GLEN WINNEY
COMMERCIAL PROPERTY TALK

When it comes down to it, the Property Market, like most investments, is relatively simple and is usually dictated to by two basic human emotions, “Fear” and “Greed”. After the GFC hit we have seen that fear has been winning the war of emotions for several years now, and subsequently people have been hiding their money away for a rainy day which causes the property cycle to go into decline and prices come off as supply outstrips demand.

Like all human emotions fear & greed will swing. Once the fear subsides and the mass population ventures further again they will see that the world didn’t collapse and shut down and it’s not looking like a scene out of War of the Worlds. Certainly there are many who were hurt during the GFC, but most will heal in time. The realisation will dawn that life goes on. Things will progress as they begin to see glimpses of opportunity. Before you know it that glimmer of hope turns into outright greed when everyone jumps into the market and to everyone’s surprise (again) property prices start rising, first slowly, then the frenzy gets hold of people and they become afraid again, only this time they are afraid of missing out, so greed steps into overtime and markets rise out of control once more, and so the lifecycle goes on from the next boom, followed by a bust.

My take of the market is that the fear is now starting to melt away and conditions outside are becoming very attractive to invest again. Australia has a low unemployment rate & a 50 year record low RBA interest rate at 2.75%. The market is also starting to experience pent up demand, especially on residential properties, due to constant growth but supply has not kept up due to fear. We have left the bottom and prices will begin to rise & demand will grow, even if it’s a bit slow for the rest of this year, but the key is to jump in before the greed part of the market gets in and then steps into overdrive.

There is a misconception in the market place that cheap is good, when in fact it can often be the problem not the solution. The Fraser Coast property market has often been called cheap and you will hear some say to get in while prices are so low, etc, etc. But then we sit back and question why others aren’t buying the properties here over last few years when they have been at record low prices. The issue is affordability, and we haven’t been that affordable because of lower socio-economic conditions, meaning the income versus cost ratio for a house, shop, office, etc. has not been at its most affordable.

So how do we fix the property market? You fix the job situation first. We need more employment, higher income averages & even a change in balance from welfare retirees to more self-funded retirees. If we have a stronger cashflow into our economy the properties will become more affordable. Lowering prices actually makes things less affordable, the seller has less profit in his pocket to spend on the next property, which creates a vicious cycle.  We need to focus on our economy not on the properties themselves and once we can stimulate and start creating a vibrant economy locally then property prices and affordability will look after themselves. Just look at any city or region where property prices are going up and people are buying, it’s all about the jobs, not just the quantity, but the quality of jobs, which includes long term security, more professional profiles and higher average incomes.

The second quarter of 2013 is showing some recovery in the local property market. While we are not buoyant yet, I think we have bounced off the bottom and on a slow but steady increase. In the commercial market there are some lead indicators that are suggesting recovery, some of these being large investors back in the market buying big tracks of land ready for the future.

Some major developments are underway, namely Stocklands Shopping Centre expansion and St Stephens Private Hospital. Several public and private schools are extending again, which indicates increased population growth. We have seen a tightening of the residential housing rentals with a rental increase over last three months and a very low vacancy rate. The other noticeable change is the receiver sales in the market are drying up over last two month indicating the distressed sales are nearly over.

This all points to a slow but positive growth in property values over the next 18 months or so, and I believe once we get past the federal elections in September, and the Sydney market starts moving again, it will see confidence and migration back into the Fraser Coast.

The big sleeper in the market to watch is the mining industry, because if we can get a piece of this and increase our local employment levels with strong incomes, it will stimulate local businesses and pricing levels.

