Hotspots: Toowoomba could be headed for recovery

Toowoomba is one of just nine locations that has been listed as an investment hotspot three years running (2010-2012) by Australian Property Investor magazine in its annual Hot 100 list.

As Australia's second-largest inland city (after Canberra), Toowoomba could benefit from providing services to the Surat Basin about 160 kilometres to the north west, Australia’s largest coal seam gas (CSG) mine.

However, the town is still recovering from the devastating effects of the 2011 inland tsunami that claimed 22 local lives and caused $7 billion worth of damage to homes and infrastructure in the town and neighbouring Lockyer Valley. Residents complain that the pace of reconstruction remains slow while some home owners continue to battle with insurers to rebuild their homes.

Location and demographics

Toowoomba is located 127 kilometres west of Brisbane. It is bounded by the South Burnett region in the north, the Somerset region and the Lockyer Valley region in the east, the Southern Downs region and the Goondiwindi region in the south, and the Dalby region in the west.

It has an estimated district population of about 150,000, which is expected to reach 231,000 by 2031 and possibly as high as 250,000 under a high-growth scenario (Canberra has a current population of 358,000).

The Queensland government forecasts Highfields, 14 kilometres north of Toowoomba, along with Toowoomba south-east, Toowoomba west and Westbrook, 12 kilometres south of Toowoomba, to grow the fastest over the next four years.

According to ABS statistics, the Toowoomba municipality’s unemployment rate dropped from 3.5% to 1.6% between 2005 and 2009, and its population grew by 7%.

Key property data

According to RP Data, Toowoomba is more affordable than nearby Chinchilla (also a mining hotspot) and significantly more affordable than hotspot king Gladstone, though returns are lower.

About a third (31%) of residents in Toowoomba and the Lockyer Valley rent.

Hotspotting.com.au director Terry Ryder warns against investing in locations solely reliant on the resources boom.

In this respect, Toowoomba is more than just a base for mining companies. It has a diverse economy with major industries including manufacturing, agriculture and education. Toowoomba has more than 23 private schools and a technical college, as well as being home to a campus of the University of Southern Queensland.

Ryder describes Toowoomba as a “prime example of a strong regional economy that benefits from the resources boom but doesn’t rely on it – making it a safe long-term bet for investors.

“Toowoomba has a diverse economy, a secure water supply … and an exciting future given everything that is happening in the neighbouring Surat Basin, Australia’s new resources boom province,” Ryder explains as part of his reason for selecting Toowoomba in Smart Property Investment magazine’s 2012 list of 50 locations with the most price growth potential.

Toowoomba was also one of only 21 locations to be included on hotspot lists of both Your Investment Property magazine and Australian Property Investor last year.

Toowoomba is the top pick of RP Data’s David Williams, who says “Toowoomba is quickly becoming a base town for [CSG] mining companies”.

Current state of the market

According to the January 2012 ANZ Australian Housing Chart book, Toowoomba was one of the better-performing regional locations in Queensland, with price growth of around 3%. This is well below that of hotspot king Gladstone, but it is higher than the overall regional Queensland market and Brisbane.

Source: ANZ January 2012 Housing Chart Book

Demand for property in Toowoomba will likely be underpinned by strong population growth in the neighbouring Lockyer Valley, which is one of Australia’s fastest-growing regional areas:

Source: ANZ January 2012 Housing Chart Book

What local estate agents say

Lynn McLean, owner of Realpoint Property owner, reports an increase in sales in January. "It's all starting to finally happen for the Surat Basin," she told the Toowoomba Chronicle. "Last week I sold five other blocks of land specifically to cater for the mining industry.”

McLean says she has “a waiting list of people looking for blocks of units and duplexes” and has been taking delegations of interstate and overseas investors on tour of the city's real estate.

She is currently marketing a two-bedroom house on Jellicoe Street (pictured below) on a 1,400-square metre-lot for $315,000 as a development opportunity suited for mine workers.

“At the very western end of Jellicoe Street, so is perfectly situated for accommodation units for the mining workers,” she writes.

It is currently rented at $205 per week, reflecting a yield of 3.38%

“You could divide it into two lots, both lots would have good street frontage or you could remove the house and build five units,” she says.

A pick-up in activity has also been noted by Collier International's Dominic Ryan, after a slow 2011.

According to Ryan there has been a lot of interest of late from investors in towns near the Surat Basin. Ryan expects rents to start rising.

Another agent, Daniel Steinberg from Ray White Toowoomba is selling this four-bedroom house on Winning Street currently rented at $355 per week at an asking price of $345,000.

This equates to a yield of 5.35%.

“Act now before the mining rental boom hits the west side of Toowoomba,” he writes.

Reasons to buy:

• Growing reputation as gateway to Surat Basin driving up residential sales
• More affordable than other regional locations near mining activity
• Growing population
• Not just reliant on mining but a thriving multi-sector regional town
• Investors in new homes in Toowoomba can take advantage of the $10,000 building boost until April

Reasons not to buy:

• Physical scars still remain from the devastating inland tsunami
• Reports that buyers remain “spooked” about buying in flood-affected towns.