redeveloped or converted into high density residential developments. Recent examples include the redevelopment of former Sydney Water board site on the corner of Bathurst and Pitt Streets in the CBD, and the former TAL headquarters in Milsons Point in Sydney’s lower north shore region. Furthermore developers are also taking opportunities to convert office space into hotel use. Recent examples include the newly completed QT Hotel in the CBD and 34 Hunter Street (also in the CBD), which is in advanced construction stages. The net effect of these conversions will be a small offset to rising vacancy rates and support towards rental growth.

Growth in average rents for Sydney office space however, remains very slow as a factor weak leasing demand. Weak demand has led to average incentives in some areas remaining at elevated levels (in excess of 30% rent free in some submarkets) and average face rents essentially tracking sideways over the past year. It appears that major suburban office markets in Sydney’s western region have

benefitted from relative stability in leasing demand, with vacancy rates remaining comparatively lower and less volatile over the two years to January 2014 compared to other markets. However, vacancy rates in Sydney’s northern office markets have been on an upwards trend and currently reflect some of the highest office vacancy rates in Sydney. With rising vacancy increasing space options for tenants across Sydney (namely, office space under 1,000 square metres), we expect only most well-presented and well-located offices to attract leasing demand. Investors should be particularly mindful that ageing office space is expected to face the most challenging demand environment, as recent falls in rents and high incentive levels are increasing the affordability of better quality offices that were previously out of reach for some occupiers.

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New South Wales

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CanberraThe lack of certainty about the impact of the Government’s proposed reduction in staff numbers continues to overhang the market. However buildings with a reasonable, five year plus WALE remain of interest to the investment market. We are advised by agents that there are up to 12 sales being considered in the market with a number already announced or even settled. These include:

• Reed Street, Greenway - fully leased building with an 8.8 year WALE for $25,800,000 showing a yield of 7.9% and $4,772 per square metre.

• 26 Brisbane Avenue, Barton - fully leased building with a WALE of 7.8 years for $13,500,000 showing a yield of 7.84% and $4,758 per square metre.

In contrast, where the WALE was limited, sales occurred at what can only be considered opportunistic prices. Examples include:

• 10 Moore Street was sold by interests of the AMP to Quintessential for $18,000,000. The WALE is circa 2.5 years with occupancy in the order of 92%. The initial yield was estimated to be 9.75% on passing rent. The rate per square metre was $2,685.

• 14 Moore Street was sold by Dexus at a reported price of $23,000,000. The building was 90% vacant and the rate per square metre was $2,068. Quintessential was again the buyer.

Certainly it appears that we have a two tiered market – strong WALE 7% to 8% initial yield and $4,700

per square metre plus – short WALE low dollar rate per square metre and 200 basis points minimum increase in yield.

Another sale of interest which has both retail and commercial elements is the recently announced sale of Tuggeranong Homeworld by the PFA Diversified Property Trust to Sentinel for $31,000,000 at a yield of 9.8%. The purchasers not only secured a strong initial yield but a substantial site of 2.19 hectares in the Tuggeranong town centre. The long term potential of this holding probably includes an opportunity for redevelopment with a residential focus. 25% of the development is occupied by the Commonwealth of Australia in a first floor office on a lease expiring in July 2020. The residual is operated as retail premises. The overall WALE is circa 4.4 years and 10% of the space is vacant.

The rental market is relatively stable – the only substantial recent announcement is the confirmation that the Department of Social Service (DSS) has agreed terms to lease a 30,000 square metre building to be constructed by the Cromwell Group in Tuggeranong adjoining the Department’s current premises. The impact of this development will be felt across smaller holdings in Tuggeranong and Woden occupied by DSS.

Media comment has also been focused on the on again off again move or consolidation of the Australian Customs and Border Protection Services

to new premises. This department occupies space of circa 22,000 square metres in three significant buildings in the city and has been rumoured to be moving to available space in the Majura Business Park or indeed to a new development in the city. A move by Customs would increase the supply of available B and C grade property which is currently in substantial oversupply.

South East NSWThe South East NSW office market encompasses the Local Government Areas of Wollongong, Wingecarribee, Shellharbour, Shoalhaven, Wollondilly and Goulburn-Mulwaree, with Wollongong the largest CBD in the region and generally seeing the most level of activity.

Conditions are currently stable with 2014 seeing reduced sale volumes after the high levels experienced throughout 2013. All eyes are on the current listing of the One Path anchored A grade office building at 280-286 Keira Street and 35 Kenny Street, Wollongong to provide an indication of where the top end of the market presently sits. This listing is also of interest given the property last sold in December 2010. Agents are reporting good levels of interest from local and Sydney based private investors with the property

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funds market also active in seeking out this asset class. The challenge though remains the lack of suitable product for sale.

Historically, the Illawarra office market has shown low volatility with vacancy and rents generally at stable levels from 2008 onwards. While the latest PCA Office Market Report cites an annual increase in Wollongong’s total vacancy rate from 6.6% to 11.1% in January 2014, the increase was largely driven by the ATO relocating within the market. The ATO vacated roughly 5,500 square metres at their former Atchison Street premises and moved into their new 6,600 square metre office building on Kembla Street. Despite the resulting increase in vacancy, the A grade market segment continues to hold the tightest vacancy rate of 10% as at January 2014.

Rents for A grade space typically sit in the $350 to $450 per square metre range in gross face terms with incentives of up to 10% still common. Looking ahead, we forecast vacancy rates and rents to remain stable over the next 12 months although local economic conditions are flat given the scaling back of operations at the region’s coal mines and the continued struggles of the manufacturing sector.

The construction and aged care sectors, port and university expansion together with public infrastructure projects are the current drivers adding substantial value to the economic output across the region.

NewcastleThere has been relatively little market movement in the office sector so far in 2014. There has been much talk and anticipation with regard to the rejuvenation of the CBD and the State government’s budget promises, including the new light rail system proposed for the city, however, the market is yet to react with any concrete influx of office occupiers.

Within the CBD, the current construction of the Law Courts on Hunter Street has agents advertising to every office within a three block radius that this will be a highly sought after legal district. In reality, we haven’t seen this to date. There certainly has been an uptick in enquiry in the area, however, there are still quite high levels of B and C grade stock in the area. We expect once the Law Courts are up and running, along with the proposed University Campus, there will be a need for additional retail and hospitality property in that section of the western CBD. There may be a time lag for office occupiers as current lease terms play out, however, when we gauge the size of the current and traditional legal precinct at the eastern end of the CBD, levels of stock still heavily outweigh potential occupiers and we will

require new players of significant size to influence the market rates.

The B and C grade office stock is relatively flat at the moment with quite high levels on the market for rent. A grade stock still has low vacancy rates, however, these are slowly increasing with new stock in the pipeline. We are keeping a close eye on vacancy rates across the board.

NSW North CoastQuality investment properties in stronger regional CBD locations (Lismore, Byron Bay, Ballina) with strong lease covenants (in particular long term national tenants) are showing stable rates of demand and have generally maintained value levels reasonably well. In contrast, secondary properties in fringe locations, with dated footprints and layouts, limited car parking and inferior tenant profiles have been severely discounted. Country towns and village locations will generally experience long letting up and selling periods. These outlying markets remain owner-occupier dominated.

Specialist commercial leasing agents are reporting limited market demand and enquiry although there is also limited supply of better quality office space with properties being well held and thinly traded. When market review or annual increases are due, many landlords are opting not to enforce any increases in order to keep properties tenanted. We have seen a change in the leasing structure with tenants choosing

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shorter leases and many opting for month to month tenancies rather than negotiating new longer term leases.

LismoreObtaining tenants for office space has become problematic with periods of high vacancy rates and low demand followed by thinning supply, yet low to modest demand. The demand and supply relationship, although fluctuating, remains strongly biased toward balanced to oversupply.

Byron BayVacancy levels for offices in this location appear to be stable. There have been increasing vacancy rates in general over the past two years. A lease up period of up to six months is considered applicable under current market conditions. There are a number of vacant tenancies available for leasing in the fringe area of the business precinct in Byron Bay. With the easing in rental demand and increase in the supply of

vacant space, investor demand has fallen resulting in the yields increasing in the order of 1.5% to 2.5%. The current market is characterised by properties for sale at yields of around 5% to 6% which are not selling, and motivated vendors having to accept yields in the order of 7% to 9%.

BallinaIn Ballina, larger good quality office space is limited and tends to be dominated by Government tenants. The space tends to be well held with long term leases. As a result there tends to be limited evidence to indicate trends and the evidence that is available tends to be inconsistent with results ranging from slightly weaker to slightly stronger over the past three years. This variation is a result of rent level initially achieved, position and quality of space. Ballina tends to reflect trends similar to Lismore rather than Byron Bay.

Regional CommentPurchase activity of office space remains very low as a result of a combination of limited supply and limited demand. If demand was stronger supply would likely increase as longer term investors would likely try to exit the market.

The investor market remains centred around the main retail precincts (regional and district centres). Outlying villages and towns have limited supply, very limited demand and remain owner-occupier markets.

Coffs HarbourThe Coffs Harbour office market is generally performing to a reasonable standard.

Good quality, well located property is finding a ready market for leasing and sale. However, secondary located, older developments are experiencing difficulty with sales and leasing.

Within the Coffs Harbour CBD, the “Western Precinct” (west of the Pacific Highway) is underperforming in relation to the eastern side of the city. There has been limited investment west of the highway and a number of potential development sites remain undeveloped. This contrasts with the “eastern Gordon Street Harbour Drive” precinct which is experiencing keen activity, with a number of redevelopments completed, undergoing or in the planning stages.

There have been two recent office complex investment sales in Gordon Street at 5.8% and 7.15% initial yield with prices recorded well above market expectations.

There are few strata title upper level office suites within the city centre. Properties with a comparatively high component of inferior quality upper level office accommodation are meeting market resistance.

The recent development of ground floor strata office suites have been well received by the market with sound take up rates at $3,500 to $4,200 per square metre. There is generally a shortage of supply for this classification of property.

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MelbourneThe Melbourne office market is continuing to observe strong demand from investors for good quality, smaller office properties particularly within the Melbourne CBD, Inner Metro/City Fringe and St Kilda Road office markets. Demand continues to be driven by the relative lack of suitable investment stock on the market at any one time and the sheer weight of local and international capital seeking such investment opportunities in this segment of the market.

Assets in the $10 million to $30 million price range continue to appeal to a broad range of private investors, syndicates and Self Managed Super Funds (SMSF) both locally and abroad.It is anticipated that prime to A grade Melbourne CBD office buildings will continue to attract strong demand from both local and overseas private and institutional buyers as well as sovereign wealth funds with the potential for overseas interest and demand to continue to increase as the next wave of demand comes from the Asian market. As evidenced by recent sales activity within this segment of the

market, investment yields are firming, particularly for well located higher grade assets exhibiting sound fundamentals. Typically well located investment assets in the vicinity of $5 million to $20 million with strong lease profiles and limited capital expenditure requirements are highly sought after with demand continuing to firm the market yields.

The Melbourne CBD is currently an attractive and secure destination for international investors, primarily due to the relatively high returns available and the low risk profiles of CBD assets compared to other Asian Pacific cities. The opportunities for such investors are obvious and the market is currently observing prime grade office returns in the vicinity of 6.25% to 7.50%. Competition is strong to secure such assets while the supply remains relatively low in comparison. Strong investment returns (relative to their own country of origin) combined with the low cost of debt at present, stable political and economic environment and a transparent property market, has created an ideal environment and an opportunity to invest in secure CBD assets. This said, demand for secondary office assets in non-core office locations and which exhibit inferior fundamentals in contrast appear to be quite weak at present. There continues to be a clear yield divergence between prime and secondary grade office assets which is being reflected in the market.

The leasing market remains relatively soft and incentives in certain sectors remain high. The investment market is strong at present which highlights somewhat of a contradiction, however investors are reportedly buying now in anticipation of a market rebound and potential short to medium term rental growth. Tenant demand is relatively low within B and C grade office buildings and landlords are finding it somewhat difficult to secure tenants for extended lease periods due to the sheer volume of competitive stock on the market. This is particularly prevalent within the city fringe office precincts of Melbourne where effective rents are currently under increased pressure due to the level of incentives being offered in an attempt to counteract vacancies in these lower grade buildings.

Office space with an existing fit out and which has been recently refurbished is proving to be more attractive for smaller tenants in the market who will typically occupy accommodation for shorter terms than that of larger tenants. Agents active in these markets are reporting that tenants approaching lease expiries are becoming more cautious and are taking longer to make decisions in the current economic environment. Such tenants are more likely to consolidate their offices and will likely exercise an option on an existing lease rather than vacate to another location. This said, some larger tenants are taking advantage of the current leasing environment

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Victoria

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and are taking this opportunity to expand into a suitable premises by making the most of the generous incentives being offered by landlords. Leasing incentives remain high and currently range from approximately 25% to 30% for office space within A and B grade buildings with reports of up to 40% for buildings with relatively high levels of existing vacancies. Many C grade buildings are being mooted for residential conversion due to the uneconomical cost of maintaining them for continuing office use.

The vacancy figures released by the Property Council of Australia (PCA) in January indicated a total vacancy rate of 8.7% across the Melbourne CBD which is below the national average of 10.4%. The PCA reports that a significant amount of space will be absorbed by the market during 2014 (106,519 square metres with 42% pre-committed) and 2015 (a further 115,624 square metres with 64% per-committed). A decrease of 0.1% in the overall vacancy rate over the six months to January 2014 was primarily due to a withdrawal of office stock from the market.

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AdelaideThe Property Council of Australia will shortly release its biannual Office Market Report. The mid year figures are predicted to again show a slight increase in CBD office vacancy. It currently sits at 12.4%. This increase in vacancy had been forecast in the short term to follow on from a construction phase during 2010 to 2012 when numerous high rise office buildings were completed.

The backfill created by relocation of tenants to the new buildings has been slowly re-entering the market over the past two years, putting upward pressure on the vacancy rates and with even more refurbished office space set to come on line during the second half of 2014, the vacancy rate is expected to continue to increase beyond 2014.

With limited supply forecast over the next few years (there is currently only one office building under construction, 50 Flinders Street, which is almost fully pre-committed to People’s Choice Credit Union and Santos and not due for completion until the end of 2015) as the current excess space is slowly absorbed, vacancy rates are expected to start to recover, however this is not expected in the short term.

Leasing activity has remained fairly subdued with a noticeable trend of tenants choosing to consolidate or even reduce leasing areas as they continue to face difficult economic conditions. Rising state unemployment levels, including loss of white collar

jobs in both the finance industry and within the government sector, are also impacting negatively on tenant demand.

At this point, tenants whose current tenures are coming to an end hold the upper hand with respect to negotiating new leases or moving to new tenancies as landlords increase incentives in an attempt to reduce the chance of their premises becoming or remaining unoccupied. This is also putting negative pressure on rental rates.

Rental rates for primary stock have remained fairly stable at around $350 to $500 per square metre gross, however as vacancy has increased it is expected that primary rents will start to reduce this year. Incentives for primary stock are around 15%. Secondary stock has already experienced some correction to rental rates with incentives increasing to around 25%. Secondary rental rates are expected to face further reduction throughout 2014.

Investment activity has improved significantly with interest across the board from smaller private investors to large overseas institutions. However lack of quality stock is proving to be a problem and it is expected that with this increased demand some yield compression may occur over the second half of 2014 for prime grade assets. Primary yields are currently around 7.5% to 8.5% with secondary yields around 8% to 9%.

The Transport Development Levy, more commonly known as the “Car Park Tax” was introduced as part of the recent South Australian budget and now only needs to be passed by parliament in order for it to take effect in the current financial year. The levy is $750 per car park per annum indexed annually by CPI for all off street car parks (and ticketed on street car parks) located within the Adelaide CBD.

The car park tax discourages occupation within the CBD at a time when business confidence is at a low and vacancies are high. Additionally there have been zoning changes to CBD fringe “urban corridor” areas after an extensive 30 year plan was developed. The additional appeal of future outer CBD developments and the potentially cheaper occupation costs offered may elongate the recovery time for the CBD particularly within the sub $1 million strata office market whose occupants may not need to be in the CBD if good alternatives are available.

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South Australia

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BrisbaneWhile the Australian economy grew at a stronger than expected rate in the first quarter of 2014, the Brisbane office market continued to slow as the contraction of mining investment spending continues to pull down the overall market. As a result, investors have continued to focus on premium grade office assets with high quality tenants and strong WALEs, while the secondary office market continues to stagnate. With Queensland’s unemployment rate projected to remain at current levels for the foreseeable future and a negligible increase in CBD white collar employment over 2014 and 2015, an increase in demand is unlikely in the near term.

In saying this, institutional purchasers, who made up a large percentage of the transactions in the six months to December 2013, continued to be drawn to the strong yields of premium assets in comparison to much of the international market and the overall positive forecast of sustained growth in Queensland in the later part of this decade. The flip side to this is the continued softening of secondary assets where yields are approximately 2% softer between prime and secondary assets. This is seen as a direct result of low demand for secondary assets coupled with the sustained market supply of such properties.