The meaning of Esplanade, according to the Oxford dictionary & many other reference books, is “a long, open, level area, typically beside the sea, along which people may walk for pleasure”
I believe as a community that we have lost the original meaning of our Esplanade and over the years have been overtaken by some self interest groups. Esplanades came into vogue in the Victorian era when it became fashionable to visit seaside resorts, and if we look at Hervey Bay that’s exactly how our Esplanade area began. We were a group of seaside villages for people living in Maryborough and other western located towns. And why did they come to Hervey Bay? For one simple reason “The Water”. They wanted the views, the breezes and that seaside living atmosphere, basically what we in the modern era call a “lifestyle destination”.
Human nature has not really changed that much over the last few hundred years when it comes to holidaying, if anything we demand more and want more sophisticated amenities. So when someone chooses where they wish to live or holiday, Hervey Bay will predominantly come onto their radar because of the water. Our Esplanade is the connection to the water that has brought people here for well over a century. In modern times recreational purposes are the main use of an Esplanade, but for some reason we seem to want to be out of sync with the modern holiday maker & the lifestyle chaser who wants to move here.
Some suggest it should be left in a natural state, and that there should be little access between road and beach, when in reality this Esplanade was created for recreation, walking and linkages for humans to traverse from one end to the other no matter what the tide. Take a visit to the local Historical Society and look at the old photos from 30, 50 or 100 years ago and you will notice that the recreation area and open space were far greater than they are today. We didn’t learn from history when this was a vibrant growing community with a solid interactive connection with our water ways, instead we let neglect take control over the last decade or so and some new arrivals who want to shut the gate after they arrive and damn the consequences of our tourism industry and the economy.
Let’s get back to basics and turn the Esplanade back into what it was actually built for, a people friendly place that allows residents and tourists alike to enjoy themselves in safe open spaces with lovely sea views and great shade trees to sit a play under.
This new Council has done more in 6 months than previous councils have done in a decade to start cleaning up our Esplanade and its time the silent majority speak out and acknowledge it and support their actions so the progress continues, rather than listen to the noisy minority. It has been wonderful to see people out enjoying the newly opened up areas. The Esplanade is key to our Economic recovery.

This famous saying from Bill Clinton says it all. If we want the property market and other sectors to fully recover on the Fraser Coast then we need to focus on economic drivers. We need jobs, jobs, jobs, which will stimulate spending. You can’t go to a bank and get a property loan without a good job and you can’t spend on luxury items like dinners, cars or leisure items without a good job and excess funds to spend.

I get a lot of people asking me when I think the property industry might turn around and values start going up. While I see improvements for next year, I am also looking at indicators outside of the property sector to see where the real drivers are coming from, and again it gets back to the simple formula of a stronger economy, then a stronger property market, and the key ingredient for our area is more jobs.

What I am currently watching are, firstly the tourism industry; after several years of decline in tourism numbers and lower occupancy, etc. there seems to be a small turnaround happening with numbers slowly improving. This is more a localised number rather than a wider market, and I think a lot of that is because we are starting to change our focus to events tourism. Secondly, watching the projects coming up in the construction industry with St Stephens hospital and the Stockands shopping centre extension, as well as a large program for road works in 2013. These alone could inject 1/4 billion dollars into the economy over the coming 2 years and create hundreds of jobs. We are also getting an increasing volume of good paying mining jobs from our area through fly in fly out. Although it has its own social problems, there is an injection of money back to the local economy while families remain here for the lifestyle. Other indicators are private schools, some leading schools were getting a drop off in numbers over recent years, but there seems to be indications that numbers are rising in many of the good private schools which signify stronger employment in good jobs and new move ins. However on the opposite side the short term Government job cuts are disrupting the economy in the current market, which is keeping the property market slow.

So if you want to understand what will happen in the property market next year look at all the other economy key indicators and that will help you spot the trend, but put simply it’s about the economy. All Government and private sectors should be making it their top priority to find ways to improve the economy. Each decision on new projects, cuts or expenditure that are being put forward, the first question asked should be ‘will this assist or be detrimental to our local economy’ and use that as a strong indicator to base their decisions on. Then, as it always has done, the property industry will fix itself up and start to improve in value.

Often people jump into property or other investments and believe it will increase in value and continue to rise in a straight line or a certain increased percentage of return year in and year out. This unfortunately is not the case; there can be many ups and downs. If however you buy a property right, in a growing location, you should see its value increase value and you will make money over time. Property investment should be a medium to long term investment as opposed to speculating on a short-term money market or shares. The reality is your initial investment to make up your costs at settlement where you pay stamp duty, legals, and other set up costs. So don’t go into a property investment thinking you will make a certain percentage or profit year one, because property needs time to grow in value. The other big issue is the timing of the purchase, buying in a low market (like our current one) gives you a better opportunity for increasing values in a shorter time as long as your timing in the property cycle is correct. I personally believe we have gone pass the bottom and are in the very beginnings of an upswing, which is more likely to gather some pace by mid next year. If you buy in booms like the 2006-2007 market, unless you were one of the lucky few that got the timing perfect and sold at the top of the boom, then your property started to devalue from 2008 onwards until it hits bottom & comes up again.
So my point is that property is a longer term investment and it starts off going down slightly then grows in value during normal stable economic times and when business confidence is sound. As we know it goes down in the not so good markets, but always heads upwards in the next recovery. If you start looking at property over a decade or even longer it always increases in value. You cannot buy any properties in our region, even in a soft market, for what we paid in the 80’s or 90’s. A block of land was $20,000 to 30,000 back then, now its $130,000 to $150,000, and this is supposedly a bad market at present. If you follow basic principles while investing in property you will just about always get ahead in the long run. That’s why it often amazes me why some people follow emotions rather than logic when investing, especially for Commercial Property which should be about logic and numbers, so it makes sense to purchase in slow or low value markets so you get the upswing to success that bit quicker.

