Gladstone – the next mining boom town of Queensland

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Gladstone city and port, Queensland

Gladstone is located approximately 550km north of Brisbane and 100km south of Rockhampton in the mid-north coast of Queensland, Australia. According to Flynn De Freitas, principal of Omega Investments, Gladstone is fast becoming Australia’s top mining boom town as a result of massive planned and committed infrastructure projects at various stages of commencement. A summary of De Freitas’ article published in the December 2009 Your Investment Property magazine is set out below:

Infrastructure spotting

Investors and developers are infrastructure spotting when they ‘deliberately invest’ in a small town with an impending billion-dollar or larger local infrastructure project. In Australia, these projects are fuelled by the demand for commodities by the booming Chinese and Asian economies and linked to Australia’s status as one of the world’s leading suppliers of natural resources. Mining and energy companies involved in these projects are committed to extract, transport, refine and ship an ever increasing volume of resources within these small towns. As a result, these energy companies are committed to build new mines or gas platforms, railways or pipelines, refineries and ports to fulfil these investment commitments. The common threads among all these large infrastructure projects are:

  • Massive cash investments by mining and energy companies into the local economy of the small towns;
  • Thousands of new workers will be competing for new mining jobs with $100,000 plus wages being deployed to these projects;
  • A shortage of local housing to accommodate this sudden surge in housing demand;
  • Experienced investors who have done their research on previous property boom as a result of large infrastructure projects and are looking to invest in impending boom towns before others realise the opportunities and eventual benefits of the projects.

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From the chart above, it is obvious that Gladstone’s main natural resource in the future would be concentrated on Liquefied Natural Gas  (LNG). Out of the total of A$66.4 billion dollars worth of infrastructure projects, $51.8 billion or 78% of the projects are LNG related. By far the largest project involves a joint-venture between the third largest integrated energy company in the US, Conocco Phillips with Origin Energy in the A$35 billion Australian Pacific LNG project.

The 3 biggest infrastructure projects are all LNG related which involve some of Australia’s largest energy and resources organisations such as BG GroupOrigin Energy and Santos. The A$7.7 billion Gladstone LNG project is a joint-venture between Santos and Malaysian petroleum giant Petronas.

de Freitas believes there are 4 important criteria which identifies booming infrastructure towns in Australia:

1. Population of less than 30,000

Infrastructure towns have to small with a population of less than 30,000. This dynamic ensures the project will fundamentally and permanently change the demographic and economic conditions. Larger towns do not feel the impact of the project on residential housing demand as much as smaller ones. As a result, rental yields and capital growth may be less significant. Gladstone’s population is approximately 30,000 and the migration of new workers as a result of the projects will satisfy this criteria.

2. Project value of A$1 billion or more

Large projects of A$1 billion or more are required to create the impact on local housing yields and value. Gladstone’s planned and committed projects have a total value of more than A$66 billion as shown above.

3. Large peak workforce

The projects’ peak workforce needs to be between 5 – 10% of the town’s normal population to create an impact on rents as the workers move into town. In this case, the peak workforce of the planned and committed projects of Gladstone is 21,400 compared to its population of 30,000, ie a peal workforce on population ratio of 71%.

4. Approved project status

The projects must have achieved ‘approved’ status formally granted by the State and Federal governments. This occurs in the last phase of the ‘feasibility stage’ of the infrastructure spotting cycle. When all the environmental and government approvals are granted, the final endorsement is by the Financial Investment Decision (FID) where the project is then classified as ‘confirmed’. This is the stage where house prices can surge between 10 – 20% as a result of investors jumping onto the bandwagon. Five of Gladstone’s infrastructure projects have received full approvals or entered into the ‘confirmed’ or ‘commenced’ phase while numerous other projects have also submitted their Environmental Impact Statements and are now awaiting government approvals, so they can proceed to FID endorsement.

Gladstone currently has 15 infrastructure projects totalling A$66 billion at various stages of approval and commencement.

Download an independent Special Report on Gladstone.

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2/94 Yorktown Parade, Maroubra – great starter for first home buyers

94 Yorktown Parade. Maroubra

94 Yorktown Parade, Maroubra

This modern one bedroom courtyard apartment in a boutique block of 14 units has just been listed for sale through real estate agent Joe Khederlian of PRDnationwide, Maroubra. It is currently rented at $400 per week.

Offers are expected to be around the $400k mark.

Located approximately 10km south of Sydney CBD, Maroubra’s local attraction include a vibrant beach and surf lifestyle, cafe and restaurants along Marine Parade where one can have breakfast whilst soak up breathtaking ocean views.

