Is the Gold Coast Property Market Too Hot? What Drives the Boom & Bust Cycle?
It always interests me to read about where in the cycle the various property commentators and analysts perceive the property market to be. Recent reports from HerronTodd White (HTW) and Michael Matusik confirm via their property clocks that the Gold Coast is either at, or at least fast approaching the peak of the market.
Influencers: The Commonwealth Games, Sydney Market Correlation
The conventional wisdom is that the Commonwealth Games and spending associated with the games has assisted the strong underlying demand which has taken time to rebuild from the GFC. See, the market had taken many years to recover from its patent oversupply of unit stock and the perception (at least from many Financiers) was that the Gold Coast had become a high-risk area.
There is also the view that when the Sydney property market is hot, then the Gold Coast follows. This has been borne out over a number of property cycles, and clearly the Sydney market is peaking at the present time.
Having watched the Gold Coast property market and been involved in financing many high-profile development projects for over 30 years, it is certainly clear that the Commercial and Residential Property markets are hot at the present time.
So What is Driving the Market?
The Gold Coast City Council Website says that hosting the Gold Coast 2018 Commonwealth Games is a “once-in-a-generation opportunity” boasting the following benefits for the Coast:
- $2 billion economic injection;
- $200 million in new sporting and community infrastructure;
- Up to 30,000 full-time equivalent jobs;
- Global exposure to a television audience of over 1 billion+;
- Major tourism boost with 100,000+ visitors during GC2018 and $270 million+ to state/local economy (based on figures from the Melbourne 2006 Commonwealth Games);
- Attraction of other major sporting events;
- National and international sports training camps;
- Public domain improvements, upgrades to Southport and Broadbeach Malls, tree planting, street-scaping, road and footpath upgrades, community health and safety initiatives; and
- Volunteering opportunities.
Construction industry jobs have certainly been boosted by the expenditure on the sporting facilities and related infrastructure works, in addition to the property projects of new house and land developments, highrise and attached multi-unit developments commenced to meet demand.
On the Commercial front, recently released Property Council of Australia data shows vacancy levels reduced from 14.3% in July 2016 to 12.2% in January 2017, and with no new large projects due to commence, the trend take-up of the remaining vacant commercial space is predicted to continue.
Residentially, HTW report that central locations within 2 kms of the beach are seeing high demand with shorter marketing periods and limited stock available. The southern end of the Coast is strong, particularly around Burleigh Heads, Burleigh Waters, Palm Beach and Tugun.
Will This Be Another Bust Cycle?
A difficult question to answer, sure, but the fundamentals of the Gold Coast market are far stronger at the present time than they have been in previous cycles.
The Gold Coast, extending to the Tweed has a population of over 600,000 people and is now Australia’s 6th biggest city, and with continuing population growth the resultant growth in demand is hard to ignore.
Given the current environment of explicit regulation by APRA on the banks around property development funding, it is difficult to conceive how an oversupply like that of the GFC can occur at the present time. Furthermore, regulatory scrutiny of retail residential lending, particularly lending to investors, makes it hard to see anything other than a soft lending as the property cycle continues through the rest of 2017 and beyond.
Michael McCluskey is an Associate Director of the Queensland Office at Development Finance Partners. Over the years Michael has over 30 years experience in the Banking and finance Industry with a principal focus upon construction, development and property investment lending.
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