Rainbow Realty Deal May 2011

“Plan for the future, because that is where you are going to spend the rest of your life.”
Mark Twain

Easter has come and gone for another year and most businesses in town are now looking towards the June/July School Holidays for their next cash injection. The past six months have been less than stellar in terms of local tourism and many local businesses are starting to feel the strain.

There are now quite a few permanent rental properties in Rainbow Beach (particularly units) which are vacant as there has been a trend for some renters to move in with one another and share rather than rent on their own. As workers hours are cut back as a result of a lack of visitor numbers to town, many people are no longer in a position to afford the weekly rent without sharing with a friend or co-worker. There has also been some instances where tenants have chosen to leave Rainbow Beach altogether as they simply cannot secure enough work here in town.

In what is sure to be unwelcome news for state and local governments, the 2010-11 financial year looks set to see a drop in property related taxation revenues. Between May 2010 and February 2011 capital city dwelling values have fallen by -1.6% and sales volumes during 2010 were their lowest on an annual basis since 1996. As a result of these current soft conditions we expect that state and local governments will experience a budgetary hole at the end of this financial year due to fewer transactions within the sector which accounts for their greatest source of taxation revenue.

In the 12 months to February, property values in the combined capital cities increased by only 0.8 per cent. Considering inflation last year was 2.7 per cent, properties became more affordable in real terms. Values in Brisbane fell by 5.3 per cent in the year to February - the weakest of any capital. (The median house price in Brisbane is $451,000 and the median unit price is $380,000).

The Australian property market is undergoing a correction but we don't expect a significant drop in values. The reasons for this belief include:

* Nationally we still have a constrained supply of new housing at a time of above-average population growth

* The number of mortgage arrears in southeast Queensland, although higher than most regions in the country, remains very low

* Australia has recourse lending, which means choosing to default on a mortgage can involve losing much more than just the house
* Unemployment is at 5 per cent nationally and 5.6 per cent in Queensland, so most people who want a job, have one

* Wages are growing faster than inflation (3.9 per cent against 2.7 per cent)

Most of the country has a diversified economy that doesn't rely on just a couple of sectors (although tourism, resources and construction industries are very important). Many regional areas of Queensland are somewhat resource-dependent and those that are mainly focussed on resources are generally faring well due to the current strong demand for raw materials. Coastal markets; however, have been underperforming since the beginning of 2008. (Source: The Sunday Mail, 17 April 2011)

There are a number of factors behind this, including:

* A weak tourism sector in general (thanks in the most part to the dreaded GFC)

* A high Australian dollar, which is detrimentally effecting foreign and domestic tourism; and

* A lack of "sea changer" activity, which has historically underpinned areas such as Rainbow Beach

Consumers are extremely cautious at the moment and are paying down debt rather than selling their capital city homes and moving to the coast. Until consumer sentiment improves and/or tourism bounces back, we don't expect a significant recovery in the regional areas. (Source: The Sunday Mail, 17 April 2011)

What will result from the current economic conditions is improved affordability within the property sector. Buyers who have been considering purchasing within popular coastal areas such as Rainbow may have previously been reluctant to commit to a purchase due to the high initial capital outlay. With values falling back anywhere between 10 – 25% over the past three years; there is now an opportunity to purchase a property at a price similar to that of 2005 values.

This situation is not likely to be sustained as the economy improves. Historically Australia has entered a period of recession every seven to nine years. ‘Recoveries’, ‘booms’ and ‘corrections’ have occurred in varying intervals over centuries and it is almost impossible to predict the cycle.

Many forward-thinking individuals are making moves right now to purchase property in the location they are looking to retire in. We have had many experiences recently with prospective purchasers looking to buy a house or unit in Rainbow Beach through their self-managed Superannuation Fund with a view to renting it out over the next 3 – 5 years and then move here permanently themselves. There is an understanding and underlying belief that if they were to wait 5 years prior to purchasing, they may not be able to afford to get into the market at all then.

The key message to prospective buyers is: Act now!
We have a finite amount of useable residential land which will ultimately put upward pressure on prices.