CategoriesNews

Big-ticket infrastructure projects that could drive house price rises

Vanessa De Groot 24 May 2022

‘Follow the infrastructure’ has long been a catch cry for residential real estate investors because it’s seen that infrastructure can have a big – and positive – impact on property markets.

The opportunities for investors to capitalise from infrastructure projects in Australia has recently grown, with the country going into an era where there will be much more, said Hotspotting director and founder Terry Ryder.

Post-COVID, governments all around Australia have been planning to invest in infrastructure to generate an economic recovery, with the impact on residential property expected to be “quite profound”, Mr Ryder explained.

“It’s a great strategy for property investors to follow the infrastructure trail – buy a property that lies in the path of progress and look at the big-ticket items that are being rolled out,” he said.

According to Simon Pressley, Propertyology head of research, not every infrastructure project positively impacts property values, but those that do are the ones that create operational jobs over the long-term and benefit the economy of the town or city where they are being built.

PropTrack economist Angus Moore said trying to time an investment in line with an infrastructure project was difficult.

“Investors should look at areas that best fit what they’re looking for, in terms of yields, affordability and pricing, and factor in potential improvements, including infrastructure,” he said.

Price rises from infrastructure aren’t reflected immediately but over time, and some areas could even be negatively impacted, Mr Moore added.

According to the experts, these are the top big-ticket infrastructure projects that could drive long-term property market growth in Australia.

Inland rail – Melbourne to Brisbane

Experts agree this $15 billion giant, which is one of the biggest infrastructure projects in Australia, is the number one project set to impact property markets over the long term. 

The Inland Rail project is a 1700km freight rail line currently under construction and set to be completed in 2027.

It will connect Melbourne and Brisbane running inland via regional Victoria, New South Wales, and Queensland, covering 36 local government areas.

The project, which is described as “transforming how goods are moved around Australia”, is designed to fill in the missing links in Australia’s rail supply chain. 

It will take trucks off roads and get goods to consumers faster and more reliably.

Inland rail is the biggest of the big-ticket infrastructure project that will directly impact property markets in Australia by an “absolute mile”, Mr Pressley said.

He said it would significantly benefit towns including Albury, Armadale, Toowoomba, Wagga, Parkes, Dubbo, and Beaudesert, with the biggest benefit to property markets being post-construction.

That is when more jobs are created through food manufacturing, logistics, and warehousing, with local businesses to benefit from all the extra activity in their towns, he said.

Inland rail will have an impact on economic activity and create jobs locally, which will have a flow on effect to the property market by creating demand for real estate, Mr Ryder added.

“A big project like that has multiple impacts – when it is being built if creates a lot of economic activity and jobs, with local businesses getting contracts and people coming to work on the construction.

“There will be new people coming into the areas where it’s being built, and they’re probably going to need somewhere to rent. It just generally pumps up the property market.

“Then when it’s finished it’s going to bring more commerce to the places that have stops along the way as businesses will want to set up in those places. 

“This will include places like Parkes, which is already a very important regional centre of New South Wales, as well as Moree, Narramine, Narrabri, and once it gets into Queensland, Toowoomba.”

Mr Ryder said the biggest impact of the Inland Rail project would be in Toowoomba because there was a big transport hub planned for the city, right next to the airport on the western fringe.

“Suddenly, Toowoomba has become the place that investors all over the country want to buy property in, and there have been some big increases of around over 20% in the past 12 months.”

Western Sydney International Airport and surrounds

This $5.3 billion airport at Badgerys Creek is under construction and expected to be completed by 2026.

The project itself is expected to generate economic activity and support almost 28,000 direct and indirect jobs by 2031, but there is also a planned 11,200ha Aerotropolis surrounding it, which will further boost the area with an estimated 200,000 new jobs.

The Aerotropolis will be an economic hub for industries including aerospace and defence, manufacturing, healthcare, freight and logistics, agribusiness, education, and research.

