Coastal markets left struggling

In recent times the capital city residential property markets have been recording strong levels of property value growth, but this hasn’t necessarily been reflected in those regions outside of the capitals. This week, the Property Pulse takes a look at the performance of some of the major coastal markets.

According to the RP Data-Rismark Home Value Index results for June, capital city property values increased by a total of 10.5% over the year. House values increased by 10.3% and unit values were up 11.4%. That Index release also highlighted that the performance of the housing market outside of the capital cities was significantly different with house values in regional areas increasing by just 5.1% over the 12 months.

So what is happening in the major coastal markets around the country?

Over the last 10 years house prices in these coastal markets have typically seen strong levels of growth however, over the last 12 months the performance has been much less impressive. For houses, the top performing coastal market of the 12 months to June 2010 analysed within this report has been Victoria’s Bass Coast, where median house prices have increased by 17.0% over the year.

In the majority of instances house prices within these regions have recorded annual growth of less than 10% over the last year. The largest falls have been recorded in: Cairns (-2.7%), Whitsunday (-2.5%) and Fraser Coast (-1.6%) all of which are in Qld and heavily reliant on tourism and retirees and/or sea changers.

Nationally, rental growth has been quite minimal since the onset of the GFC and most of the coastal markets have reflected this occurrence. The majority of suburbs detailed have recorded growth in rents of less than 5% over the year, with a number of regions having recorded declines in median rents.

Throughout the unit market the trends have been quite similar with most coastal regions recording minimal growth in median prices and median rents.

The strongest growth in median prices has been recorded in Port Lincoln in SA. Median unit prices in the region are up 34.9% over the year however, it is important to note that this is across only a handful of sales (10 for the quarter). Victoria’s Surf Coast region has also recorded a strong uplift in median prices.

The majority of regions detailed have recorded annual growth in median unit prices of less than 5%. Regions such as: Victor Harbor (-27.4%), Whitsunday (-9.2%) and Fraser Coast (-7.2%) have recorded significant falls in median unit prices. Again, all of these regions are heavily reliant on tourism and retirees / sea changers.

Similar to the results for houses, unit rental growth in these regions has also been limited over the last year with 18 of the 24 regions highlighted recording growth of less than 5% for the year.

Coastal markets are typically heavily reliant upon tourism and retirees/sea changers to boost their prospects and to create demand and upwards pressure on property prices. The current strong Australian dollar is making it difficult for these regions as holidaying in Australia becomes more expensive for those from overseas and for Australian’s the strong exchange rate makes holidaying abroad significantly more appealing and affordable. The weakness in the tourism sector has the added affect of higher unemployment and fewer tourism related jobs. As a result, owners of investment properties are ultimately less likely to be able to find tenants.

The market for sea changers/retirees has eased since the GFC struck. Many looking to make the move have seen the value of any equity investments and their superannuation decline and as a result have become more cautious about making the move.

Looking forward, most of these markets appear to have reached their lows and are now on the improve (albeit a very minor improvement in some cases). Any significant recovery will likely be slow as interest rate increases are making property purchases relatively more expensive. The softness in the tourism sector will also dampen the prospects of significant improvements in most of these markets. Those coastal markets with more diversified economies or linked with the resources sector are likely to have the strongest capital growth prospects over the coming year.

Tim Lawless is the Director of Property Research at RP Data.