Maroubra bay 5

Breath-taking views of Maroubra beach

Facilities of this apartment include the following:

  • Good size bedroom with built in wardrobes and Juliet style balcony
  • Modern tile bathroom / ensuite
  • Beautiful wooden floorboards throughout the living and dining areas
  • Modern galley style kitchen with dishwasher, stainless steel appliances and gas cooktop
  • Private courtyard which is great for entertaining and weekend barbeques
  • Internal laundry and clothes dryer

    Maroubra beach, Sydney

    Maroubra beach off Marine Parade

  • Intercom security
  • Undercover security parking
  • Separate storage cage

Why I like this street and location:

  • Yorktown Parade is a whisper quiet street off busy Fitzgerald Avenue which leads to Maroubra beach.
  • This unit is located only 500 metres from Maroubra beach and its attractions which include cafes, restaurants, Mahon pool, picnic and recreational spots and breath-taking views of the ocean.
  • A bus stop right in front of this block of apartments offer direct / express bus service to the city and Circular Quay
  • This location is only 1.5km to the vibrant Pacific Parade’s commercial and retail hub at Maroubra Junction which include cafes, restaurants, banks, post office, shopping, Coles supermarket and many more conveniences.
Mahon pool, Maroubra

Mahon pool at Maroubra beach


Vital statistics

Maroubra Median price $ Weekly advertised median rent $ Gross yield $ 3-year growth % 5-year growth % Average annual growth %
Apartment 500,000 450 4.7 11.1 5.5 5.4
House 925,000 650 3.6 6.5 7.3 7.0

Source: Your Investment Property, March 2010

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How it’s calculated:

Median price: Median price for the 12 months to November 2009

Average annual growth: Average percentage change over the past 10 years as a per annum figure

3 and 5-year growth: Median price percentage change over the past 3 and 5 years to November 2009

Weekly median advertised rent: Median price of rental listings for the 12 months to November 2009

Gross yield: Estimated rental return, based on advertised rent to median price

Dee Why – an undervalued suburb coming good

Dee Why beach 1

Dee Why beach

According to Peter Mosedale of Raine & Horne Dee Why, buyer activity in some suburbs of the northern beaches jumped by as much as 400% in the final two quarters of 2009, leading to a jump in prices for both houses and apartments.

Mosedale said that the first home buyers had stimulated the entire market by the end of 2009  where “buyer activity jumped 400% and prices rose 10 – 15%.” He expects this trend to continue and anticipates “double-digit growth” in Dee Why and surrounding suburbs for 2010. Mark Novak of Novak Agency experience a similar trend where “we had a very ordinary first half in 2009 and a dazzling second half of the year”. He said that “properties up to $500,000 were the first to do well in the third uarter and then a flow-on effect for properties priced between $500,000 and $950,000 and now this year, that is kicking onto properties at $1 million and over.”

By far the biggest recipients of the FHOG in New South Wales were buyers in the western suburbs of Sydney such as Liverpool, Campbelltown, Wentworthville, Blacktown and Cabramatta, ranked first to fifth respectively. The list of top 20 postcodes by FHOG value of benefits received for the FHOG is dominated by the western and hills suburbs of Sydney. However, a glaring standout among these western and hills suburbs is Dee Why, which was ranked number 17 .

Dee Why Grand Plaza

Artist's impression of Dee Why Grand Plaza

One reason which may explain Dee Why’s relatively high ranking of number 17 among over 660 suburbs in New South Wales is probably the relative affordability of houses and apartments, compared to its neighbouring beachside suburbs such as Manly, Queenscliff and Curl Curl. Other attractions of Dee Why include its beach and surf culture and easy access to the restaurant and cafe strip along Oaks Avenue where one can wine and dine whilst enjoying breath-taking views of the ocean.

Dee Why had total of 4,354 dwellings processed with a total approved benefit value of $37.5 million given out to first home buyers. This augurs well for the suburb as this influx of first home buyers is anticipated to provide solid support to the residential market over the next 5 – 10 years. Locals and residents of this suburb is less transient as many work around the area and those suburbs towards the Northern beaches such as Collaroy and Narrabeen.

A price comparison of houses and units in northern beaches and its surrounding suburbs appear to indicate that Dee Why has been relatively affordable despite having similar characteristics such as beach and surf culture, restaurant and cafe precinct, local retail shops and amenities. The median price apartment and house in Dee Why is $425,000 and $838,000 respectively. These median prices are among the most affordable when compared to surrounding suburbs such as Freshwater, Curl Curl, Brookvale, Collaroy, Narrabeen and Warriewood.

