Australia’s leading Positive Property HOTSPOT for 2014!
I have spoken a lot in previous blogs about the property market cycles but this week I have some really exciting news – the Pilbara Market is certainly heating up.
Here at Crawford Property Group we are constantly researching and reporting on what’s driving property markets around Australia.
The number of buyers emerging in regions like Karratha are the highest I have seen in the last 18 months with leasing enquiries picking up as well.
Watch my special report on why Karratha is a hotspot as well as a featured story on Today Tonight here.
Benefits of buying positive property off the plan
There is significant new development occurring in some of Australia’s positive property hotspots such as the Northwest and Central Queensland, offering investors a variety of opportunities to invest off the plan.
Many consider off the plan property to be a high risk investment but with thorough due diligence it can generate excellent returns with low cost entry.
One of the major draws of buying off the plan is that a deposit of around 10% will secure the property. Pre-approval on finance will be required but the balance is generally not be payable until settlement.
With construction completion often taking six to 12 months, there is an extended timeframe for settlement and investors can take advantage of this to improve their financial position and benefit from any capital growth. As the property is purchased based on a fixed price contract, any equity the property generates between the deposit payment and settlement is the investor’s capital gain.
New properties also command top rents and investor profits can be further increased by taking advantage of tax depreciation, which is maximized for new properties. They also have minimal maintenance costs.
In addition to conducting comprehensive market research, it is vital that investors conduct due diligence on the developer. The developer’s track record, design and quality of projects, and capacity to deliver on schedule should be analyzed before committing to buy.
This includes investigating factors that can significantly affect a property’s value and rental yield such as floor plans, fittings, finishing’s and appliances.
Workmanship and products should be of high quality with suitable warranties. Ensure the process for rectifying defects is clear and assess the options for the customization of floor plans and fittings if it will add value and attract quality tenants.
Investors should review the contract carefully and seek legal counsel if they need clarification on the term and conditions.
Off the plan purchasing typically offers a low cost entry into the property market and in some states investors can avoid paying full stamp duty, making it a desirable option for first time investors.
Central Queensland: The New Frontier for Positive Property
The trends that have characterized the positively geared property markets of the Pilbara boom towns can now be identified in the resources hubs of Central Queensland, providing investors with opportunities for portfolio diversification.
Over the past decade, the development of large resource projects, significant infrastructure investment, sharply increasing workforces, massive demand for accommodation and a severe undersupply of rental stock have caused both rents and house values in the Pilbara towns of Hedland, Karratha and Newman to skyrocket.
The Pilbara’s major iron ore and LNG projects are now in their operational phases. Housing markets remain strong and continue to deliver investors leading rental returns but growth is stabilizing to more sustainable trends.
In contrast, Gladstone, Central Queensland’s industrial centre is very much in development. An established Alumina refinery has contributed to a healthy rise in house prices over the last several years, but its coal and LNG industries are still in their infancy.
Three LNG projects are currently in construction and another 14 infrastructure projects are in the pipeline (coal terminals, additional LNG and other mineral processing facilities). The value of these projects totals $105 billion – dwarfing Port Hedland’s $12 million, the Pilbara’s top town for infrastructure investment.
Moranbah is the Bowen Basin’s coking coal hub and services more mines than any other town in the country, drawing comparisons with Newman’s proximity to the Pilbara’s many iron ore operations. Moranbah has also seen its housing market strengthen following the commodities boom. It has $15 billion of approved and planned projects, including 14 coal mines to add to its existing 14.
While current and anticipated development in both towns is unsurpassed in Australia, investors will be aware of the softening of the market in recent months – a result of an increase in land availability and new residential development.
However, a combined $120 million in current and planned projects, a diversified long term commodities industry and projected population growth which is unlikely to be met with sufficient housing supply, they continue to make a strong investment case for the positive cash flow investor.
How to Find a Hotspot
Research – The Key to finding positive property hotspots
Research is a critical part of the investment process. To ensure an informed decision is made there are some key areas to focus on when seeking to invest in positively geared property.
Historical growth rates should be investigated over 10 years to ascertain a sustainable growth path, rather than simply looking at the last 12 months, or the most recent quarters. As an example, over the last two quarters Port Hedland’s median house price has dropped 11%. The data over the past 10 years however shows the town has had an uninterrupted annual increase since 2003, growing by 18% over the period. The recent fall is due to seasonal movements and a pause between project developments – when the second phase of development commences this year, prices are expected to continue their steady rise.
Industrial growth & infrastructure investment
A severe housing supply/demand imbalance is most typically seen in smaller towns (populations between 5000 and 30,000) where the effects of industrial growth are greater due to smaller and less diversified industrial profiles. Industrial growth and the infrastructure development that follows can heavily influence population numbers as construction projects bring with them large workforces, increasing demand for accommodation.
Population trend & vacancy rate
The population trend should be examined to determine the sustainability of an increase. If a town’s population shows a historical downward trend then there is likely to be housing over supply which means the arrival of a new workforce will have less impact on demand. A town’s vacancy rate is also an indicator of an over or undersupply of rental stock. A consistent increase in population, such as that seen in the central Queensland industrial hub of Gladstone, suggests that (if new development is constrained) supply will struggle to keep up with demand.
Another factor to consider is whether more housing is in development and what onsite accommodation a construction project may supply to its workforce which will reduce pressure on rental stock.
Corporate tentants / Median wage
At the same time, many workers also have families and those that relocate with them will require proper housing. Construction and mining companies will source often high numbers of rental stock and pay premium rent to ensure they secure accommodation suitable for this portion of its workforce.
A high median income, such as that in Moranbah in central Queensland which is double the national average, is also good indicator that top rents are being paid.
The above information is all available on government websites, REIWA and through property research portals. CPG’s independent expert reports available on its website, are also a good starting point:
House and land packages – a strong start to investing
Over the past few years house and land packages have become increasingly popular with investors as a way to enter the property market.
House and land packages offer a number of distinct advantages when compared to buying an established home.
Firstly, they tend to be competitively priced and offer a lower cost entry into the property market. In addition to this entry advantage, investors can avoid paying stamp duty in certain states. This can be a saving of thousands of dollars when compared with the potential stamp duty payable when buying an established home.
The purchase of a house and land package also benefits the investor by offering a wide range of configuration choices, ideal if they are targeting the corporate leasing sector. For example, investors can add additional ensuites to the plan of the home which will appeal to renters and significantly boost the rental returns of the property.
In a rising property market, there is also the opportunity to lock in construction and land prices by using a fixed price contract and end up with a property worth significantly more than what it was purchased for. During the period elapsed from the contract being signed to completion and handover of the property, any increase in the value is to the benefit of the buyer, not the seller. In rising markets it is not unusual to see properties settling with instant equity, which the investor can borrow against to assist in future purchases.
The main advantage of a house and land package is that the property is brand new and comes complete with builders warranty and low maintenance costs. Buying older properties can eat into any cash reserves available, as maintaining older homes can be quite expensive and they are less appealing to higher end corporate tenants. A new home also offers attractive tax depreciation benefits that can significantly boost the properties return come tax time.
House & Land packages can serve as the ideal first investment to the cash-flow positive investor offering; increased rental return, lower maintenance costs, depreciation and the potential to capitalise on rising markets whilst protected by fixed price contract.
Crawford Property Group is currently offering a number of House & Land packages in Positive Property Hotspots.