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Sun shines on Coast property market

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Sun shines on Coast property market

CBRE’s end-of-year review of the commercial property market identifies the Sunshine Coast property market is still being fuelled by key factors including: Significant infrastructure investment; Airport upgrade; Bruce Highway upgrade at Palmview; Major property projects: SunCentral Maroochydore, Oceanside; Increased tourism numbers; Strong population growth; Rising business confidence.

CBRE Sunshine Coast director Brendan Robins said yields (return on investment) moderated in 2017, with an average yield range of 6.75%-7.5%.

“At the sharp end of the yield curve, investment properties with a national tenant and a 5-10 year lease are selling for around 5%-6%. However, assets with a distressed lease profile are still selling above 8%.

“The industrial sector is probably the star performer of all the sectors, with increased sales for vacant land and newly-built stock. Construction-related businesses have seen strong growth as a result of demand within the residential property market.”

Centra Park Coolum and the Sunshine Coast Industrial Park (Caloundra South) achieved a number of land sales and new projects were started and some completed during the year, Mr Robins said.

“Selling prices for new strata units range from $1700 up to $2000 per sqm for modern new tilt sheds.

“Industrial rents have increased over the year, ranging from $110-$130 per sqm for quality stock and from $100-$110 per sqm for secondary stock.”

Mr Robins said demand for industrial land has continued to strengthen – with the average 2000 sqm allotment virtually sold out in Coolum and priced from $200 per sqm at Bells Creek and Coolum where there are only a few small lots remaining. Established precincts such as central Kunda Park and Caloundra West achieved circa $300-$330 per sqm.

“Despite a barrage of challenges such as online shopping and Amazon’s entrance into the Australian market, the retail sector has continued to improve. Spending was up across most categories, strongest in food retail and the bulky goods.

“The food and beverage market is the star performer across the country. Development on the coast included the $400m expansion of Sunshine Plaza, which is due for completion in late 2018. Some projects were completed in 2017, including The Point at Kawana.”

Several shopping centres were sold in 2017 including the Peregian Springs Coles ($41m) and the Tewantin Woolworths ($17.3m).

The Sunshine Coast office market (Kawana, Maroochydore and Mooloolaba), which now now totals over 170,000sq m of space, will face some challenges over the coming years.

CBRE has found that due to significant developments such as Kon Tiki (16,000 sqm) in Maroochydore and Stage 1 of Youi at Sippy Downs, the vacancy level will increase for 2018 and beyond.

“Rents are generally in the range of $300-$360 per sqm plus outgoings and have been at this level for around a decade. Capital values for A-grade stock range from $4000-$4600 per sqm.

“The development market is still performing strongly on the back of demand for well-priced and well located product. Commercial land in established precincts is generally priced from $700-$1200 per sqm.

“Premium residential development sites close to water or with substantial development upside have transacted for $1500-$4000 per sqm. Demand from developers for both townhouse and medium-high density unit sites is high, with sites selling for $50,000-$100,000 per lot, depending on development costs.

“We expect development to remain strong in 2018 as business continues to expand within the region. Although the influx of capital into major projects will continue, many investors are now sitting on the fence due to years of yield compression. Nevertheless, the fundamentals of strong population growth and significant projects in the pipeline will keep the sun shining on our commercial market.”

Originally Published: www.sunshinecoastdaily.com.au

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Opinion

A COLOSSAL RISK: Huge danger sign for housing in Australia

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A COLOSSAL RISK Huge danger sign for housing in Australia
There could be far too many apartments for sale in coming years. Picture: Glenn Hunt/The Australian What does a million dollars buy in Aussie capital cities?

IT COULD be a bad year for housing prices if building approvals are anything to go by. With the housing market teetering on the edge of a serious downturn, apartment developers seem to be having a “last blast”.

Building approvals data released last week shows a serious uptick in the number of homes that were approved. November building approvals were up 0.9 per cent compared to October, and are 8.1 per cent higher than November 2016. The source of the lift is mainly apartments, which rose from already high levels.

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

The timing of this big push is fascinating because November is exactly when Australian capital city housing prices started falling. Corelogic shows prices fell by 0.1 per cent in that month as Sydney took a sharp downturn. The developers didn’t know in advance that was going to happen, but they might have sensed it. After all, what could drive such a big uptick in building approvals is the sense that it is now or never.

Builders who have just got their approvals will be racing to get their apartment blocks and new developments done before everyone else. Those who finish early can hope to get in before prices really slump. Any who have delays will be worried they’ll end up selling into a soggy, lifeless market.

TIMING IS EVERYTHING

Markets are supposed to co-ordinate supply and demand. But that’s a hard job when supply takes a long time to come online. If you’re halfway through building a big development when the market falls by 10 per cent, you’re in a bind. The losses involved in finishing the properties and selling them for less than they cost to build will almost certainly be smaller than the losses involved in abandoning the project, so you have to push on to get at least some money back. This is the essence of the boom and bust cycle that characterises property.

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

Some very large developers might finish properties and then sit on them, hoping the market improves over time, but that’s also a risk. Markets can take a very long time to recover.

SOUTH OF THE MURRAY

The really interesting thing about the November building approvals data is where it was focused. All the increase was focused on Victoria. The average number of building approvals in New South Wales, Queensland and South Australia was actually lower than in the previous month, by 2 to 3 per cent. But Victoria saw a whopping 27 per cent rise.