An upside to the softening secondary market is that savvy investors are now starting to focus on these assets with a view to adding value and repositioning as prime grade assets. There are significant opportunities currently existing throughout Brisbane.

In addition to this is the contrast of the overall investment market in comparison to the leasing market. The leasing market has continued to exhibit a softening in the final months of 2013 and early 2014, moderated by increased vacancies and weak demand that led to an overall vacancy rate of 14.2%. Interestingly, while vacancy rates have increased, this has not resulted in a notable reduction in face rents and rather has resulted in an increase in rental incentives offered. Prime space rental incentives appear to have peaked and this will likely result in net effective rental growth in the medium term with these leasing fundaments indicating the market is approaching the bottom of the market cycle. Furthermore, business confidence has improved following the federal election, however, this has not translated into increased leasing activity.

Overall, the current outlook is uncertain with unemployment remaining at current levels offsetting the strong prime asset market, while secondary assets and leasing activity continue to pull this down. Ultimately, how the market will respond will depend on the overall economic improvement of the state, which is not anticipated in the near future.

ToowoombaThe office market in Toowoomba is predominantly found in the CBD and fringe CBD areas with some office use properties found in established suburbs which generally comprise former dwellings converted to professional office or paramedical facilities. Generally, the CBD office precincts comprise a mix

of owner-occupier and tenanted properties and the fringe areas tend to have owner-occupied buildings.

The Federal Budget announcement has not had a direct impact on the Toowoomba office market, however local development could have the potential to increase demand on the back of developments underway such as the QIC Shopping Centre, second Range crossing, outer circulating ring road and proposed CBD parking to be constructed on Hume Street.

At present there is strong demand for smaller office properties which is driven by owner-occupiers with an increase of investment through self managed super funds. These offices are often former houses converted for professional use and provide easy access for employees and clients and off street car parking. This office sector sits within the $400,000 to $600,000 price bracket. Reports from local

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agents have confirmed that there is a considerable level of demand for introductory level professional offices located within this office sector and a current lack of supply.

Commercial offices which are considered to have lower levels of demand are those located within the inner CBD that offer no on site car parking. The shortage of CBD car parking is an ongoing local issue and with further population growth and development, we anticipate these properties will not hold significant market appeal in the medium to long term future.

Overall, the Toowoomba office market has been stable and is expected to remain stable in the short to medium term.

Gold CoastThe focus of this month’s Gold Coast commercial review is the commercial office sector, particularly how this sector is performing, the effects of the federal budget, and continuing lack of development within the Gold Coast office market.

Overall, the office market is in the early stages of recovery. We are seeing the volume of leasing and sale deals increasing along with sporadic

construction activity mostly driven by owner-occupiers building boutique office buildings as company headquarters. The recovery is fuelled by increased business confidence and low interest rate environment assisting the affordability for owner-occupiers weighing up the ‘buy versus rent’ debate. In fact, several real estate agencies are now predicting that the next Property Council of Australia (PCA) figures will report the total vacancy factor to be below 16%, a level not seen since July 2008.

The Abbott led Federal Government recently handed down its first budget to much fanfare and debate as to its apparent harshness. Discussions with local commercial agents at the time predicted a negative response from the market, with several agents commenting that it could seriously hamper the recovery. However, hindsight now tells us the budget has resulted in little impact to the momentum of the market across the Gold Coast. In fact, the reduction of the company tax rate proposed in the May budget may increase business confidence which in turn may provide assistance to the market. Notwithstanding, this is yet to be seen.

However, it is not all roses within the Gold Coast commercial office market at present as new development still represents a “no go zone”. We attribute this to several factors:

• Vacancy Factor: Although the trend is for a decreasing vacancy factor, supply still outweighs

demand. We anticipate the vacancy factor will need to be below 10% before any significant new additions of floor space are commenced.

• Limited Demand: Although business confidence is increasing, demand across the market still remains below long term average levels.

• Construction Costs: Resale rates for strata and freestanding office premises range from below $2,000 per square metre of lettable area for older buildings in fringe locations to $4,000 plus for newer premises in sought after locations such as Robina. In comparison, Rawlins Construction Costs Handbook 2014 indicates construction costs ranging from circa $1,150 per square metre for single storey buildings to circa $3,500 per square metre for prestige high rise buildings. Add to this the cost of land purchase, approvals, finance and holding costs along with developer’s profit and risk and it becomes clear that office development is generally impractical under current market conditions.

Overall, the Gold Coast commercial office sector is indicating very early signs of recovery. The continued reduction of the total vacancy factor along with increasing business confidence should see this trend continue for the remainder of 2014 and into 2015.

Sunshine CoastThe Sunshine Coast office market has continued to show signs that the bottom of the market has been

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reached with continued turnover of smaller stratas to mainly owner-occupiers. The sales evidence has been within more established commercial locations with the majority of transactions being sub $500,000.

Since the federal budget was released in May 2014 we have seen different segments within the office market perform at different strengths. Smaller office properties have continued to be in good demand from mainly owner-occupiers, however larger leased properties have seen less demand from private investors with investors being more cautious regarding confidence and future market conditions and relying more heavily on investment fundamentals such as lease covenant and location. An example of this is that agents have reported strong interest in a strata titled office unit in Maroochydore leased to established local and national tenants with near new leases, while the same agency has reported limited interest in a similar sized office strata leased to a government tenant with two years remaining on the lease term.

Overall the majority of interest from both owner-occupiers and investors has been for office accommodation within more established commercial locations in close proximity to business services and other amenities. Demand for office accommodation in smaller or less established commercial locations has been limited with a number of properties in these locations being listed for between six and 12 months.

We don’t envisage the outlook for these secondary commercial locations to change for at least the next six to 12 months.

Overall leasing conditions are still being reported as relatively difficult by most agents with a range of space available and lessors having to offer increasing levels of incentives to get tenants to take longer leases. There is still a preference by a number of local tenants to take short term leases.

RockhamptonThe office market in Rockhampton remains stable, with no notable fall outs post the Federal Budget. This market has performed at a stable level over the past 12 to 18 months, with some ongoing rationalisation of office space post the 2012 state government election. Generally speaking, properties at a price point exceeding $750,000 are likely to have little interest from investors if they have significant vacancies or low unexpired lease terms or WALEs. Properties priced in excess of $750,000 are also not readily sought after by owner-occupiers, as these buyers are mostly active around the $500,000 price point. There are currently few tenanted office properties listed on the market for sale, however there is a relatively high supply of office space available for lease.

We note vacancies in the office sector across both secondary and new office space. Tenants have

increased bargaining power in negotiation of new leases and owners who are not willing to meet market rentals are risking ongoing vacancies. We note some new and secondary office space within the CBD and fringe CBD that has been vacant in excess of six to twelve months. Investors should be wary of vacant buildings given current vacancies. Investors should also be aware of upcoming lease expiries, option renewal terms (ie is there an option period subject to market review?), and the likelihood of incentives being necessary in order to secure tenants for any vacant tenancies (ie, rent free periods and fit out allowances).

GladstoneThe Gladstone office market is intrinsically linked to the ongoing activity within the major liquefied natural gas (LNG) projects being undertaken in the region. Volatility and potential price vulnerability is expected in the next 12 months due to peak workforce numbers relating to the construction of LNG projects being reached.

Office rents in Gladstone have increased substantially and are now at record high levels. These levels can be attributed to the significant LNG related activity in Gladstone. Much of the demand for office accommodation has come from businesses associated in some way with the LNG projects. Since the construction workforce peaked in mid 2013 we have started to see an increase in vacancies, mainly

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in the CBD. A decline in rental levels is expected if vacancies further increase.

History has shown that after a period of significant growth in prices and rents in Gladstone, the market experiences a period of low demand and price reductions. This causes volatility and increases the risk for property values in Gladstone.

MackayIf you have noticed a fair chunk of vacant office space around Mackay lately, you aren’t alone!

The commercial office and CBD retail market is currently facing an oversupply of accommodation. Recent numbers suggest somewhere between 15,000 and 20,000 square metres of vacant space is available for lease.

The increase in the volume of empty office and retail space is due to a number of factors. Firstly, in 2013 the State Government vacated a number of large, leased office tenancies around town and moved to their new, purpose built premises, resulting in around 7,000 square metres of lettable area.

Secondly, Centrelink has vacated its city heart office space to relocate to a new building in the northern suburbs of Mackay. The now vacant building,

located in a prime position in the CBD, provides for approximately 1,300 square metres of floor space and is available for lease.

And finally, the coal industry downturn has placed pressure on a number of local businesses and some of the major miners. This has resulted in some businesses down sizing or even vacating premises.

The State Government and mining companies were historically the main tenants seeking large floor spaces. This demand is now very limited.

A positive for the town centre is the current refurbishment of the former Ergon Energy office building. The owner has secured a number of strong tenants.

Traditional retailers are currently experiencing some tough times, however the CBD is progressively transitioning from a traditional retail centre to a café, restaurant and bar precinct.

The recent new additions to the CBD include a Cuban inspired bar and café and a new franchised smoothie bar. These investments show that there is still confidence in the hospitality market.

Despite this oversupply, rental rates have remained stable and there have been limited new lease agreements to our knowledge which show any significant decline. We anticipate that the full impact of the change in the supply and demand dynamic will

be felt in the market through the latter half of 2014 and 2015.

Hervey BaySince the beginning of 2014, demand for new office premises appears to have remained relatively steady. Most interest continues to be for near new or “off the plan” strata unit medical space around the new St Stephens Hospital or Pialba commercial precinct with owner-occupiers the most active. The hospital is due for completion in late 2014. One, eleven-lot strata unit project near the hospital is fully sold achieving $3,500 per square metre. Completion of this project is reportedly two to three weeks away.

Units that are leased with good terms and tenancy profiles are achieving on average around the 8% to 8.5% range for the sub one million dollar stock. Good quality strata unit stock is declining which may help to lift appeal for the secondary stock which has been difficult to lease or sell over the past twelve months. A recent mortgagee sale of a strata office unit was considered very good buying at $1,695 per square metre. This sale has placed pressure on other vacant units currently available which have historically been asking more in the order of $2,500 to $3,000 per square metre.

Leasing demand is steady and although there is considerable stock available, lessees are reportedly seeking quite specific needs which is limiting the potential options and therefore negotiation power.

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Most premises available are advertising on a net rent basis however offers are being returned on a gross basis.

Incentives in the form of rent free periods up to six months have been reported. Lower initial rental rates for a one year period with fixed increases for the next two or three year options are common at present.

TownsvilleOver the past 12 to 18 months, the Townsville A grade CBD office market increased by over 20,500 square metres as three new office buildings came online. These buildings were largely pre-committed, but sill had some vacancies. The new supply also generated consequential adjustments in other grades due to tenants vacating former spaces to occupy these new buildings.

The premium office market for regional centres is less sophisticated than metropolitan areas and the overall depth of this market with the addition of the new buildings is around 50,000 square metres.

Preliminary research indicates that the vacancy rate for A grade CBD property has remained relatively unchanged at around 12.5% over the past six months with leasing incentives from around 10% of lease value to up to 25% in some cases.

The age and quality of some CBD office structures are starting to raise some issues with regard

to functionality and the commercial viability of these assets and potential for significant capital expenditure in the current market environment. C and D grade office product would most likely be affected. Notably, the Montreal Protocol, the international treaty that controls the phase out of the production of ozone depleting substances, will result in air-conditioning refrigerant R-22 being phased out and potentially inviting short term replacement of dating HAVC systems. For older air-conditioning plant in good condition this does not pose the same risk as those buildings that have dated plant in poor condition or are past serviceable life expiry.

It is likely that building plants running off R-22 refrigerant are approaching the end of their economic life anyway and the need for this capital expenditure must be considered. There is a substitute refrigerant that can be retrofit, however capital expenditure would still be required for system changes and whilst it is reported that R-22 will be available for servicing of plant to the end of its economic life, the cost of the refrigerant for servicing aged plant may not be an economically viable option, which may result in property owners having to upgrade to new plant sooner then they may have liked.

Tenant comfort and overall climate control are of high priority for tenants and will be an essential factor in consideration of tenants remaining beyond

their lease expiry, particularly in the current market environment, which sees ample supply of office space with vacancy rates in the CBD for C grade buildings at over 30% and B grade vacancies around 26% as at our last survey in January 2014.

CairnsThe Cairns office market underwent a considerable period of expansion from 2007 through to 2010 when several new office buildings were constructed, resulting in the addition to the market of a number of quality buildings with green star ratings. These buildings are now all fully let and have addressed the under supply situation that previously existed in regard to prime space.

A State Government office tower with 9,500 square metres of leaseable space was the last to be completed in September 2010.Gross effective rents for good quality office space in Cairns have remained stable since the market peak when prime rents reached the high $300’s per square metre per annum, up from around $275 per square metre per annum in early 2007. Since the State Government office tower has been occupied, vacancy levels in secondary backfill space have risen. This has placed downward pressure on secondary rents and seen the emergence of incentives, but

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modern, good quality green star rated office buildings have sustained existing rental levels.

We are not expecting great change in the Cairns office market during 2014. Although the general real estate market has been gradually consolidating over the past 12 months, we perceive the Cairns office market to be at the bottom of the cycle. The commercial markets typically lag the residential by 12 months or more and given that we officially moved our assessment of the Cairns residential market to the start of recovery phase late in 2013, we would expect (in the normal course of events) to do the same for the office market at some stage in late 2014 or early 2015.

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DarwinIn general, the Darwin commercial office market is expected to remain fairly flat over the next few years. The official Property Council of Australia (PCA) vacancy rate is now 12%, with B and C grade office space being particularly difficult to let. However, even better quality accommodation is finding it difficult to attract suitable tenants in the current market.

There are a few factors at play which are exerting downward pressure on the market. There has been a boom in construction in the oil and gas industries in Darwin over recent years and this has held up the industrial property market quite well. However, this has not flowed through so much to the commercial office sector because many larger companies are choosing to operate most of their administrative requirements from interstate. Demand for smaller scale space has been slightly stronger, but most of these are owner occupied by industry consultants (or their related super funds) and this is separate from the general rental market.

The Northern Territory Government is holding back on its requirements for new space and as such a dominant tenant in this market, this has a significant effect on market conditions, especially for larger-scale tenancies.

One of the main reasons for the government’s slow demand is that it has pre-leased a significant component of the new Charles Darwin Centre, a

16,000 square metre office tower which is currently under construction in the Darwin CBD. Once this property is completed, it is expected that a number of Government and private tenancies will gravitate to this new space, leading to an even higher vacancy rate in older stock around town.

Prospective investors who are thinking about buying in the Darwin commercial property market should think very carefully before committing to any building that is vacant or with a short tenancy profile, as tenant retention or recruitment is expected to remain difficult for the next few years. This will be particularly true for B or C grade accommodation throughout the greater Darwin area.

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PerthThe state’s resource sector activity softened in 2013 as a result of a continuation of global uncertainty and vacancy levels in the Perth office and industrial markets rose significantly on the back of this softening. The Perth CBD fringe office market softened in line with the overall Perth metropolitan office market. The latest January 2014 Property Council of Australia (PCA) office market data reflects an increase in the West Perth office vacancy rate from 7.6% in July 2013 to 9.2% in January 2014.

The combined vacancy rate for Australian capital city CBD office markets was 10.4% in January, ranging from Hobart’s 7.3% to Brisbane’s 14.2%.

There was 33,938 square metres of negative demand for office space in the Perth CBD since July 2013. This slump in demand for office space coincided with a period of down sizing by a raft of businesses associated with the mining sector.

Due to the close proximity of suburban office locations such as Subiaco and West Perth to the Perth CBD, these localities have managed to secure significant tenants in the past. Notwithstanding the popularity of these locations, the softer office space demand brought about by the reduction of the state’s resource sector expansion activity has fed through to increasing vacancy levels as well as a perceived concomitant lower level of investor activity in these suburban locations. Softening occupation demand is noted to be resulting in reducing rental levels and increasing lease incentives.

A significant amount of office stock was added to the West Perth market in 2013, with approximately seven significant additional projects currently under construction in this location and surrounding locations such as West Leederville. The stock added to West Perth and the stock currently under construction have reportedly achieved low levels of leasing pre-commitment.

In general, the above statistics are considered to be indicative of a weakening office leasing market in West Perth as well as surrounding near Perth CBD localities. Our further discussions with agents active in the sale and leasing of office accommodation in near city locations suggests that a considerable softening in demand for office space, both in terms of occupation demand and investor demand, has occurred over the past six months. Recent sales market activity has been for better quality properties.

Looking ahead we expect a modest increase in new office supply in the CBD in the remainder of 2014 as market conditions continue to show weakness before a spike in new supply beginning in 2015 as development projects currently in the pipeline are completed.

In addition to the expected new supply of office space in the CBD, the other key factors that will shape Perth’s office markets in the next few years include the change in office demand generated by the resources sector and the possibility of refurbishment or alternative uses for older office buildings.

The non-iron ore sector, including investment in LNG gas projects, is expected to continue to generate positive demand for office space. We also expect Perth to follow the trend in other cities that have seen a number of older office buildings withdrawn from the market for major upgrades or even other uses like apartments.

