Depressed markets set to turn

By Jack Needham

Two previously depressed markets are being touted as the growth locations to target in 2016 – but what do investors need to watch out for?

A new wave of predictions is citing the Gold Coast and Perth as the markets to watch next year, as momentum moves away from Sydney and Melbourne.

The latest round of speculation over the Gold Coast was triggered by the release of new apartment sales figures for the September quarter by consulting firm Urbis, which indicated that the market had experienced a 150 per cent increase in sales from the same time last year.

In real terms, that represents an increase of 253 apartment sales – paltry in comparison to the Sydney and Melbourne markets, but a significant increase for a region that suffered a significant decline post-GFC.

"The Gold Coast apartment market is continuing to break records in 2015 with sales in the first three quarters combined of 1,041, overtaking the total yearly sales for 2014 of 825," Urbis senior consultant Lynda Campbell was quoted as saying in the Australian Financial Review.

Stephen McGee, Queensland state manager of National Property Buyers, agreed that the market has reached a clear turning point, but cautioned investors now looking at the region to avoid new apartment stock if they want a sustainable investment option.

“I think they need to choose their investment vehicle wisely – it’s all related to pricing. The international buyers are competing with the interstate buyers for that high-rise apartment product but they may not be attractive to everybody because typically the rental yields are not that great,” he said.

Apartments will also be more susceptible to future market fluctuations, if previous experience is anything to go by.

“I would probably stay on the outskirts of the beachside areas and I would be looking for good-quality house sites. You can mitigate against the cycle of the market by the type of property you buy. In the Gold Coast, the first sector of the market that softens is your beachside high-rises and your apartments – that’s where the transient population is,” Mr McGee said.

He cautioned that eager investors looking to repeat the capital growth they’ve experienced in Sydney and Melbourne on the Gold Coast need to reset their expectations.

“It won’t be to that degree. You’re going to have growth, but you’re not going to have the quantum of growth that you’ve had in Sydney and Melbourne – it’s not going to happen.”

Meanwhile, the Perth market has been flagged as holding opportunities for investors seeking a high cash flow purchase, as other major rental markets continue to battle tightening yields. 

According to Craig Abbott, general manager of Raine & Horne WA, the city’s rental yields represent a significant advantage over eastern capitals.

“Cash flow hungry investors and self-managed funds will also recognise that Perth’s gross rental yields for houses and apartments, both 4.1 per cent, compare favourably against the returns being achieved by investment properties in the southern capitals,” said Mr Abbott.

“What’s more, in some regions such as East Perth and Perth, yields can be well above 6.5 per cent, which you just won’t find in many residential capital city markets on the eastern seaboard.”

Peter Vetten, Principal of Raine & Horne Mandurah, said he is fielding calls from interstate investors who have been priced out of the Sydney market.

CEO of Momentum Wealth Damian Collins said recently that although the Perth market was unlikely to see any capital growth over the coming year, house price declines had been through their most dramatic phase already.

“Even in a flat market there are still opportunities, and I guess investors need to be looking for suburbs that have got potential that the market hasn’t seen, whether it’s been from rezoning or new infrastructure going in. Property’s a long-term investment and the opportunity now is to buy good-quality properties at good prices with a good long-term outlook.”

Listen in to The Smart Property Investment Show discuss this and more in the latest podcast.

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