Let's Start Talking About the Recovery

“Take calculated risks. That is quite different from being rash”
George S. Patton

OK…. enough with the pessimism, the ‘doom and gloom’ and the GFC…. Life is actually not that bad and the sky is not actually about to fall down; despite the predictions of some economists and so called “experts”. There is no doubt that the local property market is very slow at present and much of south-east Queensland (and particularly the Sunshine and Gold Coasts) have had a significant reduction in sales volumes over the past two years.

However, the fundamentals that underpin property values are still there and in many respects – nothing has changed since that fateful day in September 2008 when the ASX took a nose dive. Although, have you noticed that we are back above 5,000 points on the ASX now incidentally?

* Unemployment levels are still relatively low from a historical perspective. In fact, our northerly regional neighbours in the Wide Bay have just recorded a decrease in unemployment rates over the last quarter.

* China’s appetite for our minerals and natural resources appears to be insatiable and this is subsequently producing jobs and stimulating the economy in numerous ways with plenty of money sloshing around central and western parts of Queensland.

The sheer infrastructure and logistics that needs to plug in to a mine site is mind-boggling; from truck drivers, to cooks, to payroll staff… and when we are talking about companies like BHP, Rio Tinto and XStrata dealing with literally billions of dollars in contracts to export minerals and resources offshore – even the guy that peels the potatoes in the kitchen is on pretty good dollars.

We have definitely noticed an increase in ‘fly-in-fly-out’ employees coming to Rainbow Beach (and other coastal communities) and either looking to rent or buy here so that they can have their two weeks off work in a laid back town and enjoy the natural attractions this area has to offer. Without having to commute to work every day – the two weeks on/two weeks off concept lends itself to having workers choose exactly where they want to live; without being constrained by travel distances.

* Interest rates are still historically very low which means the cost of borrowing is also relatively small. This is particularly true for investment properties as any expenses are tax deductible (including interest expenses) as part of negative gearing.

* Property prices in countries such as the United States have fallen dramatically over the past two years with some areas recording a decrease in values of over 30%. The US property market has suffered from an oversupply of housing which was created during the unprecedented boom between 1997 and 2005. Developers constructed hundreds of thousands of homes in an effort to “cash in” on the rising property market during the late 1990s and early 2000s and when the inevitable housing bubble burst – there were simply too many houses and not enough buyers.

Australia, in stark contrast, has a conservatively estimated shortfall of over 50,000 homes nationwide which translates into continued demand. Obviously, this demand is focused mostly towards metropolitan areas; however, the overall number of properties required has not yet been satisfied according to key property experts including Tim Lawless of RP Data.

* The old adage “they’re not making any more land” is relevant to coastal towns such as Rainbow Beach. Surrounded by National Park and bordered by the Pacific Ocean, there is extremely limited scope for growth and expansion. It stands to reason that the more unique and ‘hard to come by’ a commodity is, the more attractive and therefore valuable it is.

* The current economic climate presents an excellent opportunity to “trade up”. Some property owners have worked out that getting a bigger home and upgrading in a slow market can save you money. How? If prices were down 10%, your $500,000 home has dropped $50,000, but if you’re buying an $800,000 place it’s down $80,000. You might be $30,000 better off than if you had traded up during the boom. And right now the lower end prices are strong and the higher end properties are down anywhere up to 20-25%, so for many the trade up equation is even better.

Regardless of economic news the world goes about its business. People are born and people die, couples join and split and the normal demands affecting the real estate market continue. We don’t think the market is on fire but we do think that now is a great time to buy as all the evidence suggests that prices will not get any lower than they are right now.