South West WADespite some office developments having recently been completed or due for completion in Bunbury, there remains a shortage of A grade office space available in most towns in the south west of Western Australia. Office rentals for high quality space continue to increase, with any new space available very quickly snatched up.

However, larger B or C grade office space, which is generally in secondary locations, is looking old and dated. Office facilities including disabled access, air conditioning and parking are below par and therefore much less in demand. Power costs are generally high and maintenance can be a continual issue. Rental values for this secondary space remain low and cap rates have softened.

Small office suites of 100 square metres and below are still being sought after by self managed super funds due to their affordability and there is an increasing demand from single operated small businesses for cheap but neat office space.

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OverviewSometimes you need to know not just where to step, but where the landmines are. When buying residential property, there can even be a herd mentality frenzy in sectors that shouldn’t be touched. This month, our local experts will point you away from the no-go zones.

SydneyThe robust Sydney property market is continuing to show signs of strength overall with limited stock on the market and record low interest rates fuelling demand. While marketing periods are still historically shorter than previous years, it appears the panic surrounding the market a few months ago has eased and volumes are flattening, which is also due in part to the season.

In boom times, properties within secondary locations receive a boost in value due to the limited stock on the market. Secondary locations include close proximity to power lines, industrial areas or busy roads. The increase in value is great news during boom times, but when the market slows, supply increases and demand drops and these properties are more likely to lose out. Buyers need to keep a cool head when buying property in secondary locations, particularly in boom times.

Areas within greater Sydney that could be at risk are semi-rural areas that are flood affected, have limited

transport links (one road access in and out) and are not included within any designated growth corridors so land banking for future urban sprawl options are near nil.

Some sections of Sydney including the fringe CBD locations of Haymarket and Chippendale, former inner city industrial areas such as Zetland and Waterloo and regional centres such as Parramatta CBD are set to boom over the next five years with an abundance of multi-storey unit complexes to hit the market. These new units are achieving premiums as a result of both local and overseas investors pushing demand but also developers taking advantage of buoyant property markets and government incentives for new property. If these government incentives for local and international purchasers were to end or change, then the premiums that new stock can achieve may be affected and demand for new property may slide.

Recent record prices raise the question of the medium term viability of “off the plan” units for investment purposes. Of great concern is whether the building has actually commenced and what market conditions will be once the building is finished in say two or three years’ time.

Historical market evidence would suggest that if the market is flooded with stock over a short period of time then premiums paid on new units can quickly

be washed away. This could potentially leave owners sitting on a property for many years to recover their initial expenditure or selling for a loss. Buyers should seek independent advice before purchasing in a heated market.

Other areas that purchasers should be wary of are new high density developments in areas where this style of product has not been seen before. When a premium is paid for new units in a previously untested market and that market is flooded with new supply, then historically we have seen values stall or even drop.

A word of caution when purchasing in Sydney is that if you are looking at investing in an adjoining suburb to a new hotspot, be thorough in ensuring you are paying the rate for the suburb you are buying in and


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not paying a premium for the perceived benefits of the “within walking distance of…” or worse, paying a premium for a hotspot suburb only to find that the local council has your new purchase as the perceived poor cousin and will not be changing the suburb name to suit a marketing campaign.

With the boom of say Parramatta, many potential purchasers are turning towards adjoining suburbs such as Harris Park and Rosehill, which are not only a short distance from many of the Parramatta services but at a fraction of the price. As Parramatta grows, these adjoining suburbs will appear to be ideal areas for investing, but caution should be heeded as a future sale price will reflect their true suburb name.

Within the inner city, the studio apartment can be a canny investment and suits a wide range of investors and owner-occupiers alike as it is an affordable option. However the concern is that some financial institutions do have minimum floor size restrictions for mortgage funding. Be conscious that while this may not matter to you in your purchase, it could matter when it comes time to sell and the intending

buyer finds it difficult to obtain a loan to proceed with the sale.

All mortgage valuations are completed with the valuer detailing the living area, outdoor area, car accommodation and other area such as a storage cage. The majority of marketing plans and registered strata plans include a combined living and outdoor area which will be detailed as separate areas in a mortgage valuation. The criteria for the various financial lenders varies but concerns can be raised if the living area is separately measured at less then 40 square metres.

With prices increasing all over Sydney, many home owners face the problem of selling their home for a premium but having to pay even more for another property. We have seen a large number of owners refinancing and renovating. While increasing house values have had huge benefits to the home owner, many potential purchasers wanting to get into the market are now priced out and as such either switch to renting until the market slows down or move elsewhere.

CanberraThe Canberra residential property market is currently experiencing a period of steady supply and demand which is transcending into a relatively stable market. The poorest performing properties have been units, particularly those on the northern side of Canberra, with a softening in prices and extended marketing periods. With a number of developments

still underway or yet to begin construction, this trend is expected to continue over the next twelve months. With this in mind, units on the northern side of Canberra are the least attractive options for buyers right now from a capital growth perspective.

There has been a slight reduction in prices for properties in the newer suburbs in the Gungahlin region such as Crace and Forde. The Land Development Agency continues to provide ready release sites to the market comprising a mix of standard residential and medium density lots with most supply centred on the Gungahlin and Molonglo districts.

Owner-occupiers keen to enter the Gungahlin market could look to two bedroom units as the quantity of supply considerably exceeds the demand for this property type, however capital growth is limited. Investors must look to rental return and although prices are becoming more affordable, vacancy rates are increasing and rents softening. Other areas to invest include suburbs in the Belconnen and inner north regions closer to the CBD. These areas continue to record strong long term capital growth. If these options are out of the price range of potential purchasers, then an outer location or smaller accommodation will be the result.

The residential market in Canberra is expected to remain relatively static over the next 12 months given current supply levels, low population growth and generally weaker market sentiment. On the plus side


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though are record low interest rates and a relatively low unemployment rate.

IllawarraThe Illawarra property market has continued its steady progress, recording strong sales activity. Demand outweighs supply in many areas and low interest rates continue to create a competitive market environment. Agents are advising that many properties are selling at or above asking prices. The most difficult process for agents at the moment appears to be obtaining listings for sale.

There are some signs that certain sectors of the market are beginning to soften and slow. Competition in some sectors is declining. Where earlier in the year we might have seen five or six parties fighting it out, this has dropped away to two or three. Buyers are becoming more cautious and aware that the good times might be coming to an end in the near future.

When the market softens it’s often the unique rural residential and top end properties that historically have been impacted first and hardest. It’s also the popular in vogue suburbs where the boom cycle is experienced most. Buyers are currently paying a premium for these suburbs, most notably older renovated homes located close to the beaches and Wollongong CBD. Valuers are also noting that investors are paying top prices for new units in the Wollongong CBD where some are using their

superannuation funds to invest. Modern, new duplex homes in Flinders and Shell Cove are also achieving strong sales as buyers tend to pay a premium for new stock in these areas. These sale prices might not be sustainable in the medium term once the home is no longer in new condition. With larger unit residential developments planned for the Wollongong CBD in the near future and an abundance of supply in the new estates of Flinders, Shell Cove and Brooks Reach Horsley, these sectors could be susceptible once the market softens.

The best performing suburbs in the Illawarra at the moment appear to be the likes of Fairy Meadow, Towradgi and East Corrimal in the north, while the leafy, close to CBD suburb of Mangerton has recorded some impressive sales. These suburbs are located close to beaches and the Wollongong CBD. In the south, it’s the established suburbs of Shellharbour, Windang and Warilla that have achieved significant increases in value.

There are not many poor performing suburbs at the present time, indicating how good the market actually is. However, as is always the case, some suburbs are performing better than others. Sales show it’s the unique rural residential properties and properties that are significantly impacted by their locations (ie: highway, railway etc) or social and economic factors that sometimes result in difficulty to sell in an otherwise strengthening market.

Southern Highlands/Tablelands The residential property market in the Southern Highlands under $1 million is performing well and continues to firm. It would be fair to say that at this stage of the cycle, opportunities are starting to appear after the market hit bottom approximately one year ago. Properties that are in secondary locations or compromised (i.e. adjacent to main roads, near high voltage electricity transmission lines etc) are still usually the poorest performers although these properties tend to still follow market trends overall.

The sector of the market that is underperforming at the moment is the over $1 million market for properties generally located on larger land allotments and away from established infrastructure. This sector of the market has declined over the past


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four to five years and has in our opinion now hit bottom. This sector is currently steady, with buyer caution still evident at this value level but some sentiment shift to a more positive outlook in general. Some properties at the upper end of the market can still be overpriced, however if vendors are serious about achieving a sale, then they tend to meet the market over time.

With respect to areas of the market in which to be cautious, a potential over supply of vacant land may be on the horizon. There are currently several staged residential subdivisions in the Highlands, predominantly Mittagong and Moss Vale. The developers of these estates will need to be sensible about staged land release taking into account historical absorption rates and competition across the greater South East NSW region.

To maximise broad market appeal in the Highlands, owners should build single storey homes as there is an above average proportion of retirees and older buyers in the region. The outlook for the region is positive. We predict the area to achieve a steady period to gentle increases in pricing levels over the next few years.

The Southern Tablelands offers more affordability to potential buyers with lower price entry levels than the Highlands. Goulburn, with a population of around 24,000, has a steady workforce and is a popular country holiday destination. Due to the high real estate prices in Canberra and Sydney, we are seeing Canberra commuters and Sydney investors purchasing properties in Goulburn. The Canberra market has declined over the past twelve months or so and there has been a reduction in activity by Canberra based buyers. The Goulburn market has been resilient to this trend though and value levels have been increasing. This market should see further gentle increases and steady periods over the next few years.

The only under performer in the Tablelands has been the rural residential property market, which softened slightly over the past year or so and is now steady. Small villages throughout the region are also underperforming but are steady.

NewcastleAt present, the state of the market in the Newcastle area is moving towards a peak, with stock levels tightening and prices rising. The Newcastle property sector has been in a state of growth for quite some time and is not showing any signs of slowing down. In contrast, the markets of Maitland, Cessnock and Singleton LGAs are beginning to show sings of slowing, with an oversupply of stock, falling values and high vacancy rates.

Generally speaking, the areas of Maitland, Cessnock and Singleton have been the poorest performers, with market movement slowing down significantly in recent months. This is primarily due to the slowing of recent mining activity resulting in reported job cuts and falling commodity prices. The recent completion of the Hunter Expressway is also a contributing factor to the current situation with many of its employees and contractors residing in the surrounding areas throughout construction.

In specific terms, new housing development areas in Rutherford, Gillieston Heights and Singleton have been largely affected by these economic factors.

These areas also offer the least attractive options for buyers at present, particularly for investors. If you take a high level of stock, mix that in with a shortage of tenants and add a splash of decreased demand, you have the perfect recipe for a high vacancy rate. This is exactly what has occurred in these localities.

Bringing the focus back to the Newcastle area, suburbs such as Lambton, Maryville and Tighes Hill appear to be achieving higher prices compared to surrounding suburbs such as Mayfield, Georgetown and Waratah, which offer similar quality properties with largely similar location attributes (proximity to shopping, hospitals etc) for generally lower prices.

If you’re talking about suburbs in Jesmond, Birmingham Gardens and Shortland which are located in close proximity to the University, housing


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may seem somewhat overpriced at first glance, however given the higher demand for student accommodation close to the University, prices are in fact in line with the market and when you consider the added potential income from student housing, it definitely does not appear overpriced.

Looking back 12 months ago, if you had asked us where supply looks likely to rise, we would have said that the supply of housing in Aberglasslyn, a developing suburb of Maitland, would soon exceed demand. Of course, we would have been correct! However looking into the near future, we anticipate the same effect in Chisholm. The locality is showing early signs of supply rising and demand potentially dropping off.

NSW Mid North CoastWhile most residential properties have been showing increases in value and demand over the past six months, there aren’t many poor performers in the local market, however there are always segments that are not performing as well as others.

On the Mid North Coast, we are seeing the same segments we noted in previous reports, i.e. high end and prestige dwellings and units are still the least attractive to potential purchasers. This $600,000 to $1,000,000 segment is seeing extended selling periods, price reductions and minimal price growth. This is not to say that properties in this segment are over-priced, but rather that there is significant

competition amongst vendors at this price point at present, as well as a more limited supply of potential purchasers, mostly due to affordability.

We also note that there appears to be a glut within the serviced apartment segment at present with significant increases in serviced apartments listed for sale on the Mid North Coast. This has flooded the market with product and we have seen a fall in median values and increased reports of owners falling under mortgage stress. These factors could well result in a general rise in increasing forced sales activity within the serviced apartment sector and may drive prices down further.

The local property sector is still in a state of growth and is not showing any signs of slowing down, however the rate of increases (in both sales and values) appears to be steadying somewhat. We have noted significant growth in residential land developments and estates in and around Port Macquarie at present, with developers selling new land as fast as they can be developed. A large percentage of these vacant land sales appear to be to local and regional builders who are reporting high demand for new homes at present.

We have also noticed a sharp increase in construction of dual occupancy style dwellings. These are generally a 3-bedroom, 2-bathroom dwelling with an attached 2- bedroom, 1-bathroom flat for the owner’s parents or as a separate rental. Builders are stating

that they can’t build enough of these at present, with current high waiting lists for this product.

Bathurst/OrangeWhile Orange and surrounding towns have softened, and Bathurst has maintained pace, albeit with limited capital gains, the overall local market could well be the little engine that could as the property market reflects broader adjustments often associated with the changing nature of employment.

Electrolux in Orange has indicated that it will cease production in the near future. Surrounding the Electrolux factory is a large number of worker’s accommodation dwellings that were constructed in the 1950s and 1960s. This is a working class area which while modest, has remained in reasonable demand and has attracted investors with its affordable prices, good rents, and less social issues than other locations. It is possible that this area will underperform relative to the wider market with the closure of Electrolux as workers seek employment elsewhere.

The local mining industry has transitioned from a construction phase to a production phase which has reduced demand for rental accommodation, especially serviced accommodation. During the times of increased demand, there was a corresponding increase in development of 2- and 3-bedroom units, particularly in Orange. There is potential for an oversupply of this type of property. Although values


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and rents seem to have already returned to levels prior to the increase in demand, there is potential for further losses, particularly for those in less desirable locations.

North Orange also benefited from the mining industry and the premium the market will often pay for new dwellings. Resales indicate a softening from previous increases. Large lot residential properties in the area that were in existence prior to most of the development have not fared well and despite strong resistance, a McDonald’s restaurant is under construction nearby. I will let the reader make up their own mind as to the effect of such a development on the surrounding area.

Kelso, a suburb of Bathurst, continues to develop and vacant land prices remain steady, although this could be contingent upon the speed of land release by the Council and whether the standard of dwellings is maintained. In a small town near Bathurst it seems that remaining blocks in a development were sold for less than they were to previous purchasers due to a lack of sales. The subsequent development wasn’t to previous standards. This can affect the purchasers who had previously bought in to the estate.

In the past, the socioeconomic status of Kelso was seen as inferior to Bathurst which is separated by the Macquarie River and this was reflected in the type of development and sale prices. Recent development has seen properties and prices

comparable to Bathurst and the area is undergoing a transformation. Despite this, older residential properties usually built in the 1970s and 1980s in Kelso have shown rather lacklustre performance and do not seem to have fully benefited from the surrounding development. Statistics relating to Kelso showing double digit growth may not paint the whole picture depending on the type of property and its location within Kelso.

Albury/WodongaLike most regional towns, the residential property market in Albury / Wodonga consists of dwellings, townhouses, units, apartments and blocks of flats.

The largest group by far is the typical family home of 3- to 4-bedrooms positioned on a standard 700 square metre lot. Two-bedroom units make up most of the balance stock.

With an increase in talk about the need to self fund retirement, there has been a growth in demand for blocks of flats as investments.

This month we are considering property types that are under performing. There is no real outstanding property type to avoid at the moment as most are providing their owners a reasonable return for the risk. Those relying on a capital gain performance in the medium term will be a bit disappointed across all market types as the growth in value that the major metro cities are experiencing has not translated here. Values have remained stagnant overall as

unemployment and uneasy business confidence keeps a lid on excessive spending on property despite record low lending rates.

LismoreRural residential homes and land within the Alstonville and Wollongbar area is flat at the moment.

Rural residential land has been impacted by the Land Buyers Subsidy Scheme which provides prospective purchasers a rebate of $25,000 from the Government for buying residential land within Wollongbar.There are also good buying options for improved properties within Alstonville which may suit the new family wanting to get into the market or an investor who could do some DIY work to help presentation and achieve a good return.

The rural residential property market is very price sensitive due to the limited buyer market. Evidence has shown that if the older generation wants to downsize from their once beloved hobby farm they will need to meet the market in order to achieve a quick sale.


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The residential property market overall within the Lismore, Kyogle and Richmond Valley Councils are showing some green shoots of recovery. However, there are some property types and localities which are still experiencing softening conditions for a range of reasons, including local economy challenges (eg. decline in the timber industry), semi-isolated or travel distances, lack of employment security, time and cost of maintaining properties etc.

Possibly the most affected property type throughout the Lismore, Kyogle and Richmond Valley Council areas would be the traditional 100 acre (40 hectare) lifestyle block, which back in its heyday of 50 years or more ago generated a sustainable return to meet the needs of a growing rural based family. Not so now.