Other infrastructure projects in Western Sydney include transport links such as the $11 billion Sydney Metro – Western Sydney Airport rail line.

“There’s a lot more happening infrastructure-wise in western Sydney,” Mr Ryder said.

“It’s one of the most dynamic economies in the country – but really, the big-ticket item is the airport and everything else it creates around it.”

He said the relatively affordable property markets in the local government areas surrounding Badgerys Creek, including Liverpool, Blacktown, and Penrith would all get an uplift from the infrastructure project.

“There is going to be lots of jobs during construction and also through the operation of it, and not just in the airport itself but in the commercial industrial businesses that want to be close to the airport.   

“People want to live close to where they work so we’re going to see demand for housing in these local government areas.”

Being such a big project, the Western Sydney Airport will really open up western Sydney and draw more people into the area, PRD chief economist Dr Diaswati Mardiasmo said.

“The main thing is that it will attract more people into the area, and they will need some sort of place to live, whether a rental or to buy a property,” Dr Mardiasmo.

She said the high demand would lead to property price growth, particularly with the housing supply chain lagging.

Hells Gates Dam, North Queensland

The Commonwealth has committed $5.4 billion in funding to build the Hells Gates Dam, subject to approval of the final business case.

The 2,100 gigalitre dam is considered to be transformative for North Queensland – it will boost the economy by facilitating 60,000 hectares of new land for irrigated agriculture, doubling crop production regionally and increasing annual agricultural output by $800 million.

Located in the Upper Burdekin catchment west of Townsville and north of Charters Towers, it will make Burdekin Basin a major food bowl of Australia.

While the project is yet to get the final go ahead, and may not start for at least four years, it is estimated it will could 10,600 construction jobs and 3,300 ongoing jobs.

It will also add an estimated $6 billion in revenue per year to the North Queensland economy, according to Mr Pressley.

“Townsville and Cairns are the major centres that will benefit from it but there are other smaller communities including Innisfail, Tully, Charters Towers that will be impacted.”

Queen’s Wharf, Brisbane

This $3.6 billion integrated resort development in the Brisbane CBD is currently under construction and due to be completed by the middle of next year.

Covering more than 12ha of the city’s CBD, the project will include four luxury hotels, three residential towers, the equivalent of more than 12 football fields of public space, a new pedestrian bridge linking to South Bank, high-end retail space, a casino, and eateries.

It will employ 8000 people when completed, which is when Brisbane’s property market will see the biggest benefit, as it will put the city on Australia’s tourism map and place upward pressure on prices due to greater demand, Mr Pressley said.

“Whilst Brisbane is Australia’s third biggest city, it doesn’t have a visitor economy – it’s not a place that people typically go for a holiday,” he said.

“Queen’s Wharf is probably equivalent to the Crown precinct at South Bank in Melbourne – it’s a destination.

“There will be plenty of people in the cooler months of the year that will now say ‘let’s go to Brisbane, they’ve got that new major entertainment precinct there’. “So, for the first time in Brisbane’s nearly 200-year history, it is going to develop a visitor economy.”

2032 Olympic Games, southeast Queensland

The big-ticket infrastructure project to come out of Brisbane hosting the Olympics in 10 years’ time is the $1 billion redevelopment of the Gabba stadium in the suburb of Woolloongabba, which would host the opening and closing ceremonies as well as the athletics.

Brisbane’s $5.4 billion Cross River Rail project, which is a new 10.2 kilometre rail line running from Dutton Park in the city’s inner south to Bowen Hills in the inner north, will see the Woolloongabba station precinct transformed into a mixed-use hub, with a new pedestrian plaza linking the stadium to the new train station.

Aside from the Gabba redevelopment, there will be plenty of infrastructure spending to come in association with the Games in Brisbane, the Gold Coast, and the Sunshine Coast including the upgrading of sporting facilities and transport links, and investment in the hospitality sector, Mr Ryder said.

