Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Sunday, 9 April 2017

Surfers making waves

On the Goldie

I went to Surfers Paradise on Friday on the Gold Coast.

Being a holiday destination, it's one of Australia's most volatile and cyclical housing markets.

It's not too hard to see why, with few height restrictions on building and apartment towers stretching almost as far as the eye can see. 

The Gold Coast apartment market was one of Australia's hardest hit housing market sectors through the financial crisis - with a spectacular drop in prices - although apartment prices have been rising again steadily since early 2014. 

The detached housing market at Surfers Paradise is now performing very strongly, with a combination of a lower dollar (which encourages tourism), interest from China, and the upcoming Commonwealth Games all being factors working in the region's favour.

The Gold Coast is also now a growing city and employment hub in its own right, with the region seeing population growth of 12,280 in FY2016.

The risk in such markets is that when prices rise apartment construction can go crazy leaving the market highly susceptible to corrections, with the ensuing oversupply amplifying the downturn.

To date median apartment prices are in many cases still below their 2009 levels, and have not risen far enough to result in widespread overbuilding, although there are some sites under construction.

Indeed, after accounting for the highly seasonal nature of the market, reported vacancy rates are clearly in a multi-year downtrend. 

Source: SQM Research

An extremely speculative market, the fundamentals suggest a rising markets over the next couple of years or so until the next construction cycle delivers new supply in earnest (at which point it might be a good time to bail).