With costs rising and time pressures, the 100 acre (40 hectare) block still requires maintenance and care like any other larger grazing property. However, modern living is becoming more time poor and caring for the property tends to be limited to weekends. The condition of the property will suffer with little attention given to weeds, fencing and pasture management. Under subdued market activity, the desire to purchase rural residential property is generally skewing towards smaller, established rural residential parcels of an acre or two.

Semi-isolated rural villages are also feeling the pinch with the unfortunate realisation of limited

job opportunities in such villages and the commute to more established towns or cities being an issue that can weigh on the minds of the prospective purchasers or current property owners.

The pertinent factors of location (distance to services), condition (improvements, land) and cost to maintain have always been factors to carefully consider in purchasing property. However, in light of current macro-economic conditions (such as Federal budgetary measures, job security, rising living costs) such factors have become more apparent in the well informed decision making of the savvy property investor or owner.

On a bright note, there are some areas of the property market showing some promise. Lismore City Council has recently released a media report (10 April 2014) on a draft policy on s64 and s94 fees for secondary dwellings in a bid to encourage affordable housing and improve available rental accommodation within Lismore City. If adopted, this could potentially revitalise medium density development which, in the past, has been hampered by exorbitant development and miscellaneous fees.

From a property investor perspective, the days of simply buying a house and sitting on it to make some kind of quick capital gain are generally over. Look for a property that allows some potential for value adding without great expense, for example, converting unused and large basement areas into

granny flats for additional rental return near a University or CBD (and Council approved - NOT “she’ll be right” accommodation by simply concreting the floor and throwing in a gas cooker, bed and dunny without care for regulations!) Or look for a larger than average block size with an existing house situated towards the front and side of the block that allows the potential to build an additional house (and saves the expense of having to buy another vacant parcel of land to build on and also allows the potential to generate an income from the existing house).

Properties with dual street frontage (kerb and gutter) may offer dual occupancy potential after due consideration is given to the local authority Local Environmental Plans.Coffs HarbourThe residential market within the Coffs Coast locality continues to firm as the second half of 2014 kicks off. Although most sectors within the market are experiencing increased activity, one sector, the tourist unit market, remains flat. This market is aimed at the short term holiday or serviced apartment within resort style complexes. Typically these units are subject to lengthy management agreements and


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generally can not be permanently occupied under local council zoning regulations.

Units within these holiday resort complexes have traditionally been a higher risk market sector particularly vulnerable to the quality of management, fluctuations in domestic tourism, competition and seasonal influences. Unlike other market sectors, they did not rise rapidly in value during the boom and steadily increasing ownership costs have eroded returns to investors. Units within larger complexes are even higher risk due to greater number of properties available to the market.

It is common to see negative growth within these complexes with re-sale prices less than the original purchase price paid several years earlier.

The purchaser looking primarily for returns and personal holiday use rather than quick capital growth may see this type of product as an alternative. The majority of these holiday units (1- and 2-bedrooms) are selling for under $300,000 with some of the older complexes selling 2-bedroom units between $140,000 and $200,000 and 1-bedroom units between $100,000 to $130,000.

Typically these complexes have higher than average body corporate and management fees which erodes the net return, however you can often remove the unit from the management agreement (with written notice) and holiday let via an external agent or self manage. Often this can reduce costs by 20% to

30%. In the case of dual key style apartments, some owners are placing permanent tenants in either side to achieve consistent returns over the financial year rather than the highs and lows of holiday letting. Having permanent tenants also reduces the servicing cost of these units.

We would caution the potential purchaser to undertake their homework on this type of product by seeking several years of financials, investigating the body corporate statements and investigating any future special levies which may be required. Also, source professional advice on any management agreement which may be in place and the ability to remove the unit from this agreement. Finally, do the sums on the net returns of holiday letting versus permanent letting.

Currently there is a good supply of this type of product available and prices are remaining low. Coffs Coast is traditionally a tourist location and as the economy slowly recovers we are seeing tourism increasing which will result in increased occupancy rates and returns. If this trend continues we will see better returns and more activity within this sector which may lead to some capital growth in the medium to long term.


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MelbourneAfter experiencing the cycle boom in the middle of 2012, property markets in Australia’s major cities have been booming. In Melbourne, the property market remained strong in the first half of 2014. A new record median house price of $658,000 was achieved by the end of June and the inner Melbourne median price exceeded the million-dollar level at $1,027,500. Because of low interest rates and strong investment, it is expected that the Melbourne residential market will continue to grow in the future despite at a slower rate. This characteristic of strong market performance can also be identified by a strong auction market this year with an average clearance rate of 74%.

Some middle ring Melbourne suburbs such as Ashwood and Vermont South have seen stronger market performance with the clearance rate hitting 95%. Melbourne’s outer suburbs are still the best performance for long-term capital growth, particularly the north and south-east parts of Melbourne. In comparison, Docklands was the worst performer followed by South Yarra, Carlton, South Bank and East Melbourne, which have shown lower levels of price increase over the past ten years. However, these areas are not the least attractive options for buyers right now as they are all located close to the CBD and have potential underlying land value.

Generally, the least attractive areas suffer from similar problems such as the lack of community services and poor infrastructure support, especially public transport. These areas include Braybrook, Sunshine and Cranbourne. Other areas such as Frankston, Dandenong and Wyndham Vale, far from the CBD, are also less attractive to renters.

In terms of the home size, 3- to 4-bedroom homes were more popular in middle Melbourne with the median price increasing around 5% every three months, while prices for 3-bedroom houses in inner Melbourne grew by 2%. For units or apartments, 3-bedrooms are least attractive with a weekly rental of $370. This figure compares to $390 per week for 2-bedroom units which are more popular with buyers.

The talk of an overpriced market has caused buyers to part with their money cautiously and with the property market booming, buyers are more worried about a property bubble and the possibility of significant price drops in the future. Harry Dent, an American economist and demographer, judged that the Melbourne property market was highly overpriced as the house prices in Melbourne have reached almost ten times income levels. However, this opinion has been criticised by many local analysts and economists. Though it is difficult to determine whether the property market is overpriced, it has sparked fears of oversupply of new apartments in certain areas, such as the City of Melbourne.

Around 3,000 apartments have been built in the Melbourne Council area in 2014 and another 3,000 units are planned to be completed by the end of this year. This trend is expected to last for at least a few years into the future, mainly within Docklands, Southbank, South Yarra, Carlton and the CBD. However, it seems that investors do not pay enough attention to the potential disaster of oversupply as almost 50 developments are currently seeking planning permission from the local council.

Offshore investors contribute to more than 40% of residential developments in the city. At the same time, poor quality apartments with design flaws account for 55% of the city’s tallest apartment buildings according to a Melbourne City Council study. This has generated the current situation of almost 20% of house and unit losses on re-sale in the Melbourne Council area.

Buyers interested in apartments in these areas, are advised to:

1. determine the purpose of buying the property, whether it is for investment or for owner occupancy;

2. if for investment, choose 1-bedroom or 2-bedroom apartments rather than 3-bedroom;


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3. Conduct careful due diligence before making any decision in order to find something unique and most suitable. For example, check section 32 statements and view the owner’s corporation details. This is extremely important when purchasing off-the-plan apartments to ensure that what you will get on settlement is what is described in the initial contract.

Murray RiverinaThe Echuca/Moama residential property market saw an increase in sales activity in the later months of 2013 and early stages of 2014 characterised by short selling periods. There is currently limited supply volumes within the residential market segment with many agents reporting a lack of stock and increasing levels of demand. As a result we are seeing demand outweigh supply resulting in short selling periods and an increase in levels of value, particularly in the price bracket ranging from $200,000 to $350,000.

Murray OutbackBuyer confidence has clearly been higher for residential property in Mildura during the past nine to 12 months and we are seeing evidence of rising sale prices, which has been welcomed by many after a lengthy period of little growth. It is clear, however, that this improved confidence doesn’t extend to some of the smaller towns in the area. Our advice for buyers looking for a combination of attractive yields and capital gain potential would be to look at

buying reasonably modern homes in close proximity to Mildura where we would expect to see continued population growth.

Homes in smaller towns in the surrounding area are unlikely to provide the same growth potential, simply because their populations are likely to remain stable or even possibly decline in the future. It is harder to see the same potential for capital gain in these locations. While occasionally there can be a spike in demand for rental accommodation in small towns, due for example to mining activity or a large construction project, this demand can be short lived.

BallaratJune in Ballarat ... the sky darkens, the wind strengthens and the temperature drops. Traditionally the property market in this period slows down. It is a period where market participants on both sides of the contract ease their activity. This is more true on the supply side as discretionary vendors hold off until the spring selling season and purchasers faced with a lack of quality stock on the market also often hold their fire till the leaves again turn green.

It is time where some bargains can be seen however this is usually due to a motivated vendor rather than a bona fide market correction. Despite the lack of buyers and sellers in the market, properties which are transacting are still doing so at levels comparable to those seen in late autumn. Interestingly, vendors and agents have now eased their expectations on

many unsold properties that first entered the market in the late summer or autumn period and were initially over priced with little demand shown.

The most buoyant section of the market continues to be the sub $300,000 market, while the $450,000 plus become very thinly traded over 60 to 90 days.The Ballarat region as a whole is in a significant expansionary phase. This has been assisted by local government policies which have not been averse to re-zoning land. One of the main drivers of the expansion has been the affordable housing in the area. This has resulted in entire new suburbs being created, most notably Lucas and the Yorkdale Estate.

These new areas fit perfectly with the local government aims of expanding the city and attracting new residents. However property purchasers need to be aware that when they purchase a new dwelling in these areas the asset they have gained has little chance of appreciating in the near to medium term due to the over supply of similar properties in the area.

Additionally as the estate grows there are other material risk factors born by the purchases.


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These include.

• Will the parks and gardens promised by the developer eventuate?

• Who will maintain the park land once the developer has left?

• Will the shopping centre promised by the developer eventuate?

• Will the school promised by the developer eventuate?

• Will the developer sell remaining land to uses not conducive to a residential area?

The situation of a developer of an estate can change dramatically over of a relatively short period of six to 12 months, however an estate can take three to five years to develop to maturity. If in this period the ability or inclination of the developer to deliver the estate it promised in the initial stages diminishes, a purchaser can be left with a dwelling in a sub-standard area which would be viewed unfavourably by the market. In this situation, the property owners would have little or no recourse to recoup their losses.

HorshamThe Horsham residential property market continues to perform well on the back of the local farming economy. The poorer performing markets at the present time appear to be the sale of new build constructions off the plan in new estates or the sale of ex-Housing Commission properties to investors to the north of the railway line. Both of these have displayed limited capital growth in recent times. The risks associated with tenants for lower end housing appear to be keeping the risk premium required for this type of property high to compensate for bad debts or damage, and building costs appear to be pricing some buyers out of the market in comparison to existing modern homes. As a general rule, demand in the Horsham property market appears to be out-stripping supply.


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BrisbaneBrisbane, in general, isn’t the market to avoid this year – on the contrary, everyone is punting on its future growth with data like the recent June quarter figures supporting this call.

We’ve had around 6% to 7% growth in property values in the past 12 months which has certainly been better than in previous years. There’s also been increased interest from interstate investors hunting down the right property for their portfolio. This is a sign of both rising confidence, and a concern when they buy the wrong type of product

Of course, generalisations are too simple for a complex market like Brisbane – different property types, price points and localities operate at different speeds.

As to areas that have recently slowed, our professionals say suburbs such as Clayfield, Hamilton and Ascot – all within 6 kilometres of the CBD, have seen less sales volume, but this is mostly because stock is drying up. Agents have indicated that they are very keen for listings here.

Other spots such as New Farm still seem to be going strong with both a good number of auctions and competitive bidding across the suburb. There’s been a few benchmark sales here in this blue-chip locality of late.

This leads us to the first market where we urge buyers to exercise caution – inner city addresses where new units are planned or under construction. By that we mean lots and lots of new units.

This feels almost counter-intuitive because areas within close proximity of the big smoke have always been solid investments where you can secure long-term, strong capital growth and there’s no lack of tenants looking for space. The problem now is that with growing interest from out-of-town buyers, developers can stack up projects with smaller units that appeal to investors rather than owner-occupiers. Unfortunately this market could see a glut of this style of attached housing with a basic standard of product specifically marketed to those from interstate or overseas. Some locations to keep an eye on include West End and areas throughout South Brisbane, as well as Newstead – once again it’s the type of stock you should be concerned about. Try and stick to quality if you’re looking around these parts.

Even the CBD itself is seeing too many new units under construction. Our advice here is to aim for those with good access to amenities and services, as well as a functional and well configured unit layout, good size living area and a car space.

Detached housing markets to be cautious of include outer lying trade up stock. Fringe suburbs 25 to 30 kilometres out from our centre almost always lag behind in capital gains compared to locales closer

to town. Make sure you stay well clear of property in secondary positions e.g. main road frontage or within proximity of industrial and commercial uses too. Just try and buy closer in if you want to help mitigate risk.

As we said, there is an overall sense of confidence in Brisbane right now – just make sure you buy smart.ToowoombaToowoomba is experiencing a rising residential market after recovery from the trough experienced in the period following the 2011 flood event. Sale prices indicate the possibility of a further upswing. However, not all sectors have been experiencing such improvement. Second-hand units have been enduring a period of lower performance and limited growth due to increased competition from new unit construction. Lower price growth has been reported in this segment compared to new unit product.

In the western suburbs, the development of non traditional product, i.e. small land parcels less than 400 square meters, is untested and it is not known how the market will respond in the short or long term. To date, this product has been taken up by investors through house and land packages.

While there has been an increased level of construction in the western suburbs, buyer activity


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remains dominated by investors. This has resulted in limited local demand and the potential for an oversupply of this type of product in the future. In particular, house and land packages sold to absentee investors by non-local agents are likely to be slightly overheated when likened to the local market. With this in mind, it is recommended that owner-occupiers circumvent investment in estates that are dominated by investor product as the amenity of these estates can deteriorate over time.

Gold CoastThe market is now coming off the bottom of the property cycle and is generally considered to be at the early stages of the rise. However, this improvement seems to be slightly volatile with an apparent and most recent slowdown coinciding with the recent federal budget.

Despite confidence returning and generally improving market conditions, buyers still need to be cautious when it comes to some property market categories being generally typical of market conditions across the entire region. We have identified some of the most likely investor pitfalls.

Notably are some of the new unit developments including low-rise, medium and high-rise developments. A large proportion of new unit product on the Gold Coast is sold to interstate and to a lesser extent, overseas investors at price levels considered to be in excess of local market values. We caution that there is often a premium paid for new

product as opposed to second hand units, however, this premium is likely to result in a depreciated value depending on the condition of improvements and future market conditions and is not always sustainable on resale.

There is currently an oversupply of second hand medium and high rise units on the Gold Coast. Gluts or oversupply can occur in different locations for certain product. For example the release of new unit developments can cause an oversupply of a certain unit category. We have seen an oversupply of one bedroom units causing downward pressure on the values of those units.

Buildings and complexes that have high or excessive body corporate fees are often slow and difficult to market and are generally overlooked by investors. Some units have body corporate fees of more than $350 per week.

Investors need to be aware that the unit market on the Gold Coast can become quite fickle as some complexes fall out of favour and demand due to new and more desirable competition (new complexes) being released.

Serviced units have fallen in value and appear to continue to fall despite the general market improvement.

Quality of property management is an important issue for many complexes. Complexes can become mismanaged and quickly lose appeal and value.

Generally speaking, those properties on the Gold Coast with southern aspects (mainly units and water front properties) are less desirable because of the winter conditions when there is no direct sun and they are exposed to the colder southerly winds. Local informed investors will typically avoid properties with these aspects and in market downturns these properties can fall quicker than those with preferred aspects.

Properties in slightly isolated geographic locations can also fall sharply in demand and value during periods of market downturn as reflected during the GFC downturn. Supply appears to be rising in some more favoured central areas that are being redeveloped such as Robina, Bundall, Benowa, Labrador, Palm Beach and Hope Island, where new sites have been acquired by developers to build townhouses and medium rises. Demand may drop off in the secondary suburbs such as those west of the highway and to the northern Brisbane corridor. This may be due to location and oversupply of stock.

Tweed RegionIt appears that we have turned the corner in the Tweed property market with more buyers now in


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the market place and sellers generally more realistic about what their properties are worth. In general prices have improved slightly from the end of 2013.

In the Tweed area at present, the poorest performing sector of the market is the serviced apartment sector. Serviced apartments are generally found in Tweed Heads and in the southern Tweed Coast communities. These properties have taken a hiding with regard to value levels with units now selling at prices well below initial sale prices in 2003.

A 1-bedroom, 1-bathroom serviced apartment in Salt can be purchased for around $150,000 today. Generally these properties show a very poor return to the owner (high body corporate fees and poor occupancy rates) and the fact that these properties cannot be lived in has also significantly affected value levels.

We believe the serviced apartment market in the Tweed will continue to be soft in the short to medium term unless:

1. occupancy rates improve, 2. body corporate fees are lowered,3. occupancy restrictions are somehow changed.

