Which markets will benefit the most from international tourism?
There’s a strong link between tourism and real estate. People idling in idyllic environments like to tyre-kick real estate and often, against their better judgment, end up doing something silly - like buying an off the plan apartment as their dream holiday home.
It's so easy to be seduced into un-scheduled spending amid holiday euphoria. It's not so much “buy in haste and repent at leisure”, as buy while at leisure and repent in haste when you get back home and reality sets in.
Two of real estate's biggest lemons, Surfers Paradise units and Noosa Heads units, have been popular targets by interstate or overseas tourists who probably wish they’d stayed home.
So consider this scenario. The Reserve Bank is concerned about the economy, unsure of what will happen next, particularly after the recent uptick in unemployment. As it sees it, the economy is in transition and needs sectors other than resources to do some heavy lifting.
The RBA would also like to see a lower Australian dollar. Its recent strength has hurt export-oriented industries and undermined economic growth. It’s trying to talk it down, but with minimal effect.
All of which suggests the next movement in interest rates will be down. According to reports, the markets think so. Reductions in interest rates are likely to bring the dollar lower - and a core beneficiary of that will be inbound tourism.
This possibility comes at a time when international tourism is already in a recovery phase. We also have rising foreign investment in property, especially from Asia. The two things are moving forward hand in hand.
As Chinese tourism to Australia grows, Chinese interest in our real estate will grow, regardless of the delirious worldview of Clive Palmer – still the 2014 frontrunner for my coveted Goose of the Year award.
This inspires the question: which markets are most likely to rise as this phenomenon gathers speed?
In the past I've been reluctant to advocate investment in markets based on tourism economies. Tourism is a volatile sector, prone to devastation by adverse weather events, economic uncertainty and international incidents.
Some of the worst performing markets in the past five years have been tourism-based locations in Queensland. Noosa's market performance has been pitiful. The Whitsundays region has been little better.
When tourism downturn has been mixed with other powerful elements, such as an over-supply of apartments, the outcome has been sharply falling values. Those who own property on the Gold Coast and in Cairns will know the pain this can cause.
So we're looking for some safeguards - places likely to benefit from an uptick in international tourists, which also have an additional element, an X factor. In residential real estate, the most powerful X factor is infrastructure spending.
This is why some of those Queensland locations which have performed so badly in the past five years are now looking good bets. Prices are now attractive, the oversupply has been soaked up, tourism is improving – and, above all, there is significant spending on infrastructure, coupled with local efforts to broaden the economic base.
The two standout locations in this regard are Cairns and the Sunshine Coast. I write about Cairns a lot, because this is one Australian real estate’s great future prospects – attractively priced, great rental yields and strong growth drivers.
The Sunshine Coast doesn’t offer the same high rental returns, but is otherwise a great place for investors to consider.