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The Message for 2014: Choose your Location Very Carefully

Thursday, January 09, 2014

By Terry Ryder
Wednesday, 20 November 2013

 

The experience of 2013 has taught investors, once again, how careful they need to be in their location choices.

When markets are rising, as some have this year, investors can be deceived into believing that any purchase will give them growth.

That's especially so when some media would have us believe that "the Australian property market" is white hot. The reality is that only a very narrow strip of real estate Australia has conditions remotely resembling a boom.

Most cities and regional areas have recorded moderate growth this year and others have struggled, with a few over-supplied markets in sharp decline.

The last time a property boom swept the nation, encompassing almost everywhere, was ten years ago.

These days, buyers have to be selective. A poor locational choice can result in an under-performing property surrounded by rising markets.

The latest House Price Indexes from the Australian Bureau of Statistics, describing annual growth to September, have Sydney as the only city with a double-digit increase. Melbourne and Darwin (6-7%) have had moderate growth, Brisbane has grown just 4% and Canberra, Hobart and Adelaide have stagnated.

In regional Australia, selected cities and towns have done very well this year, including a few where annual growth has topped 20% - among them Miles and Cloncurry in Queensland and Narrabri in New South Wales.

Some have had sharp corrections, due to local conditions. Notable examples are Queensland coal mining towns like Moranbah and Blackwater, and the iron ore town of Newman in Western Australia.

Moranbah demonstrates the volatility of pure mining towns: once the number one location in the nation for capital growth, it has recorded a 37% decrease in its median house price in the past 12 months, according to Australian Property Monitors figures.

Newman, which saw its median top $800,000, has recorded a median below $500,000 with its most recent sales. No doubt it will rise again when the massive Roy Hill mine cranks up construction. I couldn't sleep if I owned property in places like this.

This week I was in Central Queensland, which provides a case study in the variations that can exist across quite short distances. Gladstone, a city with high real estate demand but way too much supply, has recorded a marked decrease in prices and rents. The median house price for the suburb of Clinton is down 10% and South Gladstone has dropped 8%.

In Mackay, where new supply has coincided with a drop in demand thanks to a downsizing coal industry, the previous strong growth has halted.

Meanwhile, in unheralded Rockhampton, sales volumes have increased and prices are following. The city has more economic diversity than Gladstone and Mackay, with less reliance in resources. It's also considerably cheaper.

The message for 2014 is to choose locations carefully. These is no national property boom and while I expect Brisbane to rise and Perth to continue to be strong, most cities will deliver only moderate growth and some, like Canberra, will struggle.

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