Despite the warning bells, we note that some of the sub property categories on both the Gold Coast and Tweed Coast that were the hardest hit during the GFC are now offering good potential for capital growth. As the market improves, buyers will again compete for properties and those negative attributes can tend to be overlooked.

Sunshine CoastTo say that this is one of the more challenging topics to discuss is an understatement. Properties can be a good buy and conversely properties can be a bad buy. The old saying “everything has a price” rings true. When trying to work out what not to buy, you have to look at all the factors that go into the decision and these most of the time are personal. This creates a higher level of volatility with unique properties where buyer depth is not high. We have looked at some of the key drivers and tried to apply them to some examples.

The main driver in the decision making process after taking emotion out of the equation is the price of the property and the possible returns available. All properties have a value range, it’s just the risk profile that increases or diminishes where you purchase on the spectrum. So at the lower end of the range a property could be a good buy and at the upper end of the range may be a poor buy. Also when you cross reference this with the potential returns involved,

whether that is via rental returns or capital growth, the decision can be less clouded.

The next drivers are property specific. These are represented by locational aspects (close to beaches or on a main road, whether any views are available, size and quality of the land). Clearly, these have a significant bearing.

The final driver is the motivation for the purchase and if it is for owner occupation or investment. Clearly rental returns play a big part as well as other investment benefits such as tax depreciation. On the other hand owner-occupiers can place more of an emphasis on location.

So when tying the above together you can look at a couple of examples. Take a property with locational issues, i.e. located on a main road or close to an industrial area. If purchased as an investment for say $320,000 with a weekly rent of say $360, rent would represent a gross yield of 6 %. A good result for any investor that also lessens the impact of the locational issues. Now, if the purchase price was $360,000 with the same rent, then the yield would be 5.2% and therefore less enticing.

If you go to the other end of the spectrum, say a good quality home in a well located area close to the beach and if you are in an upward moving market as we are at present, you may have to pay a


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premium. In a case like this, if the purchase is as an owner-occupier and there is an intention to own the property for a minimum of five years, then you will be more comfortable paying a premium. The comfort level changes considerably if you are an investor.

In short, there is no easy answer to the question of what not to buy. Any decision should take into account the emotional connection to the property, the unique characteristics and an individual’s personal financial situation. You need sound financial advice and a good valuer.

RockhamptonGracemere is considered an area of caution along with house and land packages across various estates throughout the region. Existing homes usually meet the market with solid demand and an expectation of increased buyer knowledge helps drive up confidence levels. An oversupply of new homes combined with the downturn in the mining industry has seen Gracemere values soften significantly.

Buyers with a little cash up their sleeves and looking to get into the market place might want to consider the unit option. A relatively new concept to Rockhampton, the last five to eight years has seen an expansive development precinct occur along the Fitzroy River. Now more than ever, good quality units are available for purchase off the plan or nearing construction. Sure to be a superior precinct, there will be limited opportunities once the final few riverfront sites are fully developed.

Rockhampton generally sees the majority of sales activity in the lower, more affordable price range (under $350,000) predominantly first home owners and investors. As you go up the price scale, sale volumes reduce and purchasers are more likely to be owner-occupiers upgrading from their existing homes. Solid performing areas remain mostly unchanged with the usual suspects including parts of Frenchville, West Rockhampton, Wandal and Park Avenue.

The prestige market price point in the region is considered to kick in at about $600,000. This includes renovated or spacious Queenslander style dwellings or modern two storey homes in the south Rockhampton suburb of The Range. North of the Fitzroy River, sales over this price point usually include modern large brick or rendered block onground or two storey dwellings, generally higher up on the Berserker ranges in the superior areas of Frenchville and Norman Gardens.

We consider the super prestige market price point for the region to be above $800,000. This top end of the market is very thinly traded in the city of Rockhampton and we expect this trend to continue into the foreseeable future.

On the Capricorn Coast, the prestige residential market is considered to have a similar price point. However since the GFC, this top end of the market has shown significant signs of slowing and reduced sale prices. We consider that potential purchasers

looking to spend over $850,000 in a coastal town or city are comparing available properties on the Gold Coast and Sunshine Coast with those available in this region.

GladstoneAll residential property types have been heavily impacted since late 2011 to early 2012 by the large supply of new product entering the market, the construction of workers’ camps and by weakening demand as workforce numbers in major projects transition from their large construction workforces to the significantly smaller operational workforces. The different property types have been affected by varying degrees with the most substantial effect seen in development sites and units due to oversupply.


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Given values have returned to 2007 levels or prior, there has been some recent rumours that the market may have stabilised or reached the bottom. We are however yet to see any hard evidence of the market stabilising with the most recent sales occurring generally still showing sharp reductions in value.

We anticipate with the current oversupply, limited demand and declining workforce sizes, value levels are likely to be continually placed under downward pressure over the next 12 months and are certainly not expected to improve. With very limited recent sales activity of modern units and townhouses, we believe we have not seen the worst of this market yet.

MackayThe unit market in Mackay is seen as a potential risk market over the short term. Rental vacancy rates have blown out in the past 18 months from around 1% to in excess of 7% across Mackay. Motel and serviced apartment vacancies have also shown an increase in the corresponding period.

There are currently four existing high rise towers within the Mackay CBD.

• The Rivage contains 59 1-, 2- and 3-bedroom units; • Lanai comprises 80 1-, 2- and 3-bedroom units ; • The Crown contains 43 2- and 3-bedroom units and • Fusion comprises 28 2-, 3- and 4-bedroom units.

In addition the Mackay Harbour precinct has another eight completed high rise residential towers.

There are another five high rise towers currently under construction which include Rivermarque, Riviera Mackay, Carlyle Apartments, Pacific Sands and Gateway Apartments. Rivermarque is nearing completion and is located on southern side of River Street on the fringe of the Mackay CBD.

• Rivermarque is an eight-level residential unit tower and will consist of 91 units being a mixture of studio, 1-bedroom, standard 2-bedroom and 2-bedroom dual key units. The complex will be managed by Oaks Property Group.

• Riviera Mackay has just started construction and is located on the northern side of River Street. It will consist of 64 1- and 2-bedroom units.

• Carlyle Apartments is under construction and will provide a mixture of 59 1- and 2-bedroom units plus 2- and 3-bedroom dual key units. It is located on the south eastern fringe of CBD.

• Pacific Sands will comprise 56 1- and 2-bedroom units plus 2- and 3-bedroom dual key units. These units are removed from the CBD and located in close proximity to Town Beach.

• Gateway Apartments is nearing completion and will

provide 56 1- and 2- bedroom apartments. These are located in the older residential suburb of West Mackay, removed from the CBD.

There are also currently a large number of newly developed or to be completed duplex and triplex complexes scattered throughout the Mackay City area.

Once all of the above units are completed, it is considered that there will be a potential oversupply of units which will put greater downward pressure on values.

Hervey BayThe property cycle within the Fraser Coast is varied across different areas, with some areas achieving gradual growth, while other areas are stagnant or slightly receding. The property market in Maryborough appears to be in slight decline, with mortgagee in possession properties continuing to dribble through and properties priced above $300,000 experiencing extended selling periods. These sluggish conditions are considered to be due to cautiousness with uncertain employment in the area. Agents have reported static demand overall, which fluctuates from month to month.

Property which has been perceived as overpriced has typically remained on the market for long periods of time, particularly with esplanade and park residential stock listed above $500,000. Over the past few


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years, the Fraser Coast has been moving through a period of market correction whereby the oversupply of units has been slowly dwindling and there now appears to be good steady demand for house and land packages with several new estates and pockets being developed.

TownsvilleThe Townsville market has been well and truly spooked over the past quarter with the general market flat-lining and not performing as favourably as some might have wished. Some sections of the residential market are performing well with a much better matching of expectations of buyers and sellers, but others are less active and are simply plodding along.

Rental vacancy rates in the Townville market have been steadily increasing as a result of weak demand in conjunction with a large expansion of new rental supply taking advantage of the National Rental Affordability Scheme (NRAS). In doing so the market has swung from tight to over-supplied in the space of just twelve months. The increase in rental vacancies has been most noticeable for units, with the latest measured vacancy rates standing (before trending) at 4.4% for houses, 7.5% for units and 5.5% overall.

The higher vacancy rates now prevailing have removed all vestiges of upward pressure on housing rents, with median house rents dropping by $5 a week, from $365 to $360 per week, between

March 2013 and March 2014. Median unit rents have dropped by $15 a week, from $315 to $300 per week, over the same period. At the same time we are also seeing increased use of incentives, such as competitions or rent-free periods, to make properties more appealing to tenants.

Vacancy rates in the unit rental market in particular have moved into oversupply. We continue to be concerned about the amount of forthcoming unit stock of which a large proportion will end up in an already over-supplied unit rental market and potentially impact on investors’ ROI equations.

We have also seen a shift in the size and amenity of new product being offered, which is being driven by the active investor market with developers or builders motivated to reduce the size and scope of products to meet a price point and market participants. There remains concern as to the performance of this new product when treated as second-hand stock at a more shallow localised level.

The recovery in Townsville’s residential property markets is proceeding but only very slowly. There have been some price pulses for example in the inner beachside suburbs and near city areas, but the mortgage belt remains very much a buyer’s market where price movement has been minimal. Mortgagee-in-possession stock continues to blight the market.

CairnsCairns continues to consolidate at the start of recovery phase, but market progress to date has not been uniform across all sectors and suburbs. Some sectors and suburbs are leading the recovery process while others are less advanced. Nevertheless with due attention to the purchasing process all appear to be offering reasonable prospects and opportunities.

Tourist apartments have been slow performers in the Cairns market in recent years due to their inherently low income returns and the evaporation of capital growth in this sector over that period. The slow state of the tourist apartment market is also reflective of a drying up of investment funds available and the difficulty of obtaining finance for units that do not suit permanent occupancy. It is by no means indicative of buyers fundamentally reassessing tourism and its longer term prospects in Cairns.

Though residential apartments offer fundamentally sound prospects and opportunities, we would still advise caution due to the need for prudent buying and attention to detail in this sector. Particular attention needs to be paid to the on-going costs of ownership, whether for rental or owner occupation. These include current and potential building insurance contributions, body corporate charges, building maintenance policies and the extent of sinking funds established.


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AdelaideAdelaide’s residential property market is now two years on from when it hit the bottom of the cycle back in mid 2012. In that time there has been a slow but steady improvement in the market with the number of sales transactions increasing, excess stock being absorbed, days on the market decreasing and vendor discounting reducing. Capital value has also improved during that time with Adelaide’s median price now in the low $400,000’s which is slightly higher than at the peak of the market which occurred back in 2010, just before the market experienced its two year downturn.

Over the past 12 months, the median price has improved by around 3% and it is predicted that capital growth of somewhere between 2% and 4% per annum is set to continue in the short term.Generally the market is still tipped in favour of the buyer, however as market conditions have improved and there has been a reduction in quality stock being placed on the market, sellers are now more frequently achieving sale prices above what would have previously been expected. Certainly the recent bottoming out of the market saw a re-education

of vendors in which it became and now remains essential to price a property to market in order to achieve a timely sale. Overpriced properties or those perceived not to be value for money tend to sit on the market for extended periods and often the vendor is forced to reduce their asking price in order to get the sale. With Adelaide being such a small market it is not uncommon for a property that is initially overpriced to turn potential buyers off, then as the property remains on the market buyers start to begin to wonder if something is wrong with it. Finally either the vendors may have to discount the property fairly heavily in order to achieve the sale, or potential purchasers have noticed that it has sat on the market for a while and put in low offers in the hope of getting a bargain. If the property was priced correctly to market in the first place it is quite possible that it would have sold in a timely manner and at a price above what it would have if it was overpriced to begin with.

Traditionally the residential property market in Adelaide has performed solidly in the long term and even with the recent turn of events it is mostly properties that have been held for under five years that are potentially sold for less than they were purchased for.

Within the metropolitan area of Adelaide there are currently no apparent overpriced locations.

Currently one of the areas of concern is the outer northern suburbs which are beginning to suffer from an oversupply. House and land packages marketed in these areas are also often above market levels, in some cases by up to $50,000. Interstate investor groups have also taken an interest in the rental yields for these areas and are directing investment in house and land packages, often sight unseen. More land is becoming available which may further impact supply of both houses and rental properties. Within this area at times it is possible to purchase an already built dwelling of the same design below the cost of the same dwelling as a house and land package. This has traditionally been a mortgage belt area and there are genuine concerns surrounding the future of the local economy due to the Holden manufacturing plant closure in 2017 and generally rising unemployment levels. It is difficult to speculate what the flow on effect on property values and vacancy rates may be during this time however it is certain that there are some difficult times ahead.

Inner city apartments purpose built for student accommodation continue to be an area of concern especially those with management agreements that place highly specific conditions on leasing or living arrangements. These have traditionally been sold with a guaranteed return at higher prices than a similar apartment with vacant possession. The number of international students coming to Adelaide


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has declined in recent years although this appears to have stabilised now. As this area is dominated by investors, a marked increase in vacancy rates may be significant to this market.

Lastly suburban multi-level apartments have in the past sometimes proved to be problematic. Those properties sold off the plan usually at a premium can often find it difficult to realise the initial selling price, even after extended selling periods, especially if market conditions change for the worse or factors beyond the control of the purchaser impact on the construction of the building.

As with all financial matters it is always worth seeking professional advice to get up to the minute information on both the pitfalls and potential rewards of buying any specific property.

Mount GambierIn recent years the property market in Mount Gambier and the southern region of South Australia has been in decline. Demand for property weakened, the number of sales occurring declined and as a result values also softened. Today, confidence has somewhat returned to the region and with the continued low interest rates and some government incentives, demand for property in the region has improved. The number of sales occurring increased during the beginning of the year, however the last quarter has dropped off and returned to previous lower sales numbers compared to recent years,

however there has been little movement with regard to values.

While market conditions have not been ideal in the region in recent years, some developments have performed more poorly than others. The reasons why individual developments or property types perform poorly can be due to a number of reasons, including location, pricing, style of improvements, supply and demand factors or just simply bad timing.

There have been a number of developments in the south-east of South Australia that have struggled because of their locations. Historically locals have been deterred from investing in new dwellings situated close to Housing Trust areas or isolated areas with limited services or close to industrial areas. Mount Gambier has a large amount of vacant residential land and most of these divisions are not adversely affected by poor localities.

Property types which have proved to be some of the poorer performers over recent years are units and townhouses priced over $200,000. Two storey townhouses are struggling to perform as for similar prices, purchasers have the option of buying a larger house on a larger freehold allotment. Modern new dwellings priced over $400,000 have also underperformed as there is a limited market segment interested in this price point. Dwellings that have sold have often sold below replacement cost.

Supply looks set to rise in the future in some of the new modern subdivisions with many interstate investors currently purchasing house and land packages on fixed rental returns. If and when these investors choose to sell, there is the chance that there will be a large supply of dwellings on the market within the one division which would see property values sell below replacement cost.

Demand may drop off in the future for circa 2000 dwellings within the modern residential developments. As there is a large supply of land on the market, it offers people the option of building a new home rather then purchasing a second hand home for similar prices.

Currently the market is soft for new to recently constructed dwellings within modern residential divisions. As people are choosing to build for similar prices it is likely this will continue in the future.

If people are still keen to enter these markets it is recommended they stick to well sought after locations which have been shown to keep relatively stable values and also to diversify their portfolios.


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Tasmania’s challenging economic climate has provided some appealing investment opportunities due to a market coming off historic lows, a good range and variety of stock, historically low interest rates and a relatively strong rental market. For the property investor these elements are the ingredients for a recipe yielding good gross returns particularly when compared against deposit rates with the added potential of capital growth.

Southern suburbs such as Bridgewater, Gagebrook and Rosny and northern suburbs including Rocherlea, Ravenswood and George Town have limited investor appeal. Homes in these suburbs can be purchased for less than one hundred thousand dollars. Whilst some investors may achieve good gross returns in these suburbs they should consider if good gross returns are offset by capital growth potential in these less sought after suburbs.

Building approvals have increased significantly over the last twelve months, just over forty percent, likely in response to the First Home Builders Boost (FHBB). Increased activity in Tasmania’s flagging construction industry was the aim of this Government funded grant. As first home buyers have been mainly focused on newly constructed homes activity for established homes in similar price brackets may have dampened. Therefore, the established property market in these price brackets may be a space to watch when the scheme ends in December 2014.

Market forces in this first home buyer market have been in play, potentially creating traps for young players as some builders and land developers have capitalised on the purchaser’s thirty thousand dollar incentive to buy newly constructed homes. That is, a newly constructed three bedroom dwelling is achieving a higher sale price than a similar three bedroom dwelling two to three years old. Suburbs that have experienced higher volumes of land sales in the Greater Hobart region include Old Beach, Howrah, Tranmere and Oakdowns and in the north Prospect Vale, Newnham, Perth and Longford. Ultimately some vacant land markets may see a decline in pricing relative to more established areas that have not been subject to these market forces.