Apartments in Dee Why enjoyed a whopping 9.4% growth in 2009 from 2008 and is expected to grow by 12% in 2010.  Home sales activity in Dee Why is by far the most vibrant among leading suburbs in the northern beaches. An analysis of sales transactions among the major northern beaches suburbs of Seaforth, Fairlight, Queenscliff, Freshwater, Curl Curl, Brookvale, Collaroy, Narrabeen, Warriewood, Mona Vale, Newport Bilgola, Avalon and Palm Beach revealed that Dee Why’s sales transactions accounted for 21% of total sales transactions in these suburbs in 2009.

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On-going construction of Dee Why Grand Plaza

The current construction of Dee Why Grand, an integrated residential, commercial and retail development at the corner of Pittwater road and Sturdee Parade is set to transform this junction into a busy hub of commercial and retail activity. Property analyst believe this development will transform the commercial precinct of Dee Why just like how Pacific Square Shopping Centre uplifted the entire facade, commercial and retail landscape at Maroubra junction in the east of Sydney. This development appears to be attractive to those who enjoy the convenience of retail shops and commercial amenities such as the post office, medical services, banks and public transport by their doorstep.

The other standout attraction of Dee Why Grand is obviously its modern apartment facilities such as split-unit air-conditioning, European kitchen appliances, 2.7 metre ceilings, environmentally friendly and sustainable construction principles, landscaped gardens, lap pool and gymnasium facilties. An added bonus is its close proximity of 800m to the surf at Dee Why beach.

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Vital statistics

Dee Why Median price $ Weekly advertised median rent $ Gross yield $ 3-year growth % 5-year growth % Average annual growth %
Apartment 425,000 400 4.9 11.1 11.3 5.29
House 838,000 630 3.9 12.8 2.2 7.4

Source: Your Investment Property, March 2010

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How it’s calculated:

Median price: Median price for the 12 months to November 2009

Average annual growth: Average percentage change over the past 10 years as a per annum figure

3 and 5-year growth: Median price percentage change over the past 3 and 5 years to November 2009

Weekly median advertised rent: Median price of rental listings for the 12 months to November 2009

Gross yield: Estimated rental return, based on advertised rent to median price

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Restaurants and cafes along Oaks Avenue

Infrastructure – reaping rewards of rent and capital growth of major projects

Driving_on_the_Great_Western_Highway

Infrastructure and its effects

Infrastructure is basically major public works and amenities which support the economic activities of a township, community or city. These major works include transport infrastructure such as roads, bridges, railway lines and major highways. Public works and amenities may include power stations, communications facilities, new retail and commercial precincts, business parks, shopping centres, hospitals and large education and learning institutions.

These large infrastructure projects stimulate the demand for real estate as it create jobs, demand for goods and services and provide more effective use and connectivity of economic resources. An increase in economic activity means new and greater disposable incomes which in turn will boost economic growth. More people are attracted to buy and rent real estate in locations which are in close proximity to these major works.

New roads and highways increase the accessibility and transport efficiency whilst a new hospital or university will create more jobs, increase demand for local housing. Shopping centres and business parks have the effect of increasing the retail and commercial mix within an area. If these new investments increase the number of people living in the area, improve travelling times and provide greater employment prospects, then the effects on local real estate values in terms of rent and prices will also be strong.

What type of infrastructure should investors look out for?

Property experts believe that transport upgrades such as new or improved roads and railway links, new shopping malls, hospitals and universities to be key infrastructure and public amenities which are likely to have a strong impact on the residential property market. These type of infrastructure have an effect on the lifestyle of local residents in that it improve travelling times, provide greater conveniences and public amenities and enable better access to and from work. New and improved transport infrastructure which provide better access to the CBD generally broadens the appeal of an area as it saves commuting time for city workers. This is especially so in all major Australian capital cities as land is scarce around these high demand areas. New hospitals, universities and colleges will attract a host of medical professionals and academics such as doctors, nurses, teachers, students as given a choice, these demand groups are likely to prefer living closer to their work place. In general, transport infrastructure such as roads and railway, hospitals and universities are strong drivers of property prices.

Other infrastructure projects such as mines, sea and airports, power wind and desalination plants can create massive job opportunities and demand for local housing. However, some property analyst believe that the effects of resources projects and power infrastructure are not usually as long lasting as the impact of transport projects. The rationale for this is that resources and power infrastructure will create jobs and demand for housing during its construction stage and will slowly dissipate as the projects are completed as it requires less manpower to maintain upon full operation. Mining projects which are unsuccessful have the adverse effect of job losses and this may negatively impact an area.

Questions to ask when deciding on the impact of an infrastructure on the local property market may include the following:

  • What is the resident profile which the project expected to attract?
  • How many new residents will the project generate?
  • How will the project affect or change the demographics of the area?
  • Is there a long-lasting impact on the area in terms of permanent employment prospects or whether changes are transient and temporary?
  • What is the supply and demand ratio of residential dwellings in the area and how will the project affect this ratio?
  • Does the local residential market have strong intrinsic factors such as good rent, affordable and competitive prices and strong capital growth history, notwithstanding the new infrastructure?