There is a direct coloration between good infrastructure and a good economy. You look at any high-quality city in the world and you will see that once good infrastructure is established it then enhances the chance of prosperity for that area and therefore property prices go up and people increase their wealth over time.
Infrastructure comes in many various forms and needs depending on the city size and environment. So what is the real meaning of infrastructure “The basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communications systems, water and power lines, and public institutions including schools, post offices, etc”. As you know, every city is different and has different advantages and needs. For instance, London has the Tube & double Decker buses to get around, Venice is on water and the main transportation is via boats, other places have city squares for social and community use.
It has amazed me over the years that Hervey Bay had the best bit of connectivity infrastructure sitting right in front of us to use and join the 5 villages together into one good city and up until the last few months we have ignored it and actually gone out of our way to denigrate it and isolate it from the community. I am of course talking about our foreshore, which has over 11km of uninterrupted useable infrastructure. The Esplanade can provide the missing fabric to stitch this city back together and secure our future prosperity, and thankfully the new council were elected on this mandate and are fully aware of its value and are actively enhancing it. I still believe we are a long way from utilising it to its full potential but are on the right path.
The Foreshore is a great piece of public infrastructure and should be easily available for public use, not closed off in large stretches for a select few such as caravaners. This is the residents and rate payers of the Fraser Coasts key piece of public property and one of the key reasons all holiday makers come to our city, and it is the reason why especially the Hervey Bay economy and property industry has grown over the last few decades. But over recent years we have neglected our foreshore and degraded the infrastructure quality and seen economy and property prices suffer, especially along the Esplanade. You will see immediate growth and property enhancement based on council’s recent works.
So let’s look at our Foreshore as a mode of transport, public space, tourist attraction, family area and a single line of connectivity. We already have a great bike & walking path along the length, we now need to enhance the connectivity with water and the beach which is the main reason why most of us live here. So more grass areas for families and tourists to enjoy, more use of our water which may include water taxi’s or pontoons for water based activities, more water views, which means leave the shade trees and remove messy undergrowth, more seating, public amenities & good public art. This is a once in a generation chance to get it right.

A bad market has its advantages if you want to trade up. While you may have to sell your current property at a discount and you believe it may not be a good time to sell, think about the advantages if you are also looking at purchasing something better in this market. For example, perhaps you currently have a $300,000 commercial property and for arguments sake let’s say the market is down 25% over the past few years, making your current investment worth $225,000 now, therefore losing, or getting a reduced gain of around $75,000.

If you took that money and were able to reinvest back into the market for a higher value property, then you would be in front. If you bought back in on a Commercial Property that now sells for $500,000 and we use the same logic that it has been reduced by 25%, (because you are buying in same area and time frame) this would mean that the property would have been worth around $667,000 in better times. As the market improves over the next couple of years so does your investment. Even if we only got back to previous values and the property goes back up to the old prices, then even though you dropped $75,000 in the current market you would be better off in the long run because you bought back in the same market & the new property went up by $167,000. So as an example you are $92,000 better off in the long run, making it a worthwhile call for longer term investing. The opposite will happen if you sell in this market and buy back in on a downsized investment.

So if you don’t have to sell and you have nothing better to reinvest your money into, then don’t sell. But if you have an appetite to increase risk, and hopefully rewards, over next few years then this is the perfect market to be upgrading.

With commercial properties the other advantages in this current market is that yields are soft and you can pick up investments on an 8.5% to 9% yield (net return). When markets are good these yields drop down to around a 7.5% net return. This means a large increase in value. For instance, a commercial rental investment that gives an owner a $50,000 net return would sell in this market for $588,235, based on an 8.5% yield, but in a good market could sell for $666,666 based on a 7.5% yield. If you hold for a few years rents will also increase by CPI or an agreed fixed amount each year.