The North West is an area to watch as some re-sales from 2013-2014 have shown a market that is still declining in capital growth. This resultant decline is likely due to shrinking employment opportunities in the region. Downturn in employment has also been felt within the child-care industry where in some instances in the North West there have been falls in demand for this service type by more than fifty percent.

Queenstown, located on Tasmania’s West Coast experienced the closure of its Mt Lyell mine at the beginning of July and is a region to watch. It was reported at the end of July that two large Queenstown businesses were under administration.

Zeehan, also located on Tasmania’s West Coast experienced a property boom bust cycle from 2006, when its mine opened, to when its mine was closed. At the commencement of this cycle a three bedroom home typical of this area sold for approximately sixty five to seventy thousand dollars. At the peak of the cycle the same dwelling type was selling for one hundred and eighty thousand to two hundred and thirty thousand dollars. Currently these typical dwellings are selling in Zeehan for approximately fifty thousand dollars. For this reason, Queenstown will be a space to watch and be mindful of the possibility it will follow Zeehan’s example.


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PerthAs Australians, we all feel it a sense of duty to remind everyone else that we live in the lucky country. And why shouldn’t we? We have some of the best beaches, beautiful forests, amazing natural resources, wonderful climate (sometimes a bit harsh), a great multicultural infused palate and a quest for a good time.

The downside to living in the lucky country is that we often get carried away in believing that nothing will go wrong. That we are so far away from the trials and damnation that is the Middle East, the Eastern Bloc and Africa, we often believe we are immune to the horrors that the world brings upon itself. In other words, if you live here, “she’ll be right mate”. We have recently been reminded by the downing of Malaysian Airlines Flight MF-17 and the loss of 298 citizens of the world, 29 of them Australian, that we are not immune to what goes on in the rest of the world.

All of us are saddened and disgusted at what has happened. The one lesson to learn is that we are never far from death. It is a sad but true fact. We are also never far from evil. The separatists and terrorists who shot down and ended the lives of innocent people have the condemnation of the entire world upon their shallow shoulders. Their immediate

reaction was to shift the blame to someone else, a typical action of cowards and people of utmost stupidity. The author Walter Pitkin in his 1932 book “A Short Introduction to the History of Stupidity” wrote that

“Stupidity can easily be proved to be the supreme Social Evil. Three factors combine to establish it as such. First and foremost, the number of stupid people is legion. Secondly, most of the power in business, finance, diplomacy and politics is in the hands of more or less stupid individuals. Finally, high abilities are often linked with serious stupidity”.

The stupid act of these people should serve to remind us that life is precious above all else. The love of a child is more valuable than money, or territory, or power. Nothing else really matters.

It is probably somewhat harsh of me to compare these people to those who have ruined the financial lives of millions. Those financial wizards or property gurus who helped to conjure a formula which led to the GFC have been basically allowed to start up again in recent times. Greed has led to much of the malaise in the world and is why there is so much conflict and hatred. If X has something, Y is jealous and wants the same, or something better, more expensive than X has. Or in the more extreme example, wants something bad to happen to X.

And I hate to say it but even Australians are guilty of being caught up in the hype that is the smoke and mirrors of what I term temporary wealth.

Australians have allowed the temporary wealth brought about by the mining boom in the state of Western Australia to erode the competitiveness of industries other than mining. So, if you aren’t in mining, then you look to any other get rich quick scheme available and unfortunately, time and time again, property is the first port of call for people who have a certain skill.

Thus, Australians looking to invest their new found wealth have pushed up real estate prices across the board and helped to fuel development of otherwise marginal and sometimes questionable project types.

So, a rather long winded introduction to this month’s topic “What not to buy”. That is easy to answer. My five rules for “what not to buy”:

1. Don’t buy anything that you wouldn’t want to live in yourself if you were forced to.

2. Don’t buy anything that doesn’t fit in the neighbourhood within which it is situated. – e.g.. a 1-bedroom unit in the middle of a residential suburb, which is more than 800 metres away from public transport and in an area with no amenity.

3. Don’t buy anything in another state unless you plan to live there or have done some serious research.

4. Don’t buy for a quick buck or quick turnaround. In other words, don’t be fooled by off-the plan developments thinking that the market will rise


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during construction and you will sell it for more than you paid for it. You will often find that you won’t.

5. Don’t buy to impress. If you have wealth, then good for you. Just don’t go around bragging about it by buying or building the biggest and most ostentatious house or apartment you can find. Be subtle. Classical and non-intrusive architecture is far more grand than a mismatch of modern interpretive design styles.

Conversely, don’t go and park some of your hard earned money in an investment property just so you can tell people you have a portfolio. Remember, property prices also fall. Cash rarely does. It might not be as sexy, but it helps pay the bills when times get tough.

South West WAIn every property market there will be some segments and localities that perform strongly and others that will perform poorly. This month’s topic will focus on a market segment that investors should avoid if looking to seek short to medium term capital growth in the south west of Western Australia.

The South West property market is a market that is underpinned predominantly by tourism. Consequently, the locality consists of many short stay properties that target the droves of tourists that visit the region. A short stay property is a property

that can only be used on a temporary or holiday basis and may not be used for permanent residential accommodation. It is these short stay properties that have struggled to perform over the past ten or so years. There are many examples of these short stay properties actually reducing in value over this period. As such, it is the type of property an investor should avoid if seeking short to medium term capital growth.

This market historically has been very volatile. When times are good people look to the South West as a great place to holiday and spend their excess dollars. The short stay properties do a good trade achieving a high income that produces a strong yield and, as such, appeal to the investor looking to secure a good cash flow. However, when times are bad (Global Financial Crisis), it is this market segment that suffers greatly. The tourists stop coming as they look to save their hard earned dollars thus reducing the income derived by the short stay property, and the market gets flooded with short stay properties for sale as investors look to liquidate their assets and reduce debt. Therefore, with an oversupply of short stay properties on the market, coupled with a lack of prospective purchasers due to market conditions and low yields, the short stay market can become very weak and stagnant.

An additional threat that faces the short stay market is the high Australian dollar. This results in many Australians looking to holiday overseas rather than

the WA South West region. Further, strata costs continue to rise as inflation drives wages and costs upwards. Both these factors affect the yield of the property and therefore the value of this market.

Finally, if someone was looking to purchase a short stay property, they should be aware that values are not necessarily based on the location or the quality of the improvements, which is normally the case with property, but instead the yield of the property and the management agreements in place. Some exceptional properties are only worth a fraction of the replacement cost because of the very restrictive management agreements in place, while other inferior properties can command higher values as they are managed by very loose management agreements that grant the owner many rights thus increasing the potential for a higher yield, lower strata costs and more personal use.


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So, to sum up, it is the short stay property market that should be treated with caution by the prospective purchaser looking to invest in the South West of Western Australia.

EsperanceI must say there isn’t anywhere within the broader Esperance townsite that I would suggest be given a wide berth. Consistency has been a hallmark of this area with property over all price ranges and localities within the townsite showing regular sales volumes and stable values for a market of this size.

There really is something here for everyone from modest and very affordable housing right through to million dollar plus properties with modern housing and extensive ocean views. Likewise, there is versatility for the residential investor with higher returns for lower priced property compared with lower returns in higher value areas. This is tempered by the higher risk of the older properties for possible extra maintenance requirements and potentially rougher tenants.

Looking through this region there is a mix of the good and the bad. Firstly, the small satellite towns around the Shire, typically between 50 and 100 kilometres

from Esperance have a limited market, slow to negligible sales volumes and are mainly purchased by local farmers seeking workers’ accommodation. The towns have very limited services and prospects for capital growth are slim.

About 200 kilometres to the west of Esperance, Hopetoun and Ravensthorpe have endured some tough times over the past five years. A lot of publicity has been given to BHP’s decision to end mining operations in 2009 after really hardly getting started. In the two years leading up to this, an extensive amount of subdivision had been either planned, approved or commenced and values had sky rocketed on the back of the promises to the region the mine would bring. Needless to say, the abrupt departure of BHP left many in the lurch with new subdivisions that could not get sold and new purchasers having paid big sums to get into the market left with property they couldn’t on sell.

At present, there is a considerably larger number of properties over varying types and value ranges available for sale in these two towns. Indications at present are that values are stabilising and we would hope they at least remain consistent and, with a modest improvement in sales volume, could even start to improve. We would caution that purchasing in these areas would likely not result in capital growth and if replaced on the market, an extensive timeframe to sell could well be required. What is forgotten however is that these towns existed well

before BHP and will continue to do so after. It just needs that confidence to return again to the market.

Another story again is Norseman, 200 kilometres north of Esperance and a similar distance south of Kalgoorlie-Boulder. The main employer in town, the Norseman Gold Mine, is set to close following a long period of administration and upheaval and values over the past two to three years in particular have taken a hammering due to the uncertainty of the future of the mine. Through all this, there have been sales occurring, mainly at the low end of the market, and there is constant speculation of new mining ventures starting in the area. However, until such time as something definitive occurs, this town is the one least recommended in which to purchase in this region.


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OverviewWelcome to the new financial year and another edition of the rural round up.

This month we have updates on the water market in southern Australia and it’s interesting to see the move in water values and the markets view of the cost of temporary water relative to potential returns on offer. The current seasonal conditions with arguably the best Autumn and Winter start in the south for 25 years and continued drought conditions in north west New South Wales and Queensland, highlight one of the known yet uncontrollable risks in agriculture and why understanding the value of water is so important.

While the dry conditions in the north dominate the news, there is an emerging sense out of the Northern Territory and gulf regions in Queensland that the property market for larger scale developed properties continue to be of interest. This is evident

and the number of sales particularly in the Northern Territory in the past nine months which has almost exhausted the corporate style property type.

Talk of the smallest herd numbers in cattle in decades, increased demand from processors and live export, suggest there should be some positive cattle prices when the rains do arrive, hopefully this wet season. From a property value perspective the market will be looking for any price increases to be sustainable to fully underpin upward value movements.

There is still reasonable activity in the rural market from a sales perspective and some of the recent sales have been reflected in this months update which in the main are good sales supporting current value levels in the regions impacted.

The rural team are pleased to welcome Brett Stevens to the Echuca office and Stewart Barlow to the Darling Downs office. Both come to Herron Todd White with over ten years valuation experience and provide more capacity for our business and clients to further provide coverage in their respective regions. A more detailed biography of each will be in next months update. Since March this year the rural business has increased capacity with Simon Altschwager in Melbourne, Carlo Vadori in Mildura, Craig Johnstone in Bathurst, along with Brett and Stuart. If you are needing a valuer in these regions please check out our website for details.

As a business we remain committed to finding good people and increasing our capacity where appropriate, to ensure that we can deliver a quality service for our clients.

Enjoy our rural wrap from the team and as always we welcome any comments or questions our readers may have.

ContactTim Lane – Director, Rural (07) 3319 4402

NSW North CoastThe sugar harvest has commenced at Condong sugar mill. The late season growth has promoted extra tonnes but has negatively impacted Commercial Cane Sugar (CCS – sugar content) levels. Sugar content have been very disappointing being generally below 10 CCS and many one year old crops below 8 CCS. This has a significant impact on the sugar price. Many Condong growers will be planning more two year old crops as part of their program in future years. Sales activity in the sugar industry has been mainly in the Condong sugar mill area. One landholder has been the dominant buyer of land.

There have been continued sales activity in the macadamia nut sector. A number of properties have sold recently off the back of a reasonable 2014 harvest and solid commodity prices. Chinese buying has assisted the uplift in the commodity price in some cases to over $4 per kilogram nut in shell at kernel recoveries over 36%. A recent sale at Dunoon indicates over $30,000 per hectare land value


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plus the value of trees. This indicates an increase in macadamia planted land values. Many of these macadamia farms are selling on a walk in walk out basis inclusive of plant and equipment and crop in some cases.

Leeton/GriffithThere is subdued interest and even less activity across all rural sectors in the region. The current winter season has been cold and wet to date and crops area progressing. Initial water allocations for the coming irrigation season are still low but it is still mid winter and there is still some time before summer crop planting will occur.

There continues th be a number of dryland and horticultural properties listed for sale by mortgagee and overall there have been few transactions to report. Agents report little interest across the horticultural sector. There is some iInterest in broadacre dryland and irrigated properties but as lending criteria remains tight sales are slow to occur.

Country New South WalesRecent good rainfall in central west New South Wales has seen an increase in general optimism as it occurred in the planting window for winter cereals

in the central west areas of New South Wales. Areas further north, such as Walgett and Coonamble, have received little rainfall and, as mentioned previously, we expect significantly reduced areas of cereal cropping in these areas. Recently we visited a property near Carinda which had large areas of open chocolate loam cultivation country, typical of Walgett/Coonamble area, which had recently received 100 millimetres of rainfall. Discussions with the manager of the property indicated that there would still be limited areas sown due to the distinct lack of sub-soil moisture across his cultivation areas. While sowing could be undertaken and crops emerge, they would be relying upon in-crop rainfall only for its moisture requirements and this manager had decided that this was a risk that was not worth taking. This epitomises the change in management across these broad-scale cultivation areas, particularly in this diectrict. Due to the large cost of planting, fertilising and spraying these cereal crops, we are seeing a trend towards a more conservative approach to general planting activities.

Water markets continue to be soft, with the Macquarie River General Security values still at the $1,150 per megalitre and Lachlan Valley at $380 to $400 per megalitre. There is currently zero allocation for irrigators in the Macquarie Valley and the Lachlan Valley, with only carry over water available for those who did not utilise all their entitlements last year. As such, it points to a fairly

sombre start to the cotton planting season; however in general Burrendong Dam fills in the winter months so the next eight to ten weeks will be critical in the overall irrigation allocation for the season.

Central West/Central Tablelands NSWIn conversations with real estate agents the consensus is we are seeing a slight turnaround and some small improvement in the rural property market.

A pick-up in sales of lifestyle properties appears to be occurring, albeit following extended listed periods and marketing campaigns. The stock of such properties is relatively large so it is encouraging to see movement in this market. In most cases a quality dwelling appears to be a prerequisite needed to attract buyers and naturally, we are seeing strongest demand in peri-urban areas for properties that are a commutable distance to regional centres.

An example of such a sale is that of ‘Thirlmere’ Mullion Creek, a 100 hectare lifestyle property located 20 kilometres north of Orange, sold in early July for $910,000. The location puts it within 20 minutes drive of Orange. A modern 3- bedroom brick veneer dwelling with several adjacent sheds provides ample domestic utility, and the undulating open to lightly timbered country, 50% pasture improved, is able to carry 80 steers and provides good lifestyle farming utility.


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Commercially sized rural properties with a sound productive base are proving able to attract interest in this discerning market. Properties with reasonable proximity to services have added appeal.

We note that ‘Willora’ Grenfell Road, Cowra sold through Elders Real Estate in early July. This 406 hectare property couples the amenity of being situated 10 kilometres from Cowra with a strong productive base. ‘Willora’ is 93% pasture improved, subdivided into approximately 20 paddocks each of approximately 20 hectares in size, with reticulated bore water to each paddock. It also has ample working improvements to handle the 4,900 DSE (12 DSE per hectare) of stock usually carried.

There is some optimism that if we now experience a good spring, and given we are not facing the drought conditions and the extended election disruption of last this time last year, there will be continued improvement in the rural market.

Southern NSW Northern VictoriaPermanent water entitlement values across the Southern Connected Basin have continued to firm over the past several months with brokers reporting strong demand from irrigators and investors. There are currently very few sellers in the market place with permanent entitlements in short supply which has been the situation for a number of months. Brokers are now reporting that the vendor and purchaser stand-off is beginning to ease with some

buyers now lifting offer prices to meet vendor expectations or entice vendors into the market place. This is continuing to drive market prices higher.

There have been a number of factors which have influenced recent entitlement price increases over recent months including;

• Temporary allocation prices reached $90 per megalitre through the previous season and it is not economical to grow many commodities at this price point. Irrigators are looking to acquire permanent entitlement to hedge against allocation price fluctuations in the forthcoming season;

• Higher returns from the dairy and cotton industry has enabled farmers to re-invest in irrigation entitlements improving on farm water security;

• The rapid growth of the cotton industry along the Murrumbidgee has driven the price higher for entitlements in the system. The higher returns on a dollar per megalitre basis for production of cotton in comparison to rice has contributed to this price increase;

• Federal and State Government funded on farm efficiency programs have driven prices higher providing a situation where irrigators can exchange water entitlements for generous irrigation infrastructure and water delivery upgrades;

• There is also strong demand from water investors, with many investors playing an active role in the market. Trusts and self-managed super funds are

looking to invest in water, and entitlements are becoming a more sought after form of investment.

The outlook for water entitlement values in the forthcoming 12 months is good. Strong commodity prices for cotton, rice, wheat and dairy products should result in continued strong demand for water entitlements through most trading zones. The accumulation of water entitlements may also be influenced by the potential on set of El Niño conditions. Allocation prices are also expected to remain strong with prices exceeding last season’s levels quite possible.

Southern QueenslandThe cold snap through southern Queensland has been very timely as it has managed to slow the growth of the wheat crop down. This will greatly reduce the risks of frost damage in the critical


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flowering period. A recent western run has identified that a large winter planting has been undertaken. The strikes have however varied and have in the main been dependant on rain leading up to planting. To date very little incrop rain has been received.