He said the boom in these areas would happen before the Games.

“Research indicates from other cities that have hosted the Olympics, the locations that will have the biggest growth in house prices are those that are close to main venues.

“By that logic investors should target suburbs that are close to Woolloongabba, including East Brisbane, Annerley, and Woolloongabba itself, that could be expected to get uplift from proximity to the Olympic action.”

Mr Ryder said the Commonwealth Games had a huge impact on the Gold Coast in the lead-up to 2018, with infrastructure fast-tracked, and the same would happen in southeast Queensland ahead of the Olympics.

“The Olympics is so much bigger than the Commonwealth Games –  the infrastructure spend these events necessitate is huge for residential property.”

Alternative energy projects, various locations around Australia

There is a huge boom in the construction of alternative energy projects around Australia, which will impact markets around the country, Mr Ryder said.

“There are literally dozens and dozens of large-scale solar farms, wind farms, and hydrogen energy projects under construction and in planning,” he said.

“It’s collectively tens and tens of billions of dollars.”

Mr Ryder said the NSW Government had created renewable energy zones, and the New England region, including Tamworth and Armidale, was one area being pumped up by this infrastructure spending.

“It’s really giving areas that perhaps have economies that have been fragile an extra string to their economic bow to give them diversity and strength.”

One of the biggest renewable energy projects in NSW currently is the $1 billion Yarrabee Solar Farm in Morundah in the Murray region, which is expected to start construction this year, requiring up to 600 workers.

Meanwhile a $1.6 billion solar farm and battery project known as the Merriwa Energy Hub is proposed near Merriwa in the Hunter Valley region of NSW. It is expected to be one of the largest renewable energy hubs in Australia, and could create 500 jobs.

Dr Mardiasmo said renewable energy projects were fairly new, with the past year or so seeing a massive injection in funding for projects.

For the markets in which they are located, there will be a new industry and job creation, which will be a drawcard for people to move to the area, and in turn, higher demand for property in that area, she said.

There would be a flow-on effect with more services required including hospitality, she added, which would further boost the economy.

When will property markets see a boost from infrastructure projects?

The evidence shows that over time there can be several boosts to real estate markets due to an infrastructure project, said Mr Ryder.

Typically it is when is it announced and when construction starts, but sometimes there can also be a boost on completion, he added.

“That might apply to a new motorway for example, in an area that has become more accessible because of the construction,” he said.

 
 
CategoriesNews

Australian home values have grown 190.5% in the past twenty years

Eliza Owen 05 May 2022

National dwelling values increased 190.5% in the past 20 years.

Figure 1 shows the cumulative growth in the CoreLogic Home Value Index for national dwellings over the past two decades. The change in the index measures the movement in values across the Australian dwelling market over time. It is equivalent to a rise of around $485,000 dollars at the median value level, where the median dwelling value in Australia was recorded at $738,975 in March 2022.

The increase in dwelling values over this period was comprised of a 139.4% lift in Australian unit values, and a 209.3% rise in detached houses. Of the greater capital cities and regional markets of Australia, the highest gains over the 20 year period were across the Hobart dwelling market (up 315.2%), while the lowest gains were across Darwin dwellings (89.4%).

Australian-home-values-growth

In the past 20 years, the Australian housing market has seen six periods of upswing, interrupted by 5 periods of notable decline. These downswings in the housing market have largely occurred off the back of changes to credit conditions, such as macro-prudential changes or lift in interest rates, alongside negative economic shocks like the GFC, or the initial onset of COVID-19. In the past two decades, housing market downturns have lasted, on average, around 25 months,  with an average peak-to-trough decline of -5.0% in value.

