On tour with Dr Matt - Townsville, part three

On tour with Dr Matt - Townsville, part three

In part one and two of our three part series with property mentor, Dr Matthew Bateman we discovered Dr Matt’s verdict on the Sydney and Perth property markets.  In this final instalment we will join him while he considers the opportunities currently available in Townsville.

Whilst, I personally like the vibe of Townsville as a place to spend a day or two, it really is too much of a big country town for me to consider personally relocating there from my own lifestyle perspective. That however, does not stop me from considering any area in Australia, as a potential investment opportunity. In fact, given the perfect imperfections that exist in the Australian Property Markets, it is possible to make significant money just about anywhere in Australia through either sound negotiation, understanding market cycles, or using value-added strategies or better yet, a combination of all three.

So should you be investing in Townsville?

Before answering that question, a better question to start with would be why are you investing in the first place? Are you buying for yield, for cash-flow, for development potential etc?One of the biggest challenges I have seen to investors building sustainable wealth is that they often invest without a clear wealth plan. As a result, they will often move from one strategy to another, often getting average or even poor results, as they have not clearly identified the reason they are even investing in the first place, let alone performed the required research that enables them to confidently move into the market with a known strategy. That being said, Townsville sits at an interesting point in its property cycle. Some researchers are predicting that Townsville has reached a bottom, and that things are starting to move upwards again, whilst others, including Queensland specialist Michael Matusik, believe Townsville is still in its stagnation phase.

Townsville - The Pros

Considered the unofficial capital of Northern Queensland, the city of Townsville is home to over 194,000 people, making it the highest populated regional centre outside of South East Queensland. 

“It’s traditionally a strong economic market. It has a mix of economic drivers like tourism and the army services, mining and agriculture which has kept it ticking over. But unemployment has risen sharply and there are issues with the mining industry and falling ­government spend," according to the senior economist for the Domain Group,  Andrew Wilson. 

“There’s also been strong population growth, which has come at the wrong time, as there are declining job ­opportunities,” he further commented.

Townsville's residential property market is currently at the "start of recovery phase", according to Herron Todd White's March Month in Review report.

The agency advises that it is currently "a good time to buy" in Townsville, given low median prices and low interest rates. According to the Real Estate Institute of Queensland (REIQ), Townsville's median house price was down 5.6% in the September quarter to $340,000, with a 27% increase in sales activity.

Interestingly, the day I arrived Australia announced a significant $2.25B trade deal with Singapore to increase the facilities of the Army Bases in both Townsville & Shoalwater Bay (just north of Rockhampton). Townsville is also angling for some other big ticket items including a new Stadium. Townsville’s plans to build a $380m Integrated ­Stadium and Entertainment Centre with up to 30,000 outdoor seats and a 6000-seat indoor facility, in the heart of the city.  The stadium will become home for the North Queensland Cowboys, and host music festivals, concerts, business events and include a state-of-the-art sports facility for James Cook University by 2021. It is expected to generate $2 billion in economic flow-on and 570 jobs.

Currently yet to be fully funded, Opposition Leader Bill Shorten on the elections trails has reaffirmed his party’s $100 million commitment to the stadium in line with the State Government’s pledge of $100 million. Bill Shorten is currently spending the week in Townsville given its political importance to this election.

Townsville - The Cons 

Townsville has both an alarmingly high unemployment rate (10.4% in March 2016) and a high Vacancy Rate of 6.9% according to SQMResearch in March 2016, which has jumped significantly since about 2012.  Some of the problems are highlighted by Andrew Wilson “The (Townsville) market has become unbalanced due to the preponderance of NRAS properties & DHA housing".

For those who do not know NRAS is a partnership between the federal government and the states to provide affordable rental housing, which “unbalanced" the ­Townsville market. This is another example of Government intervention, although perhaps well meaning, often being poorly executed. What is that saying about "the road to hell being paved with good intentions"? Underlying the importance of knowing your local market down to the street level, in many areas of Townsville rents have started falling because most of these NRAS properties were located in less popular areas, attracting lower socio-economic tenants, and causing general demand in these areas to wane.

Townsville has also not been helped by the recent closure of Clive Palmers embattled Queensland Nickel.  The collapse of the refinery rocked Townsville and like other regional area cities along the North Queensland coast – such as Gladstone, Mackay, and Rockhampton – Townsville has suffered following the slow-down in the “once-in-a-lifetime” mining investment boom. Townsville, a major hub for fly-in, fly-out (FIFO) workers employed at the nearby mines in the Bowen Basin and according to economist Colin Dwyer,  has lost up to 9500 jobs in the past 12 months alone. Unsurprisingly, this can cause significant psychological distress and adversely affect the consumer sentiment of the region. 

Townsville - The Opportunities

According to www.realestate.com.au the median sales price for houses in Townsville City, QLD in the last year was $370,000 based on 13 home sales. Compared to the same period five years ago, the median house sales price for houses decreased 19.6% which equates to a compound annual growth rate of -4.3%. The median sales price for units in Townsville City, QLD in the last year was $392,500 based on 78 unit sales. Compared to the same period five years ago, the median unit sales price for units decreased 21.5% which equates to a compound annual growth rate of -4.7%.

Interestingly, rent, at least for houses, appears to have turned the corner with a 1.4% increase over the last month, 4.7% increase over the quarter and a 2.3% rise over the last 12 months according to SQMResearch in May 2016.

 

So in summary, Townsville has a strong population with a diverse range of economic drivers, will benefit from the newly signed Defence Agreement with Singapore, and has had major price corrections over the last 5 years. On the flip side, whilst it would be hard to see prices dropping too much further, and green shoot signs that rents (at least for houses) may have started to track back upwards, is this market poised for significant growth?

Townsville - The Strategy

If I was interested in entering this market I would be looking to negotiate aggressively, taking advantage of the current low consumer confidence and strengthening market conditions, taking a long term buy & hold approach in this market and targeting only the premium suburbs in this region. 

My Final Verdict: Better, more reliable opportunities, exist elsewhere.

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