Most crops will be looking for moisture over the course of the next two to three weeks in order to maintain the potential of at least district averages being received.On the property front, there now seems to be more activity in the southern Queensland market than there has been for some time. The recent sale at auction on the 27/06/14 of ‘Spring Creek’ (40,692 hectares) via Wyandra for $2.25 million ($55.29 per hectare) is a point in case. It previously sold in April 2007 in conjunction with the adjoining ‘Doobibla’ (Total area – 74,825 hectares) for $2.775 million ($37 per hectare). Reports are that the ‘Spring Creek’ portion contained the better country. This would indicate that western country would now appear to be starting to find it’s value level.

Also recently selling is the mixed irrigation and dryland farming holding ‘Waterloo’ via Cecil Plains. The holding comprised 773 hectares and sold for $7.6 million. The holding contained 552 hectares of developed irrigation with that component reflecting

in excess of $10,000 per hectare. The property had been on the market for a considerable period of time, originally listed at $7.6 million.

Both the buyers of ‘Spring Creek’ and ‘Waterloo’ are foreign investors and we understand both are to be leased out to local interests. This is on top of the irrigation sale of ‘Undabri’ via Goondiwindi in recent times. The holding was sold under receivership conditions also to Chinese interests. We are now starting to see increased activity by foreign interests which we feel may lead any future recovery in the southern Queensland market sector. This all may come to fruition over the course of the next few months. Holdings coming up that could very well attract such interest include the ‘Terrica’, ‘Currajong’, ‘Pikedale’ Aggregation in the Stanthorpe and Inglewood region, the ‘Victo’ and ‘Murrumbah’ Aggregation at Cunnamulla and the irrigated holding ‘Sianda Plains’ via Dalby.

Central QueenslandThere have been two major grazing sales in the Mackay region in recent months.

‘Spring Creek’ at Koumala sold in April at a price of approximately $3 million. This is a 4,165 hectare breeding property situated approximately 38 kilometres south west of Sarina and comprises mostly moderate to steeply sloping (partially unavailable) forest falling to easy slopes and creek flats which are now cleared and established to

improved pasture. The sale included cattle. It demonstrates continued interest in coastal breeding country which is perceived to be safer in terms of rainfall compared to inland properties.

‘Harwin Park’ at Victoria Plains sold in May at a price of over $2 million. This is a 245 hectare larger scale rural lifestyle property situated approximately 10 kilometres west of Walkerston and approximately 21 kilometres south west of the Mackay City Centre. Approximately 162 hectares had formerly been used as cane lane but has now been established to improved pasture. Structural improvements include a large attractive modern, lowset 4- bedroom / 2- bathroom brick, family home with great views, machinery shed and steel cattle yards. Structural improvements are in excellent condition. This sale demonstrates a moderate easing in values for this asset class. This rural lifestyle market is influenced by regional coal mining activity which is currently in downturn. This market was considerably stronger two to three years ago.

Dry winter seasonal conditions persist across most of the central highlands and central west districts. This has added to the diminishing grass reserves in these areas, which is not uncommon for this time of year, however there is little expectation of useful rain in the near future. Despite this there has been a steady stream of rural sales across the central Queensland region, which has reflected mixed results.


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‘Inga Downs’ located 32 kilometres south of Middlemount sold to district grazier at auction recently for $12 million bare of stock and plant. The property comprises a 7,550 hectare freehold mix of developed brigalow scrub with scattered creek flats, supported by a special lease area of 4,022 hectares. The property had extensive structural, water and pasture development, with the sale price reflecting about $1,550 per hectare for the freehold component.

The receiver offering of ‘Hyland Downs’ at Clermont has sold at auction for $5.2 million, after good market interest. The property comprises a 3,113 hectare dryland farming property located about 49 kilometres north of Clermont. At the sale price the property reflects a rate of $1,673 per hectare which is above rates for similar district properties in recent years.

North QueenslandAs the new financial year dawns so too does a new development for the north Queensland rural sector: The tradability of water in the Gulf Resource Operating Plan (ROP).

Many field days and discussions have been held around the emergence of the north as the future food bowl. It’s steps like this that puts the free market into action. It will be interesting seeing the free market evolve and at what price the market opts to transact such a resource.

There are industry commentators who suggest that insufficient water was allocated in the previous ballot. One issue that may be addressed by these changes is that of scale. Comments from the sector are along the lines that the allocations did not permit the development of projects of feasible scale. Perhaps this may now be addressed by the amendments to the ROPS?

What lies ahead in development modelling and project design will be most interesting! Certainly this is one step in the bigger picture towards the development of the Gulf and may lead to more interest and investment in the development of infrastructure to enable industry development and agricultural crop diversity.

Not only are the amendments to the ROPS a topic of discussion, but also the opportunity to freehold land. Historically the market has not chosen to differentiate between freehold and leasehold interests in grazing country. Certainly changes to vegetation management rules in recent years treated the interests as equal. Interestingly, there has been a substantial amount of enquiry regarding the topic and perhaps the market will now seek to price this in.

On the cattle market scene, it is no secret at all that the live export boats are flat out with indications of a record number of cattle sailing this year. This has been of help out the drought affected graziers. This time last year, there were very limited livestock

marketing options available to graziers to sell cattle.

The numbers of available cattle are starting to dwindle and there are comments of price increases in the cattle markets as demand outstrips supply.

China and Vietnam were markets that emerged in the last year. Reporets from advise that wholesale meat prices in China rose by 5% in the past year while their beef imports were 31% higher year on year in the January to May this year. Perhaps the decision to re-open their meat trade with Brazil is an effort to curb beef price inflation.

Certainly, graziers in north Queensland will be working to supply cattle to the Asian and US markets this financial year. This is good for market sentiment as last year there was a lot of negativity around the future of the northern grazing sector (and the property market) as the drought took its grip.

As far as the property market goes, this change in sentiment may well be what is driving an apparent increase in enquiry for northern cattle country. At this stage the increase in enquiry has yet to transpire into an increase in sale volumes, however, for some vendors who may need to sell, at least there are some potential buyers starting to look around and doing their research.

Murray OutbackThe new water season has opened positively on 1 July 2014 and has been further boosted by good


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rainfall (and snowfall) across the northern Victorian catchments in the first three weeks of July which has increasing inflows to all storages.

The New South Wales Murray High Security allocations commenced at 97% and General Security at 9%. Victorian Murray River High Reliability opened at 57% and increased to 76% in mid July with the likelihood that by December a full 100% will be allocated. South Australian Murray River irrigators began the new season with 100% allocation.

Current permanent water values are as follows:

• NSW Murray High Security – $1,750 to $1,800 per megalitre (a $200 per megalitre rise from this time last season);

• NSW Murray General Security (below choke) – $875 to $850 per megalitre;

• Victorian High Reliability (Zone 7) – $1,475 to $1,550 per megalitre.

• South Australian Irrigation Entitlement – $1,700 to $1,750 per megalitre.

The temporary water allocation leasing market has opened at $80 per Megalitre.

Furthermore on the topic of water is that Lower Murray Water has embarked on a $120 million Sunraysia Modernisation Project (SMP). Thi is a joint initiative between the Commonwealth, Victorian State Governments and Lower Murray Water to

upgrade the efficiency and reliability of Sunraysia’s irrigation systems. The SMP will improve supply to 59% of the irrigation districts providing 365 day access for as many irrigators as possible; improve system efficiency and reliability; reduce operational costs and water losses; improve water quality and provide 7 Gigalitres of water savings. The project has commenced and is due to be completed in mid 2016.

The bleak outlook of the wine grape industry in this region appears to be escalating with recently released data from the Murray Valley Wine Growers recording a reduction of around 48,000 tonnes in the 2014 crush compared to the 2013 vintage. A contributing factor to the downturn and of major concern to industry leaders is that the area planted by winery owned properties continues to rise and has more than doubled in the past decade while the number of private growers continues to tumble and has more than halved over the same period. The majority of this reduction has occurred in the Sunraysia.

The 2014 crush is expected to be around 1.7 million tonnes or 5.5% lower than in 2013 with the three main inland regions accounting for about two-thirds of the total crush. The Murray Darling and Swan Hill region crush is estimated to be 410,000 tonnes, the South Australian Riverland accounting for 470,000 tonnes and the New South Wales Riverina accounting for 270,000 tonnes. Unfortunately for this battered

and bruised industry nobody is expecting conditions to improve in 2015.

There have been no significant rural sales settled in the past month in the region.

South West WAIt is a new financial year and I was thinking about the reports that “Rich Listers” are investing in agribusiness across Australia and what would be on offer if we were one of the fortunate to have handmade bespoke boots. I looked in the farm weekly and went on a well known website and thought what would be the price limit? I decided $10 million would be the minimum and away I clicked. As I was unsure as to what sector I wanted to venture into, I looked a number of different ones including grains, beef and dairy and then also found something unusual as well.

In the grains sector we noted ‘Bellaranga’ at Morawa is currently on the market with an asking price of $13.5 million. This property reportedly includes an aggregation of properties totalling 16,590 hectares with 8,800 hectares reportedly cropping and 5,200 hectares reportedly saltbush grazing. The property has a homestead and numerous sheds suitable for the property.

In the beef sector ‘Balfour Downs’ station near Newman is currently on the market with an asking price of $18 million. This property reportedly includes 639,484 hectares, 13,000 breeders plus


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replacements and bulls, 90 fully equipped bores, a massive plant list and homestead complex with 3,000 head cattle yards.

And finally in the dairy sector you cannot go past the ‘Lactanz’ properties at Scott River which are currently in receivership. This property reportedly includes four farms totalling 2,209 hectares which have been developed to a high standard with extensive centre pivot irrigation and four rotary dairies. The properties can reportedly milk in excess of 4,000 cows when fully operational we also note other large dairy enterprises are currently on the market in the area which could be possibly amalgamated to make a dairy enterprise in excess of 10,000 milking cows.

So like for my fellow “Rich Listers” there is opportunity to invest in Western Australian agriculture but which property would we buy. ‘Bellaranga’ is a large scale cropping operation that gives the opportunity to reap the rewards from record harvests. ‘Lactanz’ and others is a great opportunity to get a foothold in the recently active Western Australian dairy industry and be in a strong bargaining position with processors. Personally I would let my heart rule my head and buy ‘Balfour Downs’ station so that I could spend time being a Jackaroo like my grandfather in the 1930s. This however would also put me in good company with my fellow “Rich Listers” and with reports of an ever

increasing export market with deals reportedly being done with Chinese parties I could also be in a position to make a sound return as well.

Or

Like many wealthy people before me I could afford a folly and purchase Lot 35 Merivale Road, Esperance on the South Coast. This property is Australia’s answer to Stone Henge. ‘Lazy K’ as the property is known has a full size granite replica of the UK Stone Henge which lets tourists imagine what it would have looked like around 2000 BC. This could possibly be an opportunity of a lifetime to purchase a property that following generations can enjoy over the next couple of thousand years and for $5 million it may be a bargain you can ill afford to miss. So given that I am a “Rich Lister” I could probably afford it and have the north and south of the state covered

Northern Territory‘Henbury Station’ (5,168 square kiliomertres) 130 kilometres south of Alice Springs has finally sold for $7.7 million (bare apart from a small amount of plant) to a predominantly local group of pastoralists who know the lay of the land at ‘Henbury’. The property was purchased for its highest and best use (as a cattle station) with the strategic aim of developing the infrastructure and herd for organic beef production. The property last sold in December 2011 for $13 million bare to RM Williams

Ag (with Commonwealth assistance) with a view to creating a conservation reserve. As part of the Commonwealth funding arrangement, the property was to be included in the National Reserve system. Subsequently ‘Henbury’ was destocked to recreate a natural environment, bores were shut down and several fires passed over the property in the interim which has led to deterioration of a significant proportion of the pastoral infrastructure. As part of the current deal, a covenant area of 1,023 square kilometer of rugged range country in the north of the property is to be managed by the lessee so as not to degrade the areas special features of ecological significance. This, combined with the property being in receivership appears to have contributed to the end sale price. However marketing agent (Jock McPherson of Territory Rural, Alice Springs) reported genuine interest in the property, from six initial


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expressions of interest to eventually four parties (in the second round of EOI). Prior to the ill-fated RMW/Federal Government deal, ‘Henbury’ had traditionally run a mixed herd between 13,000 and 15,000 head.

Still on the pastoral front, we understand that 2,055 square kilometre ‘Elizabeth Downs’ has contracted for sale with settlement due in August 2014 (if not sooner). Details remain confidential at this stage however we understand there was genuine interest from a number of parties, including foreign interests. ‘Elizabeth Downs’ is a medium to large scale cattle operation, the main feature of which is a significant coastal floodplain area which can carry large numbers of cattle once the wet season floodwaters recede. The property was quietly marketed without formal advertising and would appear to reflect the continued strengthening of interest in live export dependent properties.

We are also aware of yet another pastoral lease that has contracted for sale in the north of the Northern Territory. Again, details remain confidential however the medium to large scale established breeder operation has attracted a buyer linked with overseas interests. Hopefully we can provide full details on this and the ‘Elizabeth Downs’ sale next month.

On the back of the renewed confidence within the market there are also a number of new listings that have occurred this month. ‘Douglas Station’ 180 kilometres south of Darwin and part of the Tipperary Group of stations has hit the market and follows hot

on the heels of ‘Elizabeth Downs’. Expressions of interest closed at the end of July. The offering of this property has the potential to draw the attention of a buyer interested in development. While the property is currently underdeveloped, around 10,400 hectares had been cleared in the past (prior to 1990), and while the significant regrowth will require the Northern Territory Government approval to re clear, the property’s location neighbouring the Douglas Daly freehold agriculture/horticulture/silviculture district is likely to attract a buyer who may seek to utilise the new 30 year Diversification Permit under the Pastoral Land Act to apply for a change in use from pastoral for some of the land.

Now, over to the thinly traded agriculture and horticulture land market. ‘Sandy Creek’ (850 hectares) in the Florina district west of Katherine has been purchased by Kununurra based Indian Sandalwood grower Tropical Forestry Services (TFS) for $1.23 million. TFS previously acquired neighbouring 11,722 hectares ‘Taylor’s Park’ aggregation in 2012 for $10.419 million and will expand their planting over the fence utilising the property’s 1,300 megalitre groundwater licence which should tie well into the expanding aggregation. The sale will probably show in the order of $6,500 to $7,500 per hectare for the irrigated/irrigable country (excluding the 100 hectare pivot irrigator which was excluded from the sale). Along with ‘Sandy Creek’ we are also aware of a much larger, well developed freehold block that has contracted for sale. Details

remain confidential until settlement however, we understand the buyer to be foreign based, and like ‘Elizabeth Downs’, their focus is live export oriented.

The Australian Agricultural Company Limited (AACo) have also announced thay have contracted to purchase the ‘Pell Airstrip’ and ‘Tortilla’ freehold aggregation of properties 90 kilometres south of Darwin and 50 kilometrs south of AACo’s abattoir (under construction) at Noonamah for $8 million. In their public statement on the strategic acquisition AACo’s CEO says that the property will act as a key hub for the company’s activities in northern Australia, having year-round access to the Stuart Highway enabling the company to efficiently sort and hold cattle whether they are destined for backgrounding on ‘La Belle’ ro ‘Welltree’ stations (acquired in 2013), processing in AACo’s Northern Beef Processing Facility or the live export trade. We understand that a multi-million set of export yards may be constructed on the properties.

In conclusion, market activity for live export related rural property in the Northern Terrtory has made a sharp U-turn since the same time last year. Improved demand from the Indonesian live cattle trade, a forecast increases in live trade to other SE Asian countries such as Vietnam, and longer term strategic positioning for increasing demand from China appear to have been the main drivers – that and the fact that market values are perceived to have bottomed across the Top End, which now appears confirmed by the recent run of sales.


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© Herron Todd White Copyright 2013No responsibility is accepted to any third party that may use or rely on the whole or any part of the content of this publication.

