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Capital city price growth drives boom in Australian coastal markets

24-Sep-2017


Ben Hurley, Mansion Global

In markets like the Gold Coast in Queensland, Byron Bay in New South Wales and the Victorian Surf Coast, prices are rising, the number of listings is falling and average selling times are half of what they were five years ago. Super luxury properties are selling for prices not far short of records that stood since the onset of the financial crisis a decade ago.

Experts put it down to surging homeowner wealth in capital cities, particularly Sydney and Melbourne, derived from soaring home values. City dwellers–particularly baby boomers–are selling their family homes (for a lot of money) and buying inner city apartments, beach houses, or both. Historically when the capitals boom, coastal markets follow suit a year or two later.

That’s good news for coastal property owners who have waited through a long, slow recovery since the financial crisis. However with Sydney prices, in particular, reaching what some consider “housing bubble” territory, some experts worry that a price fall in the city could cause another era of pain in the coastal markets, too.

Tim Lawless, head of research at CoreLogic Asia Pacific, said he’s seen first-hand how strong price growth in the capital cities has enabled retirees, in particular, to sell and move to the coast.

But it’s been a long haul. “A lot of people who own a home have seen their wealth rebuilt after many faced a severe reduction during the financial crisis due to their share portfolios,” Mr. Lawless said. “A lot of people cancelled their retirement plans because of that and had to rebuild their wealth before they could put their feet up.”

So, he continued,“what we’re seeing since then is a lot of equity unlocked in Sydney and Melbourne, and a lot of that is now flowing into coastal markets.”

 

A return to pre-crisis prices?

While Australia’s housing market weathered the financial crisis better than many overseas, coastal lifestyle markets were hit hard as tough economic times forced people to trim the fat from their portfolios.

The Gold Coast was one of the biggest casualties. A swath of sumptuous apartments that had been purchased off-the-plan in 2006 to 2007 in an overheated market came back on the market at lower prices, and mortgagee sales were common. Queensland government land valuations in 2010 found the value of prime units had fallen 17% in less than three years, while waterfront properties had fallen 30%.

But as Australia’s cities have turned around, so too have the beachside areas. Mr. Lawless explained that the strongest coastal markets are those close to major cities. (More isolated locations such as Cairns in northern Queensland have seen a less marked recovery.)

In March, Sydney posted its biggest annual home price increase since 2002, with CoreLogic’s March home value index showing an 18.9% rise over the preceding 12 months. Melbourne was close behind at 15.9%, and there were double-digit yearly gains in Canberra and Hobart as well.

Sydney house prices have risen 110% since 2009, just after the financial crisis, and Melbourne prices are close behind at 101%, Mr. Lawless said.

Coastal markets, in particular the Gold Coast, have also seen an influx of investment underwritten by strong tourism numbers, helped by the Australian dollar having fallen below 80 US cents in recent years, Mr. Lawless said. The Gold Coast will also host the international Commonwealth Games in April next year. And the area has a range of major infrastructure projects planned or underway, such as the widening of the M1 Highway, redevelopment of the Gold Coast Airport, new light rail links and a proposed cruise ship terminal at The Spit. These, in turn, boost the economy and, by extension, the property market.

A number of large mixed-use commercial and residential buildings are in the pipeline on the Gold Coast, including the A$1.2 billion Spirit tower and the proposed Orion Towers development.  

Lucy Cole, managing director of Gold Coast real estate firm Lucy Cole Prestige Properties, said Asian buyers from overseas had been behind a lot of high-end sales over the last decade, but in the past year or two she had seen an increase in Australian buyers.

Late last year, a sublime beach house located at Mermaid Beach on the Gold Coast, sold for A$25 million (US$19.8 million) to Melbourne-based billionaire toy manufacturer Manny Stul. The asking price was initially A$29.5 million (US$23.4 million) for Tidemark, a 2833-square-meter beachfront property with six bedrooms, three kitchens, and a retractable roof. But it ultimately fell short of the A$27 million Gold Coast record set in 2008, pre-financial crisis, for an uncompleted mansion on Hedges Avenue.

In Wategos Beach, Byron Bay, a contract was issued in July for a property on Marine Parade for more than A$10 million (US$7.9 million). However the sale has not yet been confirmed. The Wategos Beach record is still A$15.68 million for a home on the same street that sold in 2006.

 

 

Faster sales, higher prices on the coasts

In many of Australia’s popular coastal markets, the trend toward higher prices and faster selling times is seen across the board.

In the Gold Coast council region, for example, median house prices climbed 7.6% over 12 months to A$620,000 (US$492,000), and unit prices were also up 4.3% to $409,000 (US$324,000), according to May 2017 figures from CoreLogic (property statistics take time to collate and verify).

A range of other CoreLogic statistics show the Gold Coast market is the strongest it has been since 2007, before the onset of the financial crisis wreaked havoc on coastal markets around Australia.

The median discount—the difference between a seller’s initial asking price and the ultimate sale price—was 4.2% for houses and 4.5% for apartments in May. This is a similar level to 2007 and a very favorable comparison to the 9.2% for houses and 7.6% for units at the same time in 2012.

Houses and units are also selling faster than at any time in the past decade. The median selling time for a Gold Coast house, for example, was 37 days compared to 88 days in 2012. This has led to far fewer homes on the market, with 2,395 houses listed for sale compared to 2,763 in May last year and 4,644 in May 2012.

In Byron Bay, on the northern New South Wales coast, CoreLogic figures show the median price for houses is 14.9% higher than it was a year ago at A$850,000 (US$674,000). Yearly sales numbers are up, while discounting levels, selling times and property listings continue to fall.

So, too, on Victoria’s Surf Coast, where the median unit price is up 17.6% compared to May last year according to CoreLogic, which also found units are spending a median 53 days on the market compared to 57 last year and 111 in 2012.

“The market is really strong. There is a lot of big investment going on at the moment,” Ms. Cole said. “It started about 18 months ago and the coastal strip is going great guns.”

 

Concerns of a bursting bubble

Some market analysts are concerned values could plunge again if the market turns in Sydney. And a growing chorus of prominent business figures are calling Sydney’s property market a bubble, including Greg Medcraft, head of the Australian Securities and Investments Commission–Australia’s corporate regulator; Treasury secretary John Fraser; and former Liberal Party leader John Hewson.

Research in March by Australia and New Zealand Banking Group found Gold Coast apartments could fall by 6% following a sharp fall in Sydney prices.

But while coastal markets are traditionally more volatile than capital city markets,  Mr. Lawless said it’s  too early to be a cause for concern.

“If people want to really protect themselves from the downturn, then they probably want to buy into more diversified markets close to capital cities that offer the lifestyle advantages of a coastal market, and avoid areas potentially suffering from high supply,” Mr. Lawless said.


Mansion Global
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