The Gold Coast property play – dynamite or dud?

Founder and Publisher of the Switzer Report
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Everyone knows that it’s the courageous who buy assets when no one else wants them. It can be an act of inspired genius, but it can also be an act of gross stupidity. So, which one is it when it comes to the Gold Coast as a property play? Especially with prices down – really down.

For insight, I talk to three of the country’s most well-known property experts: John McGrath from McGrath Estate Agents; John Edwards, the CEO of Residex; and Margaret Lomas from the Sky News Business channel.

McGrath says the Gold Coast (GC) is Australia’s hardest hit residential market for four key reasons:

  1. The GC has the highest percentage of holiday homes in the country and when the economy weakens significantly, people are far more likely to sell their holiday home than put their primary residence at risk. Hence, we see a huge sell-off of these properties in tough times.
  2. While banks Australia-wide have been able to get through the soft economic cycle with relatively few mortgagee in possession sales, the GC market has had a higher proportion of these than the rest of the country. When properties are sold by mortgagees, they generally fetch lower prices and these reduced sale prices re-set the market to these levels.
  3. The GC economy has been hit by not only the general economic issues the rest of the country has suffered, but it has also been affected by the high Australian dollar which has driven much tourism off shore. And as the GC relies heavily on domestic and international tourism, the slowdown has hurt local business people and forced many owners to sell their properties into the soft market.
  4. On the bright side, it appears GC prices have stabilised and buyers are coming back into the market. McGrath says that if we don’t see any further economic issues impact our markets, we should be able to commence a long-term growth cycle. But with current supply still high, it may be one or two years before there is material growth. McGrath doesn’t expect GC prices to rise in 2011 but he says we may see ‘green shoots’ appearing early next year if the economy improves and the dollar moves back below parity.

But while McGrath believes Gold Coast property prices have stabilised, Edwards thinks they have further to fall. He says a cut in interest rates could help the situation, but he’s still negative on the area. Edwards accepts my point that anyone wanting to live on the Gold Coast is looking at great value, but as an investor, he says there could be tougher times ahead, especially if the dollar keeps climbing.

Edwards likes Brisbane, which has also seen prices fall, but he sees that trend levelling off. He also likes the look of Perth.

Lomas is also anti-GC, arguing that there is oversupply and it could take five years to change that. She further contends that it could be years before a consolidation results in an uptrend. For investors, she likes the southern suburbs of Adelaide in an area around Onkaparinga and close to a BHP Billiton mining project.

By the way, Edwards also likes the outlook for Sydney because there is an undersupply of housing there and he believes a 2%-3% rise in prices in the year ahead could turn into a 5% gain or so if interest rates were cut. The city’s 20-year long-term average gain is 6.97%.

Finally, he thinks apartments will do better than houses, generally.

So the summary is that the Gold Coast is in the too-hard basket for investors, but for those who want to join the white-shoe brigade, it’s as cheap as chips. But, it could get cheaper, especially if interest rates and the dollar remain high. For investors, Sydney and Brisbane and maybe the south of Adelaide might be worth a look.

Also in Thursday’s Switzer Super Report:

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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