As someone whose entire career has been consumed by the property sector it has taken me many years of reflection to get my head around understanding the nuances of the Cairns property market and its cycles.
I have often described the local property market as being “bipolar”; cheaper (on paper) to buy old existing houses compared to the cost of developing new stock. We have all endured the curse of the local valuers who in reality have a near impossible task of supporting new benchmark values as there is so little depth to this market for comparative sales. This, compounded by the impact of the banking royal commission; tightening of bank lending; rising construction costs and other unavoidable costs to development; plus slower population growth, has seen a total slowdown in new residential construction. Building permit approval numbers have plummeted since the GFC and there has been virtually no new medium-density housing developed in Cairns over the past 10+ years. These factors are causing massive pressure on the availability of housing stock resulting in rental vacancies as low as 1% with little prospect of positive change for a while.
Although Cairns is not growing at the high rates it experienced in the 1990’s boom, it still has growth with an approximate 3000 person increase per annum. In addition, the overall demographic profile is changing with a significant increase in small household occupancy and an ageing population mirroring similar traits of our major capital cities such as Brisbane. These trends impact housing needs.
By the end of 2019 the light bulb literally popped in my head when I finally realised that this town is a YIELD play rather than the more traditional attraction of capital growth. Cairns properties do benefit from capital growth, but not to the crazy rates that we are seeing in Melbourne and Sydney, however the yield return is incredibly positive compared to our capital cities.
One of the key trends we see in Cairns is the continual growth and frequency of its transient population. At the start of every year, over 200 foreign doctors arrive to work here for a period of 12 to 18 months; army and navy personnel working on short term posts; along with new teachers and many other health professionals who are posted here for work. These new workers are in need of housing located close to the city; good schools and other amenities. Most of these temporary workers will never become owner/occupiers in Cairns but they are in the rental market and for as long as Cairns needs a top up of professional workers to support the economy this trend is here to stay for the medium to longer term (5-10 years).
The other interesting dynamic I like to reflect on, is how Cairns functions as a city that not only supports and accommodates its permanent population of 160,000 people, but it also supports over 2 million visitors that come and stay and play here each year.
And there are five key trends other than tourism I think are going to underpin the growth and stability of Cairns in the future. Education; health; agriculture; military and ship maintenance.
So back to my view on the Cairns property market - this market is full of opportunities for positive yield play and for as long as the Federal Government does not tamper with negative gearing (unlikely after the fallout for Labour at the last election), the attractions of tax depreciation offset from the acquisition of new property is very much the blue-sky opportunity for property investors looking for alternative investment options. Especially those of us that have money sitting in term deposits lucky to be earning 2%.
Don’t just take my word for it, Urbex General Manager, Craig Covaciah, has a very similar view, stating;
“Cairns has been affected in that it created an undersupplied market, bringing the opportunity for investors to buy land and get construction finance to build new homes.”Rent rates have gone up, the vacancy rates have gone down and Cairns has become one of the best investment opportunities in Australia.”
Read Craig’s full view here.
With our busy lives most of us never take enough time to review our investment portfolios or have time to think about building a strong investment platform that will support us through our longer than expected retirement. And I don’t think we can just assume that we can rely on our superannuation to do this.
If you live in Cairns or have easy access to the Cairns property market, I strongly encourage you to consider buying a new property. Of course I have a vested interest here, being the co-owner and founder of MiHaven along with my business partner and life partner, James Mort. However I am sharing from our own experiences and I am practising what we preach. Since developing our first MiHaven inner-city home at Parramatta Park we have seen our rental income increase substantially providing weekly income of $630 per week for two bedroom; two bathroom home. There are unique features of this property that enables such a strong rental income. For us, we will never sell and will continue to build up a portfolio of properties that will eventually provide us with a steady income throughout our retirement years. I know property is not for everyone, but for those of us that prefer a tangible asset of bricks and mortar it can work.
7-9 Denbeigh Street
If you have not yet seen our new project at 7-9 Denbeigh Street, I strongly encourage you to take a look (www.mihaven.com.au/property). The project is unique showcasing 4 freehold homes; each featuring 4 bedrooms (or options to convert secondary rooms into private living/study/office spaces); high security; extremely low maintenance and high energy rating efficiency (loads of mod-cons that suit the urban tropical Cairns lifestyle).
With a listing sale price of $695,000 we have corporate tenants already secured for these properties renting at $850 per week. This represents a great rental return for an investor at 5.5% net before you take into account the tax depreciation benefits which adds over $16,000 per annum in deductions. Even if you borrowed 100% of the purchase price the property is cash flow positive. As we know, with interest rates at record lows, money is now very cheap to borrow but also offers poor returns on term deposit. The tightness of our rental market has been well documented. What we are now seeing is property suited to “executive” type rental that is achieving very strong rent – especially close to the CBD. Why…? Because there are almost no near-new homes being built and new or near-new is the most desirable for tenants.
Not ready yet? A few of our clients who have invested in a MiHaven property have taken a longer term view, where the property we have built ticks all the boxes for their future downsizing plans, but for whatever reasons (eg. teenagers still to complete high school) are not ready to make it their permanent home. Instead they have bought now and leased the property out, providing stable income and other tax depreciation benefits with a plan to move in a few years time.
We only develop a small handful of properties each year in Cairns, and no project is ever the same. We individualise each development with every house unique and there is a no cookie-cutter approach to any of our projects. Our current development at 7-9 Denbeigh Street took over 2 years to create and complete and will not be repeated. These houses are rare and special, providing an investor the benefits of freehold title (no body corporate to deal with); low maintenance and a central location in Cairns, 5 minutes drive to the City, Esplanade waterfront, Cairns High School and health services.
The benefits of buying NEW must be valued. Having lived for over fifteen years in the Wet Tropics, we have an acute understanding of building appropriate housing structures and design adopting a high level of technology and innovation to withstand severe tropical storms/cyclones. Equally as important is our attention to detail to sustainable design and future proofing longer term low maintenance.
Till next time,
Sarah Mort
