Sunshine Coast – The sky is falling

//Sunshine Coast – The sky is falling

Well if you’re Henny Penny, or believe everything you read, this week you would believe the sky is falling on the Sunshine Coast housing market with a US report putting the Sunshine Coast as the 8th most expensive city in the 8 countries they assessed and RP Data reporting we have the highest average land prices. So is it really that bad? You don’t have to go far to see the faults or the silver lining in those dark clouds.

Can anyone afford to live on the Sunshine Coast?

That is what the Demographia International (D.I.) report released this week would have you believe. They put the median house price to income level at 8.4 times while suggesting that the only way to avoid a housing collapse is to have the ratio at 3. Thankfully the data is fundamentally flawed. The problem with making comparisons across very different markets based on raw data such as published median house prices and incomes is that firstly not all methods for calculating and reporting the data is the same across all countries. Secondly the comparisons drawn don’t take into account key factors of affordability such as taxation, interest rates and cultural aspects such as concentration in coastal centres.

There has been much reported about the affordability of the Australian housing market by local experts that doesn’t get as much coverage in mainstream media as the extremist position of reports such as those by D.I.  (never let the truth get in the way of a good story). For my liking, the best by far is that provided by RP Data – Rismark who have recently argued that affordability in Australia is no greater and no less than its peer countries and that affordability is improving with household disposable income growth out pacing house price growth for the last few years.

On the Sunshine Coast 2010 saw around a 7% average increase in house prices suggesting the opposite of a pending collapse. With billions of dollars being spent on infrastructure over the next 5 to 10 years creating tens of thousands of jobs, affordability is likely to improve, unless the supply of new land is severely restricted.

So why is the land so expensive?

Compared to what? The second report I mentioned was by RP Data on the average land sales by region which had the Sunshine Coast at number one over Sydney, Perth and Gold Coast respectively. The key to keep in mind is that this report is based on the ‘median sale price’ for the year to September 2010. Again, we shouldn’t draw generalised conclusions without a full understanding of the picture.

On the Sunshine Coast there are a disproportionate number of higher-end estates, many of them water based or even acreage, while some of the other areas mentioned that also have these types of land estates are in much lower numbers. Additionally, many of the Sunshine Coast estates are in close proximity to the central business precincts of the Coast with other regions having large numbers of the sales in more fringe or hinterland areas. These numbers were also further distorted by the low number of approvals and unseasonal adverse weather. For example, many more affordable lots across several stages and estates that should have settled in this period were extended into late 2010 and early 2011 due to the rain. It will be interesting to see the ‘median’ by comparison for the year to Dec 2010 and March 2011.

That said, land is not ‘cheap’ on the Sunshine Coast as a function of supply and demand which has delivered sound growth in prices and higher rents. With such strong prospects and infrastructure investment the potential for investors on the Sunshine Coast remains strong.

Hooray! Now what?

There is no shortage of ‘data’, or opinion for that matter, on the performance of property and where or where not to invest. The challenge is that often there is ‘selective data analysis’ (when they give you just enough to prove their point), opinion passed as fact on raw data without any analysis (this is what they think because of their bias, who cares if its right or wrong), or the analysis modeling is just flawed (makes sense but …).

Moving forward, you need to understand that when you’re investing there are no short cuts. Maximising your returns takes effort and wisdom. There is no substitute for sound research and understanding the specific drivers that impact the property market and how those drivers are at play in a particular area. Don’t take anything at face value. My two favourite questions in property investing are ‘So what?’ (what does that mean) and ‘Why?’ which may give you a hint on how to proceed… find experts you trust and ask them lots of questions until you understand where and why you’re investing!

(The Sunshine Coast is just one of our key focus areas in Queensland)