On top of these advantages interest rates are extremely low, so the returns on the commercial properties at an 8.5% yield compared with a 7% borrowing or less will give you a positive cash flow as well.

The buyers in this market are the ones who will be making the profits in a few years time, and as usual the rest will be saying, gee I wish I bought property back in 2012 when prices were so low.

Glen Winney.
Knight Frank Fraser Coast.

It seems that sometimes the Fraser Coast can be its own worst enemy, because every time someone tries to implement change in this area the knockers come out and proceed to pull it down. Being the noisy minority they pretend to be speaking on behalf of the silent majority when in fact the majority are just a bit apathetic and do not want to get into the debate of it all. The Fraser Coast is in a very difficult financial situation at the moment and we need some visionary ideas to pull us through and head us in a new direction that matches the needs of the consumer in the 21st century. Unfortunately we have a minority that want to hold us back in the 20th century and tell us to leave things the way they used to be.

The Fraser Coast needs change, whether we like it or not, for our economic survival and for the employment of the next generation. There was nothing more resounding than the silent voting of the majority in their call for change both in the local & state elections. The signal was like nothing we have ever seen in the history of voting both locally, with all councillors going, & the biggest wipe out in a state election in our history. It amazes me that our politicians have been given a very clear mandate to lead and implement change & as soon as they start to discuss change the same old minority knockers come out and pretend they represent the majority. The current crop of councillors were voted in on change, so give them a chance and let them have a go at doing something good for our area, stop the organised knocking and fear campaigns and pretending this is the will of the majority. We voted this new team in so give them a go to prove themselves with their new strategy.

I am not sure some people live in the reality of the real world economy. Places like Hervey Bay & Maryborough are on the State, Australian and World stage competing for funding, tourists, jobs, investment dollars, good publicity, population increases, health & education. If we want to keep sending out a negative picture of this area and let the knockers pull us down to a very mediocre perception of this area then we will get mediocre results with who comes here to live & invest. I know some people think that is great, but who pays for all the upkeep of infrastructure, new health facilities, good education, minimizing rates, etc. Progress does, not the knockers!

Isn’t it about time we started to assimilate as a community and strive for excellence and start competing in this modern world like many progressive cities are around the country and the world? There is a direct coloration between striving for excellence and good economic returns, just as there is for striving for mediocrity and getting very mediocre returns as a city, unfortunately we are in the second category at the moment.

Where is Hervey Bay? If you check on most maps it’s a bay of water that sits just off our shoreline, but for someone who arrives in the Hervey Bay area and looks for a location on a GPS, etc. you can’t actually find Hervey Bay you can only find the suburbs such as Pialba, Scarness and so on. This is unlike most other cities throughout Queensland & around the world where you will actually arrive at a city itself like Brisbane, Maryborough, Bundaberg, etc. but not in Hervey Bay.

In the ever-changing online world, where we search names and plan trips online, key words are crucial, especially for search engines. When a holiday maker wants a beach resort in Queensland we need to make sure Hervey Bay comes up high in search engines rather than only seeing Torquay or Urangan, because those suburbs mean nothing to a family sitting in Melbourne suburbs or a German backpacker. Fraser Island, Hervey Bay, Maryborough, Fraser Coast are the key words they will recognise.

So how do we fix this confusing name recognition? Perhaps we need to create a Hervey Bay CBD so we actually have a real place on all the maps to arrive at. The Pialba CBD means nothing to people outside this region. When you talk about Stocklands shopping centre wouldn’t it be better to refer it to be in the Hervey Bay CBD. It would also be great to have weather maps on TV news and state newspapers to actually show Hervey Bay in their maps.

One example is RACQ online trips. Type in Hervey Bay and see where it gets you, certainly not in the centre of our city. Try going on a real estate search site and you get a dozen suburbs to choose from but no suburb/city of Hervey Bay. It’s even harder when you are in the property industry trying to do research when they value individual suburbs rather than the city as a whole.

It’s basic branding 101 – get a consistent message out there, make it simple and memorable, supply a good product and people will buy. When you think of Noosa or Broome or Port Douglas you have an instant set of thoughts on what to expect. But when we send out marketing with Pialba, Torquay, Urangan we are sending out a lot of mixed messages on what people should expect when they arrive in Hervey Bay. The tourism industries and business industries try very hard to promote either Hervey Bay or the Fraser Coast, but until you get a technical location for the City of Hervey Bay its a bit of an uphill battle.