Gladstone property market cooling, with some 20% price corrections: HTW

Property prices in the Queensland mining boom town of Gladstone are starting to cool, with prices for older houses and units falling by as much as 20% in some cases, according to property valuers at Herron Todd White (HTW).

HTW describes the Gladstone market – driven by a number of liquefied natural gas (LNG) and coal projects – as “volatile”, with a stabilisation in rents flowing through to softer capital values.

HTW reports of a “new phase in the Gladstone residential market” noting that that vacancy rate has increased from just 0.5%  at the start of 2012 (with minimal vacancies particularly noticeable in three- and four-bedroom dwellings and two- and three-bedroom units and townhouses) rising to between 1% and 2% by the end of the year and “trending upwards”.

“We are now seeing declines in values from what was being achieved approximately 12 months ago," HTW says.

“For the first six months of 2012 we saw evidence that the market was stabilising or softening with some values creeping back 5%.

“In the last four months, transactions have shown values have declined further. New housing and unit stock has come back by up to 5%, whereas older housing and unit stock has come back by as much as 20% in some cases," says HTW in its December report.

“We are seeing an ever increasing number of current contracts that are far below a value that could have been achieved at the beginning of 2012,” says HTW.

These observations follow property market analyst Michael Matusik declaring the Gladstone mining-related property boom over in August last year, with hotspotting.com.au's Terry Ryder saying around the same time that the savviest of investors were in the market 12 to 18 months prior.

However Matusik refined his view on Gladstone towards the end of last year, suggesting it remained a "healthy real estate market" with reference to the success of a recommended new off-the-plan development, Stone Apartments near the Gladstone city centre, now 70% sold out.

According to HTW, local selling agents are reporting a loss of confidence in the market with recent research indicates that the volume of unit and dwelling accommodation available in Gladstone has increased significantly.

Recent sales show a number of older properties failing to sell at auction and then selling at reduced prices following long listing campaigns lasting many months.

These include this three-bedroom house on Finchley Street in Telina, which sold through Kerry Connor of Go Gecko Gladstone in mid-December for $398,500 – an 11% discount to its July 2012 listing price of $449,000.

Another recent sale was this 1950s four-bedroom house on Martin Street in South Gladstone, which sold through Margie Richards of PRDnationwide Gladstone for $445,000 in November.

RP Data records indicate that it failed to sell at auction in February and April and was then listed for sale in May at $478,000. The asking price was reduced to $469,000 in August and then reduced further to $449,000 in May before finally selling for $445,000.

In a recent Property Observer webinar looking at the prospects for regions versus cities in 2013, Terry Ryder highlighted rising rents as being a leading indicator of rising prices, but with a lag period of about a year.

In the case of Gladstone, Ryder says the first big rent rises started happening in 2011, but property prices only really lifted in 2012 – rising about 16%.

The stabilisation in Gladstone rents, as reported by HTW, suggests that the prospects for price growth are weaker in 2013.

In its assessment of the Gladstone market, HTW says that at the start of 2012, it predicted that activity would remain high and demand would stay very strong across all residential property types.

“We also stated that values were already at record high levels and we were unsure just how much higher prices would go.

“Over the course of this year, confidence in the market has dropped slightly, activity remains strong however not at the levels we were experiencing during 2011 and the record high prices have started to soften.

“We are now seeing declines in values from what was being achieved approximately 12 months ago."

HTW says it is aware of extensive land and unit projects being developed in the area with demand for these products being “moderate to high”.

“However, as more and more stock is produced and made available to the market, it is effectively increasing the competition in the area and giving potential purchasers a greater degree of product selection.

“The demand for newer stock with high rental returns now outweighs the demand for older existing stock. This has forced prices down and we are now seeing a greater differentiation in values,” says HTW.

HTW says it is difficult to gauge the actual level of demand and whether prices are “at market” due to a high percentage of available vacant land marketed and sold by specialist project marketers off the plan to “out of town investors” with none of these pre sales settling until construction of the estate is complete.