That anomaly becomes especially curious when you consider that Victoria was the market that actually went on to see price appreciation in November (0.5 per cent growth in prices, according to Corelogic). Could it be that developers, sensing Victoria is the only market with price growth left in it, are focusing their attentions there?

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

Another explanation for such a massive jump would be if a single large project came through the pipeline in the month of November. A giant apartment development somewhere in Melbourne, for example. For now, it’s not clear if that’s the case. Whether it is one project or many, the impact on housing markets of a big rush of supply is largely the same – extra supply generally makes prices lower than they would otherwise be.

QUIT WHILE YOU’RE WINNING

Some smart developers have already got out of the property development game, telling the financial press they are sitting out until the market repairs itself. The so-called “pipeline” of new building had been shrinking. The November building approval data shows a different picture. It suggests the pipeline might get fatter again for a little while and there could be one more flurry of cranes going up. The one caveat is this – builders can pay to get a building approval and then not use it. That might be the best case scenario.

The big question hanging over Australia’s high housing prices is whether a housing downturn can happen without also crashing the economy. A gentle and controlled downturn might be a positive – young people can afford to get into the market more, but people don’t feel like the sky is falling.

But a severe sharp downturn could be different. A giant backlog of supply that could be released into an already weakened market is a concern because it could accelerate a modest slide into a hard one.

Originally Published: sunshinecoastdaily.com.au

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Noel Whittaker says don’t get beached by dream purchase

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Noel Whittaker says don't get beached by dream purchase

Before you get too carried away ask yourself the tough questions.

First, “do we keep it for our own use or rent it out?”

If you don’t rent it out, you’ll be tying up a large amount of capital that could almost certainly be used better elsewhere and, if you have children, you’ll find out that you won’t be able to go there as often as you’d planned.

Then you will have to decide between leasing it

out permanently and making it available for holiday letting.

If you go for a permanent tenant you will achieve a regular income but the trade-off is that you cannot go away and use it for the odd weekend.

If you opt for casual letting you will need to provide everything from plates to a washing machine and will have greatly increased wear and tear because of the constant turnover of tenants, few of whom will treat the property kindly.

If you borrow for it, you’ll only be able to claim a tax deduction for the rates, maintenance, interest and other expenses if the property is income- producing.

This means you will have to rent it out.

If you decide to keep

the peak periods such as school holidays for yourself, you’ll be substantially reducing the income because the highest rents are charged in the holiday season.

And if you do use the property yourself, you’ll only be able to claim a percentage of the costs.

For example, if you occupy the property for 13 weeks, leaving it available for the other 39 weeks, you could claim only 39/52 of all expenses.

Then comes the choice between a house and a unit. A house will be great if you want to take the pets away on weekends with you, and as long as you don’t mind maintaining two gardens.

Unfortunately, the cost of a well-located beach house, as well as the accompanying rates and maintenance, is way out of the reach of most of us. To make matters worse the land tax on the property will put you into a higher land tax bracket which could affect your other rental properties.

Originally Published: www.sunshinecoastdaily.com.au

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Would Australian Households Be Better Off if We Ditch Negative Gearing?

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Would Australian Households Be Better Off if We Ditch Negative Gearing

Economic modelling undertaken by University of Melbourne economists, and presented to the Reserve Bank last month, shows that three-quarters of Australian Households would be better off if negative gearing is abolished.

The study was posted on the Reserve Bank website for public release on Friday.

The paper explores the implications of negative gearing – including a 30 per cent collapse in the supply of rental properties – and found that abolishing negative gearing would lead to an overall welfare gain of 1.5 per cent of GDP.

Negative gearing is a policy that largely benefits landlords, and for the 17 per cent of the Australia population that have property investments – out of which 70 per cent are negatively geared – would be worse off.

The study estimated that thirteen per cent of the population would be directly influenced by the removal of negative gearing, and likely to quit their holdings.

“The housing prices fall because removing negative gearing takes a significant amount of housing investment out of the property market,” the report said.

“Both the proportion of landlords and the amount of resources allocated to housing investment, given by the average expenditure, have fallen significantly after the policy reform.

Importantly, removing negative gearing increases the average homeownership rate of the economy from 66.7 per cent to 72.2 per cent.

The improvement in homeownership was observed most predominantly among poor households, where the fall in house price and the rise in rent reduce the price-to-rent ratio in the economy by 4.2 per cent.

“This has direct implications on housing affordability as the fall in house price lowers both the downpayment requirement for mortgages and the size of mortgages required to purchase a house, making it easier for households to own a home.”

If negative gearing was to be scrapped, the average mortgage size held by homeowners would likely decrease 21 per cent.

“Eliminating negative gearing takes young landlords who were rich enough to meet a downpayment requirement for investment properties away from the market.

“This reconciles a recent trend in the property market that there has been a rise in investment housing debt holdings by young and rich 35 households who would have benefitted the most from negative gearing concessions.

“The aggregate welfare for the economy improves upon the repeal of negative gearing … around 80 per cent of households are better off after the policy reform.”

Australia’s negative gearing regime stands alone against comparable OECD countries. Only New Zealand and Japan allow the unrestricted use of negative gearing losses to offset income from other sources.

The report’s authors, Yunho Cho, Shuyun May Li, and Lawrence Uren said that along with their findings on negative gearing it would also be worth considering some partial restrictions, such as allowing tax deductions for mortgage interest payments only.

Originally Published: www.brisbaneinvestor.com.au

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