Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by a fifth since 2008 as cracks emerge in a housing market that’s so far escaped the rout seen in the U.S., U.K. and Ireland.
The median apartment price in the tourism and retiree town 150 kilometers (93 miles) north of Brisbane has slumped 21 percent in three years to A$570,000 ($594,000), according to the Real Estate Institute of Queensland. Sales have more than halved across Queensland state’s Sunshine coast, home to “Crocodile Hunter” Steve Irwin’s Australia Zoo, and the Gold Coast, known for its surfing beaches and casinos.
“We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,” said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS), who asserts Australian home prices are as much as 40 percent overvalued. “We’re seeing that now in parts of Queensland.”
Australia’s housing is the most overvalued in the world, the Economist newspaper said last month. The country had the most unaffordable homes among English-speaking nations, with the Gold Coast and Sunshine Coast markets near the top, according to a Jan. 24 report by Belleville, Illinois-based consulting company Demographia, which compared 325 housing markets in seven developed economies.
The house price index of Australia’s eight capital cities has gained 15 percent since the first quarter of 2008, according to the Australian Bureau of Statistics. Prices gained 16 percent in Sydney and 26 percent in Melbourne.
Unlikely to Spread
Economists and analysts at organizations including RP Data, Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) have said the weakness in home prices along Queensland’s southeastern coast is unlikely to spread as low unemployment and a shortage of homes underpins prices.
In contrast, on the Sunshine Coast, where Noosa Heads is located, and the Gold Coast a lot of stock hit the market at the same time that the number of people moving there slowed, said Cameron Kusher, senior analyst at Brisbane-based real estate researcher RP Data. The two regions are among Australia’s most popular attractions, drawing more than 1 million overseas visitors last year.
Across the Sunshine Coast, sales halved from a 10-year monthly average to 476 in December, the latest month for which figures are available, according to RP Data. On the Gold Coast, transactions dropped to 757 in December, after averaging 1,954 a month over the past decade. Floods inundated three quarters of Queensland in late December and early January.
“A lot of sellers are cutting prices and are preparing to meet the marketplace,” said John Newlands, Gold Coast spokesman for the real estate institute and principal at an LJ Hooker franchise in Surfer’s Paradise, a northern Gold Coast suburb that’s home to the world’s tallest residential tower. “In 2011, more investors will start to come back into the marketplace as prices fall.”
Median prices across Australia’s eight capital cities were flat in February at A$459,000, RP Data said, as the Reserve Bank of Australia’s seven rate increases between October 2009 and November 2010 damped demand.
For the year to March 2012, prices are expected to climb by a “modest” 0.6 percent, according to a survey by National Australia Bank Ltd. released April 5.
Some 63 percent of Australians consider the housing market overvalued, a survey of mortgage holders commissioned by QBE Insurance Group Ltd. (QBE)’s lenders mortgage insurance division released yesterday shows. More than a tenth of borrowers said they would find it hard to repay their home loans if the central bank raises interest rates by a quarter percentage point, and almost a quarter would struggle with two increases, the survey found.
Traders bet Reserve Bank of Australia Governor Glenn Stevens will raise the benchmark interest rate by 26 basis points, or 0.26 percentage point, over the next 12 months, according to a Credit Suisse Group AG index.
While prices in Sydney and Melbourne, the nation’s biggest cities, hold up, in the northern city of Darwin, home prices declined 9 percent in the three months ended February, and in Brisbane they fell 3.3 percent, according to RP Data.
Housing finance approvals dropped in February and loans to first-home buyers dropped to 14.9 percent, the lowest proportion of home borrowing since 2004, the statistics bureau said on April 6, as higher property prices and rising rates made purchases more difficult.
Median apartment prices on both the Sunshine Coast and the Gold Coast fell 1.3 percent to A$370,000 in the three months to December from the previous quarter, RP Data’s latest figures for the two regions show.
The Gold Coast market is the “opposite” of other parts of the country, and the falling prices there won’t be replicated Australia-wide, said Harry Triguboff, founder and managing director of closely held Meriton Pty, Australia’s biggest apartment developer, who is building the 1,165-unit Brighton on Broadwater apartment development on the Gold Coast.
“There’s not enough work there,” said Sydney-based Triguboff, who has no more plans to build in the area once the project is completed. “So here, it’s overcrowded, and there, there’s not enough demand.”
About 6.7 percent of the Gold Coast’s population was unemployed as of February, up from 5.7 percent six months ago, according to the Australian Bureau of Statistics latest data. The Sunshine Coast’s unemployment rate rose to 7.4 percent from 6.6 percent in September. Across Australia, unemployment fell to 4.9 percent in March.
The Australian dollar reached parity with its U.S. counterpart in October for the first time since 1982 and has been hovering at record levels since then. It traded around $1.0470 recently and gained 37 percent in the past two years.
“With a strong Australian dollar, Australian tourists are heading overseas and inbound tourism has been fairly flat,” said David Cannington, a Melbourne-based property economist at ANZ Bank. “That’s what has affected demand for housing, especially serviced apartments, in the Gold Coast and Sunshine Coast markets.”