Cairns & The GFC

Australia came out of the ‘Global Financial Crisis’ relatively unscathed considering the potential impact, had our financial system been in a similar state as some other countries around the world.

Already the fundamentals that carried us through and kept us afloat on what seemed like sinking sand are beginning to thrust our property market forward.  As a nation we have seen a median house price growth of 11.3 per cent over the first 11 months of 2009 across most capital cities.  Certainly the combination of the Government’s stimulus package (First Home Owners Grant) and the lowest interest rates in 50 years helped, with the result that housing was at its most affordable since 2002.

Population Growth

Supply and demand is still the forceful factor in the whole equation.  Population growth and strong overseas migration…. is still at record highs and supply has taken a dive due to the increased difficulty for developer’s to obtain funding.

These are the driving factors that will continue to support and drive Cairns forward after being hit probably the hardest with the fall out of the GFC.

17% Growth

Cairns had seen a sustained boom between 2002-2007 with a 17% increase in the year to September 2007. Developers staked their ground and released a large number of residences to meet the increasing demand of the strong population growth.  As interest rates began to rise price growth slowed as fewer people entered the Cairns market although rents were rising as the vacancy rate tightened.

As the Global Financial Crisis unwound, the tightening criteria for finance to investors and the fear perpetuated in the media saw a strong slow down of sales in Cairns.  This placed a couple of developer’s in Cairns under immense pressure that resulted in their demise.

On top of this, developer’s funding has been increasingly difficult to obtain and the level of pre-commitment required is extremely difficult to achieve.  This has created a stranglehold on the supply side with new unit development trend approval level at zero.  Just two new units have been approved for construction in Cairns thus far in this financial year.

What Does This Mean For Cairns Now?

Like many other cities throughout the country, the GFC  has had an impact on employment in the construction and tourism industries and thus Cairns as a region. Today Cairns is rebalancing and moving forward with the negatives from the last 12 months,  now becoming positives for investors prepared to look deeper than the surface facade.

Change Is In The Wind

Cairns is projected to be the third largest growing LGA (local government area) outside SEQ in the 2006 – 2016 period according to the Queensland Governments Department of Infrastructure and Planning Report 13 August 2009.

Cairns Regional Council population sat at 147,538 in 2006 and is expected to be 168,297 by 2011 and 182,684 in 2016 reaching 222,640 by 2031.  A total of 75,102 new people in the region.

Based on the projected demographics of Cairns eg. ageing population and smaller household sizes, the underlying demand for construction of new dwellings between 2006-2031 is 41,923 with 8,327 of those needed between 2011-2016.  The report concludes the changing demographics of our current society will result in couples without children and lone person households will become the most common household type in Cairns.

As the current supply of housing is absorbed the sting of today’s situation will become apparent.  The demand will outweigh the supply and prices will again move forward.  Even now  demand in the unit and townhouse market strengthened over the September 2009 quarter with sales numbers up by more than 10 per cent.

Boost To First Home Owners Grant

Again as untimely as it was, a large number of units were released onto the market at the same time as the onset of the GFC flooding a stalled market.  The FHBG saw a lot of tenants leaving the rental market to buy their first home.  This saw residential vacancy rates reach high levels and result in decreased rents.  However the residential vacancy rate in Cairns decreased from 5.1 per cent in March to 3.9 per cent in September ’09.

We are expecting a stabilising of the rental market as Cairns continues to move forward.

Jetstar

Jetstar has recently announced it will be re-commencing its four weekly flights between Cairns and Osaka on 1 April 2010, which together with new domestic flights from Melbourne, will mean an extra 300,000 international and domestic seats for the Tropical North.

ABS figures released in January show that the average accommodation occupancy rate within Cairns staged a modest trend rebound in the September quarter of 2009 with average occupancy rising to a trend rate of 59% per cent.

Employment

Job advertisements in the Cairns Post is continuing to show a slight trend rise showing a 16 per cent turn around from April 2009.

New construction activity will emerge this year from stimulus projects such as the Building Education Revolution, new social housing and other initiatives such as the Cairns Base Hospital Redevelopment, water and sewerage facility improvements and road infrastructure developments.

Enormous new mining and resource projects for Papua New Guinea were announced which comes on the back of renewed and new interest in Cairns from existing mining operations from the region.  Significant opportunities will emerge for Tropical North Queensland from these developments including procurement of goods and services, fly-in-fly-out labour deployment and R&R opportunities for ex-pats and other incoming staff.

Read a full report on Advance Cairns and its New Deal with the Federal and State Governments here – >>> Here

Confidence is slowly returning to Cairns as the economy continues to mend from the tough year experienced during 2009.  Herron Todd White expect conditions to improve gradually over the next six months – which is normally a quiet time for Cairns anyway – but with some acceleration possible mid this year as the increased flights and the new tourist season start to kick in.

We believe that mid to long-term will see Cairns not only stabilise but become a solid economy, attractive place to live and a fantastic city to own property as it was always destined to be.  The past year has seen a shaking that will turn out to be the seed of a greater opportunity as that which is not solid is cleaned out and the foundations of new connections, new businesses and a diversifying industry base is established.

For us as the investor, it is all good news.  Cairns is getting back on track and will be a strong and sound investment as all the research previously pointed to.

Click image below to enlarge.

Happy Investing,

Katrina Lockhart
mrd Customer Care… because investing is personal

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