Property Outlook – Impact of Queensland Floods

Tragedy aside, as catastrophic as the Queensland floods have been, the long term outcomes for the state and national property market can ultimately yield positive results.

While many investors have remained on the sidelines in recent months, an increasing number are re-entering the market tentatively, recognising the strength of the market with the potential opportunities for growth and the restoration of confidence over the long term.

In the short term, the loss of homes and negative impacts of the Queensland economy have been apparent. However, the level of activity in the rebuilding process is already wielding optimism. An estimated $AUD10 billion in federal and state funding allocated to reconstructing and restoring the region, along with the important drivers of property prices (a robust resources sector, solid infrastructure, employment and population growth) will play a vital role in this reconstruction.

For all other states, the effects of the floods will be nominal. While there will be interstate population shifts to Queensland due to rebuilding work opportunities, the extent of this is uncertain. It is expected that properties in the region should see some solid growth over the medium term. The rebuilding process will create employment and population growth which will drive the demand for housing. This will ultimately set Australia up for another economic boom.

Major side effects for investors
• Burgeoning rents due to displaced homeowners needing to rent whilst homes are being rebuilt.
• Re-construction of Queensland.
• Insurance premiums to increase substantially as flood probabilities in areas change.
• Tourism markets to experience a temporary hiatus.
• Supply of new homes to be slow as town planners stall approvals.

In the short term, as uncertainty exists and the disaster is still fresh in people’s minds, there is unlikely to be any movement in prices. It is expected investor (especially interstate) activity will be subdued over the next 12 months, however, once sentiment shifts there will also be significant movement.

National outlook for 2011

The most significant change we are seeing is a decline in household sizes in Australia. This is an important driver and, as long as the population keeps increasing, the level of demand for housing will be even higher per head of population. This has important implications as to how Australians live. Medium and higher density dwellings are now more popular as this suits smaller households. In the past five years, higher density dwellings have outgrown the traditional house in Australia.

Essentially, Australia’s property market is fundamentally sound. It is being driven by a robust economy, strong levels of population growth, a pro-property tax system, and demographic shifts that are broadening the demand for housing and the shortage of new housing. As long as these fundamentals exist, there is no valid argument that can justify a significant correction in Australian housing prices.

The key leading indicators indicate that capital growth is likely to remain very subdued for the time being through Australia. However, conditions are favourable for prospective investors who are focused on rental return yields. The large stock of homes available for sale should afford potential buyers increased scope to negotiate on price to get the best possible deal.

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