From Graham’s Desk – June 2017

Optimism and Caution on Adani following approval

Finally Adani is one step off a certainty to happen.

It’s been a challenging 10 years since the GFC. Now a glimmer of hope has shown for the first time in over a decade for the economy in Townsville and North Queensland.

One more hurdle – financing of the project and then we will at least start to see the housing market stabilise as work opportunities present themselves.

So where do we sit today, on an arguably huge project for the state, and in particularly the region from Rockhampton to Townsville. We simply hope that we have Governments Approval and licences issued, and the board of the Indian Company approving the project on the terms offered to them by our State Government.

My caution, as respected journalist Terry MCrann said in an article in the Herald Sun this week “I do have to concede, though, that until that first shipment of coal is loaded at Abbot Point on the Queensland coast, we can’t take a mine and it’s exports as an absolute given- such is the virulence of the opposition to the project”.

Such has been the division in the support for the Adani project.

Fortunately, Anthony Lynham (our cousin) has told me all along he was confident the government could get the project out of the ground. And it now appears the hurdles are down to one.

Construction on the project, inland from Bowen may see up to 10,000 jobs and has ongoing employment in mining operations at little over 1,200 long term. Keep in mind that Queensland Nickle closure saw 750 jobs go last year. These jobs are so badly needed.

Caution also with getting ahead of the curve and understanding the very low economic activity level that we are coming off. We are going to need massive financial stimulus.

In the last 12 months the news has been grim for Townsville.

Youth unemployment in the city (Under 25) is 27 %.

Overall unemployment 14% but those that work in the industry say it is in a fashion that makes it look better than what it is realty. (Politicians want the figures fudged to look better).

Bankruptcy at the end of March 2017 quarter, announced Townsville as the worst in state for both personal and business.

Long time family businesses like Nulite Glass and Aluminium closed; builders on the brink and small tradespeople everywhere, the life blood of this town, insolvent.

Townsville’s population has continued to decline due to job losses and this has seen the number of buyers decline, with investors choosing to leave the market rather than enter, and with salaries winding back in the Mining Industry up to 20% as the miners have had a larger number of applicants than positions, the year looked to be challenging from the outset.

And even worse Queensland Nickel closed – which in turn created a Tsunami that saw to 750 jobs lost in the early part of the year, and the price decline in both rentals and sale continued unchecked.

The level of distressed and mortgagee sales significantly increased throughout the year and is yet to see an end

Negative equity (owing more than the house was worth) becomes the normal in over 15% of our sales.

Investors, particularly with older homes and units, facing declining rents and increased rates, insurance, maintenance costs and body corporate fees continue to exit the market.

Property prices are now back to the same level compared to 2005 (units in some cases 2003) and well below the 2007 market high.

Worst off all is verified evidence the property market has seen sales in the last 12 months fall in Kelso, Rasmussen & Condon down 41% and 50%.

Overall property market prices continue to decline despite an increase in sales earlier in the year.

Rental vacancies have climb – over 1,600 properties vacant in Townsville at the moment.

The realty is the biggest asset a person normally has is there home.

In the past people sat it out but what we know see is people being prepared to take a loss and exit the asset class as they see no growth as a level to compensate for the losses incurred persevering.

That is more than a technical shift – its mindset shift.

Here is a sample of sales in the last 12 months:

When you rely on this information you need to take into account factual data on a wide spread of property across suburbs -I have tried to research these as in detail as possible.

Here we can seen some alarming falls and that highlight the difficulty in appraising a home for sale and what the final sale price will be :

Annandale

2 Barkley Court Annandale 4814

https://www.realestate.com.au/sold/property-house-qld-annandale-123435094

Sold for $420,000 in late September 2016 after being purchased by the current owners for $539,000 in July 2009 – down 21%.

44 Glendale Drive Annandale 4814

https://www.realestate.com.au/property/44-glendale-dr-annandale-qld-4814

Sold for $380,000 in March 2017 after being purchased for $437,500 in January 2011 – down 13%.

26 Glendale Drive Annandale

https://www.realestate.com.au/property/26-glendale-dr-annandale-qld-4814

Sold $418,000 in November 2016 –after being purchased in August 2011 for $459,000 – down 9%

Interestingly the exact floor plan (Davey Constructions home) in Douglas at 1 Southern Cross Douglas sold for $370,000 (in under two weeks all the same)

https://www.realestate.com.au/sold/property-house-qld-douglas-123762442

Bushland Beach

22 Cashell Crescent Bushland Beach 4818

https://www.realestate.com.au/sold/property-residential+land-qld-bushland+beach-201414786

A guide to land values in the Northern Beaches was this elevated allotment overlooking the sea in Cashell Crescent.

The allotment was purchased for $285,000 in January 2008 and then sold in October 2016 for $150,000 – down 41%.

37 Mendi Drive Bushland Beach 4818

https://www.realestate.com.au/sold/property-house-qld-bushland+beach-124289154

Purchased for $400,000 in 2009 and sold January 2016 for $340,000 (down 15%)

Douglas

44 Boston Crescent Douglas 4814

https://www.realestate.com.au/property/44-boston-cres-douglas-qld-4814

Purchased October 2007 $550,000 sold May 2016 $400,000 (down 27%)

4 Rivergreen Circuit Douglas 4814

https://www.realestate.com.au/property/4-rivergreen-cct-douglas-qld-4814

Sold $850,000 in 2010, then again $815,300 in 2011 and then $766,000 in late 2016.

