Turning the Corner
So here goes, I think we have reached the bottom of the market…and the top of the market. How’s that for a bet each way. The simple fact is that much of the country is running at multiple speeds, nowhere is it more evident than in Queensland and to a lesser extent Western Australia. Many of Queensland’s regional centres have experienced demand at record levels, most fuelled by investors that have chased the next big thing. Some will have done very well, many may be okay but unfortunately, those late to the scene are probably sticking their fingers in a dyke trying to stop the flow of leaks.
South East Queensland on the other hand has had some of the most diabolical trading conditions in memory. Now this is where I stick my neck out…I believe the worst may well be behind us. This doesn’t mean that the recovery is going to be quick or uniform. It will be like dropping a stone in a bucket and watching the ripples move out. Obviously a simple analogy but you get the point.
Population growth has bottomed and is now starting to improve. Let’s not get carried away, overseas migration is again lifting and contrary to populist politics, it’s not the result of boat people. There has also been a slight improvement in interstate migration. This is one of the key drivers to the recovery and in many respects, requires a reasonable amount of self belief by the Queensland people themselves. This aspect of the State population is well below the long term average, so there is plenty of room for improvement. Watch this space over the next two years.
Building approvals continue their relatively flat trend. Whilst this is not good for the construction industry in the short term, it is setting up the preconditions for a shortfall in the residential sector. Rental pressure remains firm in many locations, this is likely to increase over the next couple of years.
Another interesting statistic that rarely gets any press are those relating to bankruptcies, both business and personal. Non-business bankruptcies topped out in 2009 with business bankruptcies reaching their peak in 2010. Of real good news is that the non-business bankruptcy rates now sit below those of 2005. This is contrary to what many people would think if asked in the street.
Let’s not forget interest rates. The Reserve Bank has indicated that it is in a stimulatory frame of mind now the resource sector is slowing. Some economists have suggested that the next interest rate move could see a further 50 basis points come off the cash rate. Whilst this is unlikely to be passed on in full by the banks, it will no doubt help purchasers in terms of affordability. The Reserve Bank is very keen to ensure that the broader economy now starts to gain traction and start its recovery, a sentiment the retail sector is also very keen to share.
So whilst the indicators are there for the residential sector in SEQ to turn around, the recovery will not occur all at once in every region. Areas like the western corridor that have significant supply, are likely to experience a more modest improvement in the next two years, though the rail and improved amenity continue to make this a region with sound prospects into the future. The inner suburbs of Brisbane are experiencing higher demand. The Sunshine Coast and Gold Coast are starting to pick up, but this is often on the back of mortgagee sales which have set back new projects at least two years. As this stock finally is absorbed into the market, developers will again start to build again.
The question remains, green shoots or a genuine lead by many of the indicators? Unless we have another significant economic event of the scale seen in the past five years, then I believe the bottom may well have gone before us. The recovery whilst unlikely to be steep, is better than no recovery at all.