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Capital City Property Market Indicators – Houses


Capital City Property Market Indicators – Houses

Factor Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra

Rental Vacancy Situation Shortage of available property relative to demand

Balanced market Balanced market Balanced market Over-supply of available property relative to demand

Balanced market Severe shortage of available property relative to demand

Over-supply of available property relative to demand

Rental Vacancy Trend Steady Steady Steady Steady Steady Steady Tightening Increasing

Demand for New Houses Strong Strong Strong Soft Soft Strong Very strong Fair

Trend in New House Construction Increasing Steady - Increasing Increasing Steady Steady Increasing Increasing strongly Steady

Volume of House Sales Steady Increasing Increasing Declining Declining Increasing Increasing strongly Steady

Stage of Property Cycle Peak of market Rising market Rising market Start of recovery Declining market Start of recovery Rising market Bottom of market

Are New Properties Sold at Prices Exceeding Their Potential Resale Value

Occasionally Occasionally Occasionally Occasionally Occasionally Occasionally Occasionally Almost never

Red entries indicate change from previous month to a higher risk-rating Blue entries indicate change from previous month to a lower risk-rating


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Capital City Property Market Indicators – Units


Capital City Property Market Indicators – Units


Rental Vacancy Situation Balanced market Over-supply of available property relative to demand

Balanced market Balanced market Over-supply of available property relative to demand

Balanced market Severe shortage of available property relative to demand


Rental Vacancy Trend Steady Increasing Steady Steady Increasing Steady Tightening Increasing

Demand for New Units Strong Soft - Fair Strong Soft Soft Strong Very strong Fair

Trend in New Unit Construction Increasing Increasing strongly Increasing Steady Steady Increasing Increasing strongly Steady

Volume of Unit Sales Steady Increasing - Steady Increasing Declining Declining Increasing Increasing strongly Steady

Stage of Property Cycle Peak of market Rising market Rising market Start of recovery Declining market Start of recovery Rising market Bottom of market


Occasionally Occasionally Occasionally Occasionally Almost never Occasionally Occasionally Almost never



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1

Capital City Property Market Indicators – Office


Capital City Property Market Indicators – Office


Rental Vacancy Situation Over-supply of available property relative to demand

Balanced market Balanced market Over-supply of available property relative to demand




Large over-supply of available property relative to demand

Rental Vacancy Trend Increasing Steady Steady Steady Increasing sharply Increasing Increasing Steady

Rental Rate Trend Stable Stable - Increasing Stable Stable Declining Declining Stable Stable

Volume of Property Sales Increasing Steady Increasing Steady Steady Declining Steady Steady

Stage of Property Cycle Bottom of market Rising market Start of recovery - Bottom of market

Bottom of market Declining market Declining market Bottom of market Bottom of market

Local Economic Situation Flat Flat Flat Flat Contraction Contraction Steady growth Flat

Value Difference between Quality Properties with National Tenants, and Comparable Properties with Local Tenants

Significant Significant Large Large Significant Small Significant Very large

Red entries indicate change from 3 months ago to a higher risk-rating Blue entries indicate change from 3 months ago to a lower risk-rating


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New South Wales Property Market Indicators – Houses


New South Wales Property Market Indicators - Houses

Factor Albury Bathurst Canberra/ Q’beyan

Central Coast Dubbo Griffith Mudgee

New-castle Orange Sydney

Tam-worth

Tweed Coast

Wagga Wagga

Wollon-gong

Coffs Harbour




Shortage of available property relative to demand

Severe shortage of available property relative to demand






Balanced market

Shortage of available property relative to demand - Balanced market

Balanced market

Balanced market

Balanced market

Rental Vacancy Trend Steady Increasing Increasing Tightening

Tightening

Steady Tightening

Steady Increasing Steady Steady Tightening - Steady

Steady Steady Steady

Demand for New Houses Strong Strong Fair Strong Strong Fair Strong Strong Strong Strong Fair Fair Strong Strong Fair

Trend in New House Construction Steady Steady Steady Increasing

Increasing Steady Increasing Increasing

Steady Increasing

Steady Steady Increasing

Increasing Increasing

Volume of House Sales Steady Steady Steady Increasing

Steady Increasing

Steady Steady Steady Steady Steady Increasing - Steady

Steady Increasing Increasing

Stage of Property Cycle Bottom of market

Rising market

Bottom of market

Rising market

Rising market

Start of recovery

Rising market

Peak of market

Rising market

Peak of market

Peak of market

Start of recovery - Bottom of market

Start of recovery

Peak of market

Start of recovery


Occasion-ally

Frequently Almost never

Occasion-ally

Occasion-ally

Occasion-ally

Occasion-ally

Very frequently

Frequently

Occasion-ally

Occasionally

Occasion-ally - Frequently

Occasion-ally

Frequently

Occasion-ally



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New South Wales Property Market Indicators – Units


New South Wales Property Market Indicators - Units




Tam-worth

Tweed Coast

Wagga Wagga

Wollon-gong

Coffs Harbour






Balanced market




Balanced market

Balanced market

Balanced market

Balanced market

Balanced market

Balanced market

Rental Vacancy Trend Steady Increasing Increasing Tightening

Tightening

Steady Tightening

Steady Increasing Steady Steady Tightening - Steady

Steady Steady Steady

Demand for New Units Soft Strong Fair Strong Strong Soft Strong Strong Strong Strong Fair Fair Fair Strong Soft

Trend in New Unit Construction Declining Steady Steady Increasing

Increasing Declining Increasing Increasing

Steady Increasing

Steady Declining Steady Increasing Steady

Volume of Unit Sales Declining Steady Steady Increasing

Steady Steady Steady Steady Steady Steady Steady Increasing - Steady

Steady Increasing Increasing


Rising market

Bottom of market

Rising market

Rising market

Start of recovery

Rising market

Peak of market

Rising market

Peak of market

Peak of market


Start of recovery

Peak of market

Start of recovery


Occasion-ally

Frequently Almost never

Almost never

Occasion-ally

Almost never

Occasion-ally

Very frequently

Frequently

Occasion-ally

Occasionally

Occasion-ally - Frequently

Occasion-ally

Frequently

Occasion-ally



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New South Wales Property Market Indicators – Office


New South Wales Property Market Indicators – Office




Tam-worth

Tweed Coast

Wagga Wagga

Wollon-gong

Coffs Harbour


Balanced market



Balanced market


Balanced market


Balanced market



Balanced market - Over-supply of available property relative to demand


Balanced market - Over-supply of available property relative to demand


Rental Vacancy Trend Increasing Steady Steady Steady Steady Steady Steady Increasing

Steady Increasing

Steady Steady - Increasing


Steady

Rental Rate Trend Declining Stable Stable Declining Stable Stable Stable Stable Stable Stable Declining Declining - Stable

Declining Stable Stable

Volume of Property Sales Steady Steady Steady Steady Steady Steady Steady Steady Steady Increasing

Steady Steady Steady Increasing

Increasing


Rising market

Bottom of market

Bottom of market

Rising market

Start of recovery

Rising market

Bottom of market

Declining market

Bottom of market

Peak of market

Bottom of market

Bottom of market

Bottom of market - Rising market

Rising market

Local Economic Situation Flat Flat Flat Flat Flat Flat Flat Steady growth

Contraction

Flat Flat Flat Flat Flat Flat


Significant Small - Significant

Very large Significant

Significant Significant

Significant Large Small - Significant

Significant



Significant



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Victoria/Tasmania Property Market Indicators – Houses


Victorian and Tasmanian Property Market Indicators – Houses


Factor Bendigo Echuca Horsham Gippsland Melbourne Mildura Shepparton Latrobe Valley

Wodonga Burnie / Davenport Hobart Launceston




Balanced market

Balanced market

Balanced market

Balanced market

Balanced market


Balanced market

Balanced market

Balanced market

Rental Vacancy Trend Steady Steady Tightening Steady Steady Steady Steady Steady Steady Steady Steady Steady

Demand for New Houses Strong Fair Fair Fair Strong Fair Strong Soft Strong Strong Strong Strong

Trend in New House Construction Increasing Steady Steady Steady Steady - Increasing

Steady Increasing Declining Steady Increasing Increasing

Increasing

Volume of House Sales Increasing Steady Steady Steady Increasing Increasing

Steady Steady Steady Increasing Increasing

Increasing

Stage of Property Cycle Rising market

Rising market

Rising market

Start of recovery

Rising market Start of recovery

Bottom of market

Bottom of market

Bottom of market

Start of recovery

Start of recovery

Start of recovery


Occasionally Occasion-ally

Frequently Occasionally Occasionally Occasion-ally


Occasion-ally


Occasionally


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Victoria/Tasmania Property Market Indicators – Units


Victorian and Tasmanian Property Market Indicators - Units

Factor Bendigo Echuca Horsham Gippsland Melbourne Mildura Shepparton Latrobe Valley Wodonga

Burnie / Davenport Hobart Launceston


Balanced market


Balanced market




Balanced market


Balanced market

Balanced market

Balanced market

Rental Vacancy Trend Steady Steady Tightening Steady Increasing Steady Steady Steady Steady Steady Steady Steady

Demand for New Houses Strong Soft Fair Fair Soft - Fair Fair Very soft Soft Soft Strong Strong Strong

Trend in New House Construction Steady Declining Steady Steady Increasing strongly

Declining Increasing strongly

Declining Declining Increasing Increasing Increasing

Volume of House Sales Increasing Steady Steady Steady Increasing - Steady

Steady Declining Steady Declining Increasing Increasing Increasing

Stage of Property Cycle Rising market

Rising market

Rising market

Start of recovery

Rising market Start of recovery

Bottom of market

Bottom of market

Bottom of market

Start of recovery

Start of recovery

Start of recovery


Occasion-ally

Almost never

Frequently Occasion-ally

Occasionally Almost never


Occasionally Occasionally Occasion-ally

Occasionally



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Victoria/Tasmania Property Market Indicators – Office


Victorian and Tasmanian Property Market Indicators – Office

Factor Bendigo Echuca Gippsland Melbourne Mildura Latrobe Valley

Wodonga Burnie/ Davenport Hobart Launceston

Rental Vacancy Situation

Balanced market

Balanced market

Balanced market

Balanced market

Balanced market






Rental Vacancy Trend

Steady Steady Increasing Steady Steady Increasing Increasing Increasing Increasing Increasing

Rental Rate Trend

Stable Stable Stable Stable - Increasing

Stable Declining Declining Declining Declining Declining

Volume of Property Sales

Steady Steady Declining Steady Steady Declining Steady Declining Declining Declining

Stage of Property Cycle

Rising market

Rising market

Start of recovery

Rising market Bottom of market

Bottom of market

Bottom of market

Declining market Declining market Declining market

Local Economic Situation

Steady growth

Flat Flat Flat Flat Flat Flat Contraction Contraction Contraction


Small Small Small Significant Small Small Significant Small Small Small



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Queensland Property Market Indicators – Houses


Queensland Property Market Indicators - Houses

Factor Cairns Towns-ville

Whit-sunday

Mackay Rock-hampton

Emerald Glad–stone

Bunda-berg

Hervey Bay

Sunshine Coast

Brisbane Gold Coast

Ipswich Too-woomba


Balanced market



Balanced market






Balanced market


Balanced market


Rental Vacancy Trend Tightening Increasing Steady Increasing Increasing Increasing Increasing sharply

Steady Tightening Tightening Steady Tightening Steady Tightening

Demand for New Houses Soft Fair Fair Soft - Fair Fair Very soft Very soft Fair Fair - Strong

Strong Strong Strong Strong Fair

Trend in New House Construction

Steady Steady Steady Declining - Steady

Steady Declining significantly

Declining significantly

Increasing Steady - Increasing

Increasing Increasing Increasing Increasing Declining

Volume of House Sales Increasing Steady Steady Steady - Declining


Declining Increasing Increasing - Steady

Increasing Increasing Steady Increasing Increasing

Stage of Property Cycle Start of recovery

Start of recovery


Declining market

Start of recovery

Declining market

Declining market

Start of recovery

Start of recovery

Rising market

Rising market

Start of recovery

Rising market

Bottom of market


Occasion-ally

Occasion-ally

Almost never - Occasion-ally

Occasion-ally

Occasion-ally

Occasion-ally

Almost always

Almost never

Occasion-ally

Occasion-ally

Occasion-ally


Occasion-ally



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Queensland Property Market Indicators – Units


Queensland Property Market Indicators - Units

Factor Cairns Towns-ville

Whit-sunday

Mackay Rock-hampton

Emerald Glad-stone

Bunda-berg

Hervey Bay

Sunshine Coast

Brisbane Gold Coast

Ipswich Too-woomba



Balanced market


Balanced market





Balanced market

Balanced market

Balanced market

Balanced market


Rental Vacancy Trend Tightening Increasing Steady - Increasing

Steady - Increasing

Steady Increasing Increasing sharply

Steady Steady Tightening Steady Tightening Increasing Tightening

Demand for New Units Very soft Fair Fair Soft - Fair Fair Very soft Very soft Soft Fair Soft Strong Fair Fair Fair

Trend in New Unit Construction

Declining Steady Steady Declining - Steady


Declining significantly


Steady Increasing Steady Increasing Increasing

Volume of Unit Sales Increasing Steady Steady Steady - Declining


Declining Steady Increasing - Steady

Increasing Increasing Steady Increasing Increasing


Start of recovery


Declining market

Start of recovery

Declining market

Declining market

Start of recovery

Bottom of market

Rising market

Rising market

Start of recovery

Rising market

Rising market


Occasion-ally

Occasion-ally

Occasion-ally

Occasion-ally

Occasion-ally

Occasion-ally

Almost always

Almost never

Occasion-ally

Occasion-ally

Occasion-ally


Frequently



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Queensland Property Market Indicators – Office


Queensland Property Market Indicators – Off ice Factor Cairns Townsville Mackay

Rock-hampton Gladstone Bundaberg Hervey Bay

Sunshine Coast Brisbane Gold Coast

Too-woomba






Balanced market

Balanced market


Balanced market



Rental Vacancy Trend Steady Steady Increasing Steady Increasing Steady Steady Tightening - Steady

Steady Tightening Tightening

Rental Rate Trend Declining - Stable

Declining Declining Stable Stable Stable Stable Declining - Stable

Stable Stable Stable

Volume of Property Sales Steady Steady Steady Steady Steady Steady Increasing - Steady

Steady Increasing Increasing Increasing


Bottom of market

Peak of market Rising market Peak of market Bottom of market

Start of recovery

Declining market


Rising market Rising market

Local Economic Situation Flat Flat Flat - Contraction

Flat Contraction Flat Flat Flat - Contraction

Flat Steady growth Steady growth


Small Small - Significant

Nil Small Nil Significant Significant - Large

Significant Large Small Significant



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Northern Territory, South Australia & Western Australia Property Market Indicators – Houses


SA, NT and WA Property Market Indicators - Houses

Factor Adelaide Adelaide Hills Barossa Valley

Iron Triangle

Mount Gambier

Riverland Alice Springs

Darwin South West WA

Perth

Rental Vacancy Situation Balanced market

Balanced market Balanced market

Balanced market

Balanced market






Rental Vacancy Trend Steady Steady Steady Steady Steady Tightening Tightening Tightening Tightening Steady

Demand for New Houses Soft Soft Soft Soft Fair Soft Very strong Very strong Strong Soft

Trend in New House Construction Steady Steady Steady Steady Steady Steady Increasing strongly

Increasing strongly

Increasing Steady

Volume of House Sales Declining Declining Declining Declining Increasing Steady Increasing strongly

Increasing strongly

Increasing Declining


Start of recovery Start of recovery

Start of recovery

Bottom of market

Bottom of market

Rising market Rising market Rising market Declining market


Occasionally Occasionally Occasionally Occasion-ally

Occasionally Almost never Occasionally Occasionally Almost never Occasionally



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Northern Territory, South Australia & Western Australia Property Market Indicators – Units


SA, NT and WA Property Market Indicators - Units

Factor Adelaide Adelaide Hills Barossa Valley Iron Triangle

Mount Gambier Riverland Alice Springs Darwin

South West WA Perth

Rental Vacancy Situation Balanced market

Balanced market Balanced market

Balanced market

Balanced market






Rental Vacancy Trend Steady Steady Steady Steady Steady Tightening Tightening Tightening Tightening Increasing

Demand for New Units Soft Soft Soft Soft Soft Soft Very strong Very strong Strong Soft

Trend in New Unit Construction Steady Steady Steady Steady Declining Steady Increasing strongly

Increasing strongly

Increasing Steady

Volume of Unit Sales Declining Declining Declining Declining Increasing Steady Increasing strongly

Increasing strongly

Increasing Declining


Start of recovery Start of recovery

Start of recovery

Bottom of market

Bottom of market

Rising market Rising market Start of recovery

Declining market


Occasionally Occasionally Occasion-ally

Occasionally Almost never Almost never Occasionally Occasionally Almost never Almost never



Mar

ket

Indi

cato

rs

1

Northern Territory, South Australia & Western Australia Property Market Indicators – Office


SA, NT and WA Property Market Indicators – Office Factor Adelaide

Adelaide Hills

Barossa Valley Iron Triangle Riverland Alice Springs Darwin South West WA

Perth










Rental Vacancy Trend Steady Steady Steady Steady Steady Increasing Increasing Increasing Increasing sharply

Rental Rate Trend Stable Stable Stable Stable Stable Stable Stable Declining Declining

Volume of Property Sales Steady Steady Steady Steady Steady Steady Steady Declining Steady


Bottom of market

Bottom of market Bottom of market

Bottom of market

Bottom of market

Bottom of market

Bottom of market

Declining market

Local Economic Situation Flat Flat Flat Flat Flat Steady growth Steady growth

Flat Contraction


Large Large Large Large Large Significant Significant Small Significant


Telephone 1300 880 [email protected]

Local expertise. National strength. Trusted solutions.

Herron Todd White is Australia’s leading independent property valuation and advisory group. For more than 45 years, we’ve helped our customers make the most of their property assets by providing sound valuations and insightful analytical advice.

With offices in every capital city, most regional centres, and right across rural Australia, we are where you are. Our valuers work in the property market everyday, providing professional services for all classes of property including commercial, industrial, retail, rural and residential.

Herron Todd White is Australian owned and operated. With directors who are owners in the business, our team has a personal stake in providing you with the best service possible.

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