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The ‘enigma’: The booming coastal town investors shun

It was heralded as the one to watch this year by many in the property sector; however, once again the Cairns has underperformed. What is it about this coastal town with increasingly strong fundamentals that has investors looking the other way?

According to Herron Todd White’s December 2018 Month in Review report, released yesterday, the Cairns market has once again remained static for 2018, despite forecasts of improvement due to improving economic conditions.

This led one experienced developer in the area, quoted in the report, to label the Queensland town an “enigma”.

“We agree it is a good way to describe how a city with strong underlying fundamentals has continued to underperform other locations for an extended period,” the report affirmed.

The big picture

The description seems apt when looking at the data concerning job growth in the region and taking into account Australia’s booming tourism market.

Herron Todd CairnsWatch, which analyses the region’s key economic indicators, recently reported that 121,500 people were employed in the Cairns region in October 2018. This is up from an estimated 119,700 individuals employed in September.

Overall, this indicates the employment growth rate has increased by 3.0 per cent between October 2017 and October 2018.

Alongside this, Australia has experienced a period of significant tourism growth from both domestic and international travelers, as the dollar sits at a long-time low.

According to Tourism Australia’s National Visitor Survey released in October, domestic tourism to Tropical North Queensland soared by 13.1 per cent in the year to June 2018, considerably more than the stage average of 4.7 per cent growth.  

The number of international tourists to Queensland also increased by 8 per cent in 2017-18. With its beaches, surrounding rainforest, access to the Great Barrier Reef and proximity to Asia, it is likely that Cairns benefited considerably from this influx of tourists.

This has created a wealth of opportunities for locals to be employed in and engage with the tourism sector.

“The demand side is supported by incredibly affordable housing, solid population growth rates and a very healthy pipeline of large job-creating projects,” Simon Pressley, managing director at Propertyology, told Nest Egg.

“From luxury hotels to airport and port expansions, a significant upgrade of the convention centre and university expansions, the already strong economy is only going to get better.”

What's missing?

So, why then are investors continuing to turn their back on the Cairns market?

Mr Pressley blames a lack of confidence in the Queensland market at large.

“The missing ingredient has been confidence, but that’s not unique to Cairns,” he said.

“The entire state of Queensland has been bereft of confidence for much of the last decade, and that’s been reflected in property markets from Cairns in the far north, Mackay in central Queensland and Brisbane in the south east.”

He said any positive economic growth indicators have also been overshadowed of late by the tightening regulatory environment.

“Over the last 12-18 months, there’s been a few encouraging economic signs; however, this has coincided with APRA’s credit tightening measures.”

“Housing supply is incredibly tight and will tighten further through 2019 and 2020.”

Despite this, Mr Pressley remained positive that Cairns’ two-year stagnant spell will return to the growth anticipated in 2015-16.

“The underlying fundamentals of Cairns’ property market right now are as good as any location in Australia. To put things into context, while 1 to 2 percent growth over the last year is mild, Cairns has outperformed four capital cities and was on par with two others.”

Overall, he said the market is healthy, as there are no clear areas of oversupply, and migration to the region is expected to grow following a number of large developments.

“Building approval volumes have remained low for several years, so there’s certainly no pending risk of oversupply.”

“There is also an expression of interest process underway for the development of a world-class integrated resort and casino. [We] anticipate an influx of internal migration to fill positions and drive demand for housing higher.”

Herron Todd White’s report corresponds with this prediction, as both apartments and houses in Cairns are tipped as being at the start of recovery.

“[We] remain optimistic about the outlook for Cairns,” Mr Pressley summarised.

The ‘enigma’: The booming coastal town investors shun
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