Rainbow Beach Property Market Predictions

“Money can’t buy you happiness, but it can buy you a better form of it.”
A friend of ours

Calculated risk is generally considered to be where you estimate the possibility of failure and then try to define the probability of success versus failure prior to making a decision or undertaking some action. Fundamentally, if there is an element of uncertainty and a lack of guarantees or assurances, the risk of failure is increased but in many cases the potential gains are higher.

There are many investment options available today including shares, options, term deposits, managed funds, property (residential or commercial). Investors can choose to have a defined return by investing their money in vehicles such as term deposits however the disadvantage of this type of investment is that your return is limited to the defined amount.

Generally speaking, ‘safe’ investment options include blue chip shares (such as shares in a major bank) or residential property within 10km of a major city centre. Often, investors make decisions regarding the appeal of an investment based on either the returns (ie. dividends or rental income) or the projected capital growth of the investment.

With specific regard to investing in coastal or regional property; with the exception of residential property in mining towns/regions, the capital growth of the property is likely to be more attractive than the annual return through rental income. Values of coastal and regional properties tend to be more volatile than those within metropolitan areas – hence, the calculated risk approach to investing in these areas. Overall, the best advice for investing in a coastal region is to have a medium to long term approach. There should never be an expectation that you can purchase a beach house one year and sell it for a profit the next.

Property generally goes in cycles and the fluctuations in property values in coastal regions can be significant. A perfect example of value fluctuations in Rainbow Beach is the recent sales of a house on Larapinta Court. The property featured four bedrooms, a renovated bathroom with separate toilet, renovated kitchen and a single lock up garage. This property would’ve been appraised and more than likely achieved a sale price in the low to mid $400’s in late 2007/early 2008. The same house sold last month for $380,000.

Across the nation at present, there is a lot of discussion about the direction of the economy and house prices. Consumer sentiment figures published by Westpac and the Melbourne Institute in July points towards a resurgence in confidence amongst Australians during July. The Index gained 11.1% in July and has remained above 100 points (an index value of 100 is where optimists and pessimist are equally weighted) since June last year. (Source: RPData) Since interest rates started rising in October last year the Index had been trending downwards, however the July result brings the confidence measure back well above the five year average. This is great news for both the real estate and property market as well as retail sales.

The latest figures show that generally speaking, Australians remain reasonably optimistic about the nation’s economic prospects. A stabilisation in interest rates, strong job figures and some improvement in global financial markets are likely to be the main drivers behind the improvement. A separate section of the Consumer Sentiment Index is the ‘Time to Buy a Dwelling Index’ which has also seen a significant improvement during July. This Index recorded a 15.6% jump in July, suggesting that consumers are viewing a residential property purchase much more positively than they have been in recent times. (Source: RPData)

Even though there has been an improvement in the ‘Time to Buy a Dwelling Index,’ Australian’s remain much less optimistic about the real estate market than they were at this time last year. The index is down from a high in early 2008, highlighting the slowdown in market conditions that has been seen over the second quarter of 2010 (the RP Data-Rismark Hedonic Home Value Index showed home value growth has virtually stalled in April and May this year). Looking forward, the consumer mind set with regards to residential property is likely to be largely influenced by the perceived direction of interest rates as well as global economic conditions. The consensus seems to be that interest rates are likely to remain flat for the foreseeable future; however the big test will of course be CPI results which are released at the end of July. The Reserve Bank may be forced to act and raise rates to combat inflation.

Despite this, it is unlikely that we will see consumers viewing the residential property market with the same exuberance as they have previously (ie. late 2007 – early 2008), especially considering that value growth has slowed and the historically low interest rates seen throughout most of 2009 are well and truly behind us.

The banks and other lenders do not appear to be in any hurry to free up credit and this lack of liquidity has certainly affected investor’s ability to pursue opportunities.

From our viewpoint, the local property market has certainly ‘hit the bottom’ and has remained stable since the beginning of 2010. There has not been any evidence of further reductions in values over the course of this year and although we can’t see a property boom in the near future, the future looks positive with steady interest rates predicted and a continued resurgence in the mining sector.