By Guest Blogger, Terry Ryder, founder,
hotspotting.com.au and propertyU
Real estate cycles wax and wane over time, but the fundamental drivers of long-term growth seldom change.
A location with a strong and diverse local economy, a rising population driven by lifestyle and employment opportunities, and a program of spending on new or improved infrastructure is always likely to deliver price growth over time.
Such a location will experience growth because the growth factors in its economy will create economic activity and employment – and from that will come demand for real estate.
The key to success for property investors is to identify locations which have those basic qualities – with significant change in the local dynamic a key feature to identify.
Here’s a case study that illustrates the point, starting with a question: why has the Sunshine Coast been a national leader on price growth for the past 3-4 years.
This was a growth market, out-performing national averages on price growth, long before the covid boom created a national up-cycle.
What were the factors that created this out-performer? In a word, infrastructure.
Major new infrastructure totalling over $20 billion created massive change for the better in the Sunshine Coast economy, previously hindered by over-reliance on the tourism sector.
A $2 billion hospital generated a major new industry sector, bringing new people to live on the coast. More medical infrastructure has been established in the vicinity, creating a $5 billion medical precinct employing many thousands of people.
In this period, a major expansion transformed the Sunshine Coast airport into an international facility and billions were spent on retail centres and motorway upgrades. Work is well under way on creating a CBD from the ground up in Maroochydore on a 54ha site that was previously a golf course.
Prices have soared throughout the Sunshine Coast region in the wake of the infrastructure revolution and the consequent uplift in population growth. It’s been particularly noticeable at the top end, with Sunshine Beach prices trebling in five years. In nearby Noosa Heads, the median price for apartments rose 120% in the same time frame.
Infrastructure spending, economic diversification and population growth equate to massive change. It’s a dynamic formula for price growth.
Hobart and Tasmania provide another example of major change in the underlying economy, driven by proactive decision-making by government, leading to significant price growth outside of the national cycles.
Hobart’s property boom pre-dates the pandemic boom, coinciding with the rise of Tasmania up the national economic rankings. Traditionally at the bottom of the rankings in CommSec’s
State of the States quarterly report, Tasmania rose steadily over several years before reaching No.1 about 18 months ago.
Previously the cheapest capital city market, Hobart dwellings are now considerably dearer than Adelaide, Perth and Darwin – and not much below Brisbane and Melbourne.
Major trends and events to watch out for?
The Exodus to Affordable Lifestyle trend has been quietly generating growth in regional centres for the past decade, particularly with people relocating from Sydney and Melbourne. The pandemic made the trend more visible and gave it greater impetus. It’s driven by technology and the ability to work remotely, as well as the pursuit of lifestyle at more affordable prices.
The Exodus has spread far and wide, but locations within 1-2 hours of capital cities will always have an advantage. Now that Australians have a taste for it, it’s not going to stop because the pandemic restrictions have passed into history (we hope).
The re-opening of international borders is already having a big impact, with a dramatic drop in vacancies in the inner-city areas of the biggest cities this year. Overseas migrants and students are coming back to Australia – and the federal policy of filling job vacancies with an increased migrant intake with be an additional big factor in real estate.
We already have a chronic shortage of rental properties and of dwellings generally – so a significant rise in migration numbers with put further upward pressure on rents and sale prices.
This speaks to one of the greatest factors impacting real estate across Australia – the rental shortage crisis. Most postcodes in the nation have vacancy rates below 1%, which means an open house for a newly-available rental property will attract queues of applicants – some of whom will offer more than the asking rent to beat the competition.
This means rents are rising 10-20% in many parts of Australia. The resultant increases in yields is timely, with interest rates rising.
Against this background, further upward pressure on dwelling prices is not far away.
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