Investing in property in lifestyle locations could be a potentially risky move.
Blogger: Kevin Lee, founder, Smart Property Adviser
As I ‘missed out’ on spending time in tropical Airlie Beach over the Christmas/new year period, I thought I would share some research and explain why you shouldn't invest where you want to retire.
Located on the same latitude as Rio De Janiero in Brazil, Airlie Beach and the 74 islands that are the Whitsundays are arguably among the most famous holiday locations in all of Australia. People in their thousands travel from all over the world to visit Airlie – including recent celebrities like Taylor Swift, Pink, Matthew McConaughey, Brad Pitt and Angelina Jolie.
To many people, it's paradise and the perfect place to retire. But if you've ever thought of investing in a location where you’d like to retire, you should read this article because it will make you think again.
I made that mistake in 2000 when I fell in love with the place and thought we should buy property where I wanted to retire (Airlie Beach). In 2003 in an ‘off-plan’ purchase, a group of investors and I bought most of the land in a “gated estate” overlooking Airlie and the Whitsundays. The view is spectacular; the location absolutely amazing.
You know Murphy’s Law? It’s absolutely true: and I reckon Murphy was out to make sure we never forgot his name! Everything that could go wrong did, from dodgy engineers and contractors, less-than-honest developers, deviations from the DA and plain old shortcuts. When the first major rainfall hit six months after the purchase settled – the roads moved and the retaining walls gave way. The estate was no longer ‘attached’ to the hillside. Fast forward through the years of headaches, experts, lawyers, engineers, more experts, more lawyers, more headaches and the largest mediation hearing in Qld Supreme Court history and we rebuilt the entire estate.
But old Murphy was still lurking around – an early wet season shut the site down for 7-8 months, creating a massive delay to the reconstruction works. And then the GFC came along and wiped out the world’s play money! Airlie Beach was no longer a desirable place to invest; simply because the people who used to no longer had anything left to invest.
Let's crunch some numbers:
Airlie Beach/Cannonvale/Jubilee Pocket has just over 12,000 permanent residents (QLD Government, 2015) while the Whitsundays have around 18,500. However, this region hosts approx 654,000 visitors every year (teq.queensland.com, 2014).
Median sale prices for houses in Airlie Beach have increased by 0.7 per cent in 2015. Looking at the bigger picture though, you can see that from 2010-2014, Airlie Beach real estate went backwards each year.
As is often the case though – statistics don’t show the ‘full picture’, as there are literally hundreds of examples that evidence a massive drop in re-sale prices between 2003 and 2010!
In 2011, Core Logic RP Data reported that approximately 40 per cent of the properties in Airlie Beach and Cannonvale were owner-occupied, which suggests that some 60 per cent are investment properties.
SQM Research identified in January 2016 that the vacancy rate across all rental properties in PC 4802 was 7.5 per cent in December 2015. Even more scary is that the vacancy rate was actually well above 10 per cent between January 2015 and July 2015. Realestate.com.au also reports that Airlie Beach has an annual growth of -3 per cent and a low demand for rental properties.
The sale struggle in Airlie Beach:
A beautiful eight-bedroom, five-bathroom house located in a prime spot in Airlie Beach was purchased for $1.79 million in 2011. The current owners were either dreaming or seriously misled by their agent when they decided to place the property on the market in 2013 for $2.5 million – it sat there for 73 days before it was pulled it off the market.
In 2014, they attempted to sell again, this time at $1.89m. Sadly, this mansion-of-a-house sat on the market ‘for sale’ for 505 days before the owners pulled it off in October 2015. A Core Logic RP Data Desktop Valuation last week suggests the property is worth around $1.76 million. With my knowledge of the real estate scene up there – if the current owners needed to sell now, they would have to settle for something around the $1.20 million figure.
So, how do other types of property in Airlie stack up as an investment? They don’t.
The last word? This type of result isn’t reserved for just Airlie Beach: every lifestyle location in Australia (if not the world) has experienced the same crash in real estate prices/values.
Moral of the story:
If you're buying based on emotion, ego or greed, you're making a huge mistake.
About the Blogger
Kevin Lee of Smart Property Adviser is regarded by many as Australia's most trusted property investment adviser. Since 1999, Kevin's been the go-to-guy for people when they need honest finance and property investment advice and guidance.