Terry Ryder’s top 10 markets to avoid

Investors should steer clear of Brisbane’s inner city, New South Wale’s Hunter region and Queensland's Emerald, according to Hotspotting.com.au’s Terry Ryder.

In his Over-supply Alert, commentator and regular Property Observer contributor Ryder nominates 10 regions that investors should avoid due to oversupply issues. According to Ryder, “supply is the factor most over-looked by property investors,” with many focusing on demand.

He attributes the Gold Coast’s five year price tumble to oversupply, while the same factor is also to blame for Wyndham City’s stagnation. With oversupply, writes Ryder, comes a fall in rents which in turn pulls down property values.

The regions Ryder to avoid fall loosely into two “danger situations”: inner city apartment markets and regional centres where increasing supply has coincided with declines in demand due to the resource sector slowdown.

Here are Ryder’s top 10 markets to avoid:

1. Brisbane inner-city (QLD)
   
   
2. Emerald (QLD)
   
   
3. Gladstone (QLD)
   
   
4. Gracemere (QLD)
   
   
5. Hunter region (NSW)
   
   
6. Mackay (QLD)

7. Melbourne inner-city (VIC)

8. Moranbah (QLD)

9. Perth inner-city (WA)

10. Port Hedland (WA)

     

This article continues on the next page. For Terry Ryder's explanation of each city's market, click below.

Terry Ryder explains why each region is affected by oversupply issues.

1. Brisbane inner-city (QLD)
   
   Despite the “aura of safety and respectability” surrounding CBD apartment markets, Ryder warns that Brisbane’s CBD residential market hasn’t performed well historically. He notes the city has 69 apartment developments, of 100 or more units each, scheduled for the next five years, which “suggests the situation will get worse before it gets better.”
   
   
2. Emerald (QLD)
   
   Ryder cites the shrinking Bowen Basin coal industry as a factor in Emerald’s growth prospects, with new stock from developers hitting at exactly the wrong time.
   
   “But currently this is a market to avoid – at least until the new resources projects get under way and the existing accommodation surplus is absorbed.”
   
   
3. Gladstone (QLD)
   
   Gladstone’s vacancy rate currently sits at 8%, up from 1.5% in August 2012. According to Ryder, Gladstone is now experiencing the effects of a wave of developer activity in late 2012 and early 2013.
   
   
4. Gracemere (QLD)
   
   About 10 kilometres out from Hotspotting favourite Rockhampton, Gracemere “has just been smashed by developers” according to one of Ryder’s clients. Ryder sees the almost doubling of residential building approvals in Gracemere from 2011-2012 to the next year as a “warning signal.”
   
   
5. Hunter region (NSW)
   
   The coal industry’s downturn has also hit New South Wales, with Ryder claiming that despite several other strong economies in the area, the resources sector once “elevated its status to a boom region.”
   
   Though he believes that the coal industry’s contraction isn’t likely to be permanent, Ryder says the downturn in demand is occurring alongside a rise in developer activity, driving oversupply.
   
   
6. Mackay (QLD)
   
   Mackay is another region feeling the effects of a contracting coal industry, according to Ryder. But he believes that it will eventually pick up.
   
   “Mackay has been a strong regional property market numerous times in the past and will be again in the future. It's a growth centre and it has one of Queensland's most important export ports for the resources sector,” he writes.
   
   “But currently this market is still in decline and is one to avoid until the bottom has been reached.”
   
   
7. Melbourne inner-city (VIC)
   
   This isn’t the first time Ryder has raised concerns over Melbourne’s inner city market. Last month, he wrote that “the inner Melbourne “boom” is toxic growth if ever I’ve seen it.”
   
   “Local investors should stay well away from this market,” advises Ryder.
   
   
8. Moranbah (QLD)
   
   With a vacancy rate of 10%, “the Moranbah market is a basket case – and Australia’s most spectacular example of the rise and fall of a property market,” writes Ryder.
   
   Again, Ryder writes that although the area will recover in the future, “right now it’s the nation’s No.1 No Go Zone.”
   
   
9.  Perth inner-city (WA)
   
   Oversupply is a smaller issue in Perth’s inner city than in Melbourne or Brisbane, writes Ryder. But nevertheless he cautions investors against the area.
   
   “There are high levels of urban renewal activity in and around the Perth CBD and this is likely to see considerable new construction in the near future,” he writes.
   
   
10. Port Hedland (WA)
    
    Ryder urges investors to disregard marketing materials when it comes to Port Hedland, where properties are taking five months to sell as the mining boom winds down.