Newsarticle for Clients and Friends of LJ Gilland Real Estate Pty Ltd

Rent rises today mean capital growth tomorrow for next property

By Terry Ryder

Thursday, 18 October 2012

Page 1 of 2

Rents rise first and prices follow.

That simple formula provides a clue to investors in choosing where to buy property for future growth.

Anyone following that recipe a year or so ago would have had solid capital gains in Gladstone and Mackay in Queensland.

We’ve seen it start to happen in Darwin as well.

The locations now poised to follow suit include Perth and Townsville.

Some 18 months ago I was scratching my head wondering why there had been little in the way of price growth in the nation’s number-one boom town, Gladstone.

Gas projects and other enterprises were bringing thousands of new workers into the place, and everything that mattered was in short supply – but the only reaction from the property market had been a massive hike in residential rents.

Then, almost belatedly, prices followed the rental trend. In the past 12 months, the median price in most Gladstone suburbs rose 17-18%. Mackay is a little behind Gladstone in the cycle but is now exhibiting similar patterns.

Darwin has been leading the state and territory capital cities on price movements, by a considerable margin. It, too, experienced big lifts in rental levels before prices started to follow.

Australian Property Monitors records a 27% lift in Darwin’s median house rent in the year to June, with the median weekly asking rent for apartments rising 15%. In the September quarter, Darwin recorded the biggest increase in home values among the capital cities.

Perth is set to follow this trend. It’s had a 15% rise in its median house rent in the past 12 months, according to Australian Property Monitors. The median rent for apartments has climbed 11%.

Perth prices so far have moved little, but that is soon to change. Strong demand for accommodation has led to a 0.5% vacancy rate, according to the latest figures from SQM Research, and WA housing finance commitments by owner-occupiers are up 18% in the 12 months to the end of August (the biggest jump in the nation). Loans to investors have risen solidly, as well.

WA has the nation’s strongest economy and leads on population and employment growth. The projects that really matter in the WA resources sector – the mega gas projects, not the iron ore ones – are now starting to crank up their construction phases.

Against that background, price growth is inevitable in Perth, particularly with rents strongly leading the way.

Townsville is another significant market where rents have been pressured by high demand, but prices remain in the doldrums.

That will change. Townsville gets my vote as the strongest regional economy in Australia, with not only diversity but considerable muscle in all its multi-faceted economic sectors. It’s a city that doesn’t need the resources sector, but gets considerable oomph from it anyway.

Queensland is Australia’s most decentralised state, with numerous strong regional centres, but Townsville is undoubtedly king of the regions. Despite being impacted by the state government’s manic cost-cutting, job-shedding and plot-losing, Townsville is experiencing expansion in many other key sectors, particularly its already-substantial military economy.

Its spinoffs from the resources sector include an expanding port, processing facilities and lots of fly-in fly-out workers who reside in Townsville.

People want rentals in Townsville but can’t get them. Prices will react sooner or later.

Best regards,

Linda J. & Carlos Debello, LJ Gilland Real Estate Pty Ltd

Tel: (07) 3263 6085 | Mobile: 0409 995 578 & 0400 833 800

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