4 Heritage Place Douglas 4814

https://www.realestate.com.au/sold/property-house-qld-douglas-115253059

This home sold and June 2016 for $450,000 after being purchased by the owner in May 2007 for $680,000. It had no market exposure.

The circumstances are unclear but it represents the biggest fall in Douglas at 31%.

Kirwan

18 Gillingham Court Kirwan 4817

https://www.realestate.com.au/property/18-gillingham-ct-kirwan-qld-4817

Purchased for $362,000 in October 2011 the home sold for $300,000 in December down 17%. The home was freshly painted and well presented. It appears to have been purchased by the principal of the agency who sold it which may have had a slight impact on the sale price disclosed.

Rasmussen

2 Raffles Court Kelso 4815

https://www.realestate.com.au/sold/property-house-qld-kelso-123254466

The property was sold mortgagee in possession by the CBA through Century 21.

Purchased for $280,000 in august 2009, it sold in December 2016 for $165,000 a drop of 41% – one of the worst price falls I have seen in the same period.

Wulguru

Quadrant 53 55 Stuart Drive Wulguru 4811

https://www.realestate.com.au/sold/property-unit-qld-wulguru-122873846

The unit market remained under stress with the prices slipping aggressively in the 2016.

Two sales in a very well presented complex on Stuart Drive “Quadrant” confirmed these 10 months apart highlight the declines.

A further sale in February 2016 for $235,000 seemed to show a bottoming, however with this sale at $199,000 in October 2016.

Unit 53 was purchased of the plan for $300,000 in April 2008, the sale at $199,000 these owners seen a drop of 34%.

Note than in February 2016 a unit (Similar) sold for $235,000 which shows a reduction on 15% in 10 months.

https://www.realestate.com.au/sold/property-unit-qld-wulguru-115843143

Alice River

225 Ring Road Alice River 4817

https://www.realestate.com.au/sold/property-house-qld-alice+river-123169838

We sold this home after an auction campaign in for $440,000. This was purchased for $520,000 in November 2011. The home as subject to a well published drug bust after neighbours complained of the constant traffic. Police eventually moved in involving the Melbourne police of which the new buyers were made aware of. The property sat vacant for 12 months following the raid.

Vincent

51 Clements Street Vincent 4814

https://www.realestate.com.au/sold/property-house-qld-vincent-121815854

Purchased for $250,000 in April 2009 – Sold $180,000 in May 2017 down 28%.

Mount Louisa

66 Franklin Drive Mount Louisa 4814

https://www.realestate.com.au/property/66-franklin-dr-mount-louisa-qld-4814

Sold $380,000 in April 2009 – recently sold $280,000 in February 2017 – down 26 %

Burdell

11 Brooke Lane Burdell 4818

https://www.realestate.com.au/property/11-brooke-lane-burdell-qld-4818

This home was constructed after owners paid $162,500 for the land. The home was approx. 160m2 under roof @ $1,250 per square metre to build = $362,500 total cost which is realistic to build a new home even today.

This was then sold by the Mortgagee at $280,000 in late 2016.

There are some extremes here (Franklin Drive and Brooke Lane Raffles). All appear mortgagee sales however more and more mortgagee sales are entering the market as we speak.

So where to from here?

Adani is the first major project we have had announced.

As to why we need Adani is clearly shown above.

Largely the population of South East Queensland faces none of this distress – there market is robust, jobs outlook is buoyant and infrastructure projects are plentiful (The Gold Coast a classic example of this).

I am confident Adani will clear the final hurdle – but we must remain tempered. The market will not turn over night – but jobs growth will come – it may take a while – but if the Adani mine proceeds the seeds of slow recovery will be planted.

This should under pin the house price falls initially through sentiment alone.

The Townsville Super Stadium announcement will in my mind not boost the overall Market – this will impact favourably on the immediate area around it. However one fact lost on all those who think it was waste of money (I was an early doubter and quite vocal about it), that despite the fact it may be, if Townsville had been not pledged the money it would not have been returned here in any way – the funds would have been spent in the South East corner of the state and North left to wilt on the vine.

Interestingly a valuer last week mentioned that the volume of sales had definitely increased, as we have seen through the office, but they felt the house prices had not shown an increase – if anything there was still a small slippage.

Their observation was that normally we would have had run off from the back of the Southern Capitals, but the Banks  move to tighten lending policies in particular to investors had stifled the “Mexican Waive” up the coast and the market lost an injection of enthusiasm that we would have had in any other cycles.

Nonetheless buyer enquiry has increased since January and fairly priced houses still see good levels of enquiry in the popular suburbs.

So can we call it?

Well signs are the market has finally corrected and bottomed in most suburbs – but  you can see above, the caveat is distressed sales which will probably still hit the market for the next  12 to 18 months until the local economy shores up with the Adani factor.

And of course there is the issue of water security – it is unacceptable that a town of 200,000 is left high and literally dry by all levels of government whilst they waste money on feasibility study on a second dam. Surely the Burdekin Dam can be tapped to give future generations the comfort of knowing that when you pay the highest rates in the state you can surely be guaranteed a clean and reliable water supply.

I am optimistic we have finally seen the worst of what has been a decade for property market declines, but I don’t feel that we will see a sudden rush upwards in prices either – we need a “normal” market to embed first and most importantly jobs.

Shelly and I grew up in Townsville and it’s been sad to see the city and many of it’s hard working residents literally brought to its knees. Hopefully in 12 months time we will look over our shoulder and say the 2015/2016 financial year in Townsville was the bottom of the market post the GFC.

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