Cairns market has well and truly turned and new developments could be a game changer
There has been an announcement that the Aquis resort will be delayed for a year. It still hasn't been approved by the state and local governments and it seems that the sticking point is the approval of the standalone license for the casino. Getting a project this big approved and started within a year of the announcement was always going to be ambitious. I think we will hear more over the next few months. I personally think it will go ahead, and if nothing else, it has been the catalyst for the turn in the Cairns economy and confidence.
For the past few weeks I have been doing some research for a few buyers. I have to tell you that the market has well and truly turned. You can still find a good buy, but they don't hang around long. You also will be paying more for them than you were even three months ago. To find a good two bedroom unit under $120,000 is near on impossible, yet before Christmas we had three that were purchased by investors for under $100,000.
It is not often that I get the crystal ball out, but today I will make an exception. Before I make my predictions I will go into some back ground information as not everyone has been following Cairns as much as we have.
Cairns is a relatively new city and most of the building happened in three distinct phases. The first was in the areas close to the city and Edge Hill. This would have happened in the very late 1970s and early 1980s. The unit blocks that were built were either single level or two storey. They tended to be in smaller blocks and I will guess that at this time there were a lot of duplex pairs that were built.
The next building phase was between 1988 - 1995 and this was your bomb proof but certainly not pretty developments. This includes the houses you will find in White Rock, Woree and Brinsmead to name a few. These were constructed with besser blocks and most of them finished to a budget finish - the besser blocks weren't rendered internally or externally, the kitchens and bathrooms were basic in design and fit out and the fixtures and fittings were cheap.
The unit developments of this era were mainly in the 5 kilometre CBD circle. This is up to Edge Hill, around to Whitfield and south to Woree. There were some developments at the northern beaches and some further south down to Edmonton but the bulk were in the Manunda, Manoora and Whitfield area. These were up to a maximum of three stories high. The size ranged from a simple four pack up to 45 units. There were also some duplex pair developments that were done, but if they could squeeze more onto the block - they did.
The last building phase happened between 2003 - 2008. This was cut short by the GFC - it literally ground to a halt overnight and the rest is history. These developments were nice and on a much bigger and grander scale. We had the development along the northern beaches, the Esplanade in the City and other inner city suburbs. We also had the mega developments like The Lakes and Cairns One. Housing was also on a much grander scale and to a much higher specification. There were very few small developments and even fewer duplex pairs. I guess the economies of scale just weren't there.
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During the rise of the last property cycle, the units that were built in the first and second building phase were pretty much bundled together and sold for about the same price. Obviously there were slight differences for location and fit out but generally this would be the price near the peak of the market in 2008
Studio spartments - $80 - 100,000 - these is the really small ones at Chester Court, Jensen Street and even the motel style units at Anderson Road
Bedsit units $110 - 115,000 - this is the type that can be found at 85 Birch, 93 Birch and 55 McCormack Street.
One bedroom units - $150 - 170,000 - the better the presentation the better the price.
Two bedroom units - $220 - 240,000 - I know it is difficult to believe but you really couldn't buy a crappy one for $200,000
Duplex pairs - $500,000 plus. Yes these are the same duplex pairs I wrote about recently that if you shopped around you could buy for $400,000 and under.
Houses - $300,000 plus. This would be for a basic three bedroom, one bathroom home in the not so good areas.
Now to put this into context for today market as it stands right now
Studio apartments - $40,000 if you hunt around you may even get one lower.
Bedsit units $85,000 - potentially there is $30,000 if the market goes back to just 2007 prices
One bedroom units - $90 - 120,000 - these have dropped but not as badly as the two bedroom units.
Two bedroom units - $95 - 140,000 - if they just go back to 2007 prices there is potentially $100,000 capital gains to be made.
Duplex pairs - $350 - 400,000 - these have gained $50,000 in price since we started tracking them 18 months ago. The fact there are so few pairs around will see the prices go up quickly.
Houses - $250 - 300,000 - this is for your basic home in Woree, White Rock, Manunda, Manoora etc. These too have gained ground in the past six months. You had your choice of houses about six months ago for $250,000 and under. To find a good house with two bathrooms for under $300,000 is nearly impossible now. You can find a three bedroom, one bathroom for under $300,000 and these are still worth looking at if this is your strategy.
The fact that we haven't had any building in seven years, the economy is getting better, the vacancy rate is low and the rents are increasing are all positive factors. The fact that interest rates are at historical lows is another bonus.
The game changer is Aquis and the other projects that will follow on. This will put further pressure on rents and when the investors start to come out and see the prices compared to the achievable rents, they will take notice and start buying. I am already seeing this now. I am dealing with more buyers now than I have dealt with all 2013 put together.
I know that some will say that the body corporate levies will put the investors off. For this example I will use Palm Tree Apartments. There are 44 units in the complex. Before the huge insurance increases came in the premium was $6000. The premium we just paid in May was $32,500.
For the bedsits they used to pay $93 per year and now they pay $508 or an increase of $415 per annum, or $8 per week
For the two bedrooms they used to pay $186 and now they pay $1016 or an increase of $830 per annum, or $16 per week.
I know that the other outgoings have also increase, landlords insurance, council rates and water charges - but these haven't been as high. For this case I will use a bedsit unit. At the peak of the rental market the highest we achieved was $155 per week. We are now consistently renting them out for $175 per week and this is set to increase as the rental market continues to tighten.
Linda Tuck is director of Cairns Property Ladder Realty, an independent real estate agency in specialising in property management, investment and sales expertise in the tropical Cairns region.