Notwithstanding the answers to the questions above, a potential area affected by impending infrastructure works which investors are targeting should, in general, have all the right criteria of a good investment proposition BEFORE considering the new works – strong historic growth in rent and prices, good demographics and public amenities such as shops and schools and close to transport link. Investors should be aware of infrastructure announcements which ultimately do not take place for a host of reasons – lack of planning, political wrangling, poor budgeting etc. Therefore, should the infrastructure project fail to materialise, then the area can sustain and support itself into the future as a result of its existing demand drivers.

Protestors - Sydney's second airport

Timing of investment

Infrastructure projects usually affect property market in 3 phases:

1. Project announcement

2. Project receives final approval and commencement of works

3. Project completion where perceived benefits are transparent to all investors

The “most appropriate” timing is really a trade of between risk and return and investors’ risk profile. Investors who go in early stand to gain the most but is also bearing the greatest risk. Some projects may commence according to schedule, some may be delayed and some do not happen at all. It depends on how one feels about the risk because buying on first public and usually political announcement is high risk due to the number of instances where projects are announced during an election campaign and quickly forgotten afterwards or bona fide projects being delayed  or scrapped due to poor planning and inadequate budget. Therefore, an initial investment will end up being a dud if the project does not happen but if it takes off, then you’ve set yourself up before all the growth that’s about to materialise.

As a trade-off, the “most appropriate” time might be when the project commences or one can sense that “it’s all happening”. This way, much of the risk is minimised as the growth is certain but has not materialised. In general, capital growth tends to accelerate as the project nears completion and then a further surge upon completion once the benefits of the project are apparent to the community.

Inherent risks

Some project may actually be detrimental to property prices and growth if the development happens too close or too far to residential areas. Location is key and sometimes it is difficult to be fair to all as certain areas may have a more negative or positive impact than others. Protests and local objections have all been observed and well documented such as the desalination plant in Kurnell, Sydney’s second airport at Badgerys Creek. If a major highway is approved and constructed directly in front of a block of apartments with views of the city, this will most certainly affect the prices of those apartments.

If you have to invest in a suburb with a train station, you might as well be as close as possible to the station but not too close to the point of experiencing train or commuter noise. Why invest in an area of a suburb with a train station which is too far to enjoy the benefits of its walking distance? My personal experience is that I have always preferred to buy in a location which is close enough to reap the benefits of a public amenity such as a train station, shopping centre or business park without having to contend with public noise, over-looking issues, commercial and retail traffic commotion and main-road sight. One can directly see the trains and commuters from a distance without having to put up with noise and chatter. Those train commuters who come to work at the business park and shopping centre may also be thinking about how convenient it might be to live in the same location as their work place and hence, lending support, growth and future sustainability to the suburb as a whole.

Key websites about future infrastructure plans in Australia include the following:

National

New South Wales

Victoria

Queensland

Western Australia

South Australia

Tasmania

Australian Capital Territory

Northern Territory

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NSW tenancy laws – proposed reforms may drive away investors

The recent proposed changes to the Residential Tenancies Act 1987 may do more harm than its intended purpose of encouraging more investors to create more supply into the already tight New South Wales residential property market.

The draft Residential Tenancies Bill 2009 has 3 objectives – to fairly balance the rights and obligations of tenants and landlords; to modernise and update the law in line with current practices and to reduce the level of disputes by providing greater clarity and certainty in legislation.

Some key proposals of the draft which is of concern to investors include the following:

  • “Rent control” – provide additional powers and discretion to the Consumer, Trader and Tenancy Tribunal (CTTT) and tenants to successfully argue rent increases could be deemed excessive.
  • Alterations – provision that allows tenants to make minor or cosmetic alterations to the property at their own expense without the permission of the landlord.
  • Security of tenure – measures to encourage long-term leases and giving greater protection against eviction for tenants who have occupied the same premises for 20 years or more.
  • Breaking lease – allowing tenants to break a lease early without penalty in certain situations, such as when they accept an offer of public housing or need to move to a nursing home.
  • Subleases – Tenant may sublease the property and the landlord cannot unreasonably withhold consent.
  • Sale of rented property – requires a tenant to be told before a rented property is placed on the market and the selling agent to make reasonable efforts to agree with tenant on available times for inspection.

Some property analysts believe the above is perceived to be legislating against a property owner who may be behaving unfairly against the tenant rather than a legislation to regulate fairness among tenants and landlords alike.

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