The property market in south-east Queensland is in danger of a meltdown, with prices to drop by up to 7% this year alone, one property expert has warned, saying there is too much stock on both the Sunshine and Gold Coasts.
However, the comments come as a new report from ANZ argues the housing market has held up just fine, arguing prices will ultimately be sustained by higher income growth.
Speaking at a property investment conference, SQM Research managing director Louis Christopher revealed his rather bearish predictions for the Queensland market, saying the sheer amount of stock in those areas has turned the region into a “basket case”.
“Stock levels are increasing in south-east Queensland more so than last year, and it’s getting back to those 2008 levels now. We think that represents a massive oversupply.”
Christopher points to SQM data which shows there are over 2,000 properties in Surfer’s Paradise in one postcode alone. “This is bordering on a meltdown scenario,” he says.
“We think there has been a 9% decline on the Sunshine Coast since 2008, and we think we’re going to see a 7% decline before the end of this year.”
“This is a significant issue, and unfortunately it’s going to hurt a lot of amateur mum and dad investors.”
Christopher also points out that Brisbane prices are running ahead of nominal GDP growth, and are set to correct as well – a development exacerbated by the destruction caused by January’s floods.
RP Data figures have shown Brisbane home prices have dropped by 2.3% in the quarter to January.
“For the Sunshine and Gold Coasts especially we’re going to see a decline, but it could potentially be worse. We’re seeing similarities to the Florida markets here, and they corrected by 70%”
“We’re not saying it’s going to be the same as that, because the American market has more elements like foreclosures that add into that. But could we end up with a cumulative decline? Absolutely, we’re heading that way.”
Christopher says he doesn’t spy any recovery in south-east Queensland for at least 12 months, especially as the tourism industry suffers. He points to an unemployment rate of over 10% on the Sunshine Coast, saying the rising Australian dollar will only make matters worse.
“The base is just so reliant on tourism that it’s going to suffer. Other areas such as Byron Bay are also suffering corrections.”
Another major factor here is a slowdown in net migration. Christopher says that as interstate migration flow has declined over the past three decades or so, the long-term effect on house prices has led to an over-valuation.
“Everyone has been aware of this trend. The population of Victoria and New South Wales were set on moving to Queensland to get a better quality of life, but now that benefit is negligible.”
“The standard of living benefit when you move from the southern states to Queensland has slowed, and you don’t get the same sort of benefit. You still do have fairly strong population growth, but it’s no longer being supported by the southern states.”
Perth prices are also tipped to fall by 2% this year, and Darwin values are expected to drop by the same amount.
“We think most of the capitals are not going to experience this same type of dramatic downturn. They’re going to hold it together, but we’re not going to see big increases, except perhaps in Sydney where clearance rates are holding up reasonably well.”
In fact, Christopher expects Sydney prices to grow after having fallen during 2010, and adds that if a Coalition state government wins in the upcoming election a cut in sales tax would also boost the industry.
However, a new report from ANZ claims the housing market is stable, saying the actual fundamentals of the industry are strong.
“While Australia’s housing market has considerable building supply-side rigidities, ‘trading’ supply is highly flexible,” senior economist Ange Montalti says.
“Demand-side headwinds are generally countered by supply withdrawal, resulting, in most instances, in a ‘side-ways drift’ in house prices.”
Montalti says this side-ways drift will help stop prices from falling substantially.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