Housing values have generally trended higher over time through this period. Market upswings in the past two decades have averaged around 30 months, with average gains of  24.8% through these periods of uplift. The past 20 years has largely been characterized by declines in the official RBA cash rate, especially from late 2008 amid the GFC.  Strong value growth was also realized off the back of a surge in net overseas migration between 2004 and 2009, which remained fairly elevated until the start of the COVID pandemic. However, the pandemic period also coincided with ultra-low cash rate settings, high household savings and government incentives for home purchases, which has actually generated the fastest upswing in values since the 1980s. The past year has taken cumulative growth in dwelling values from 145.8% at March 2021, to 190.5% at March 2022.

CategoriesNews

Why rising interest rates are good news for property investors

MAY 18, 2022

Cashed-up property investors are set to be the biggest winners from the first in what’s likely to be a series of hikes in the Reserve Bank of Australia’s official cash rate.

The rise from the historic low of 0.1 per cent to 0.35 per cent, together with the forecast of more to come, sparked immediate fear and loathing from those whose finances were already strained by record-high home prices.

“I think we will now see a reduction in buyer demand in the market as a result of some of the scaremongering that’s gone on about this rise,” says Nicola McDougall, the chair of the Property Investment Professionals of Australia.

“As a result, the more experienced investors and more savvy home buyers will welcome less competition in the market.

“At the same time, they tend to have the discretionary income and cash flows because they’re high-income earners, so they’re the least likely to be affected by these minor increases in the interest rate.

“They will probably have a more sophisticated understanding of monetary policy and financial markets too, and will welcome a return to more sustainable conditions.”

While the RBA tends to cut rates very quickly when the economy slumps, such as after the GFC and during the COVID pandemic, it tends to lift rates extremely slowly, she points out. The last time it increased the cash rate because of inflationary concerns was during the two years from March 2006 to March 2008, when the rate rose only two percentage points over the whole period.

Australian Bureau of Statistics figures show this recent 0.25 per cent rate rise will increase interest rate charges on an average mortgage of $600,000 by an additional $1500 a year.

Borrowers have enjoyed rate cuts of 1.9 per cent over the last six years, says Geoffrey Dinh, chief executive of fintech Futurerent, so they shouldn’t be concerned about such a minor lift, particularly as they’ve already been assessed at much higher interest rates.

“Prestige property investors are likely to have most of their portfolios in Sydney and Melbourne anyway, so have benefitted from phenomenal levels of capital growth,” says Dinh, whose company gives property investors up to $100,000 of rent in advance.

“Against those, this interest rate is not significant.

“Most have bought in the cycle and have had a dream run with price growth and rental growth, and they’d typically have a lot of contingencies built in.

“They’ll have good incomes and are happy to run negatively geared property and have no problem covering a cash flow shortfall.”

But it will squeeze everyone’s hip pocket, believes Loan Market director and mortgage broker Alex Lambros.

And if investors are buying more expensive homes, it will hit them harder.

“A 0.25 per cent interest rate rise on a $10 million property will be a significant jump,” he says.

“The wealthier might have different buffers in place – more cash or more assets they can sell to raise cash – but they’ll feel it just the same.

CategoriesNews

Election 2022: What the major parties are promising for homebuyers and housing affordability

Louise Baxter 16 May 2022

CategoriesNews

Scott Morrison to let first home buyers use up to $50,000 of their superannuation to buy a property in last ditch bid for re-election as he declares ‘I’m just warming up’ – here’s what young families need to know

 AIDAN WONDRACZ 15 May 2022

First home buyers will be able to dip into their superannuation and use up to 40 per cent of their savings to buy a new house.

Prime Minister Scott Morrison used the Liberal Party’s election campaign launch in Brisbane on Sunday to unveil his ‘super home buyer scheme’.

‘I’m going for a second term because I’m just warming up,’ he said. 

Homebuyers will be able to use up to $50,000, or a ‘responsible portion’, of their superannuation to invest in their first home.

‘We want to further help Australians get past what is the biggest hurdle on their path to home ownership [and] that is the difficulty of saving for a deposit. And being able to use their own money to do it,’ Mr Morrison said.

‘The maximum amount able to be invested under this plan is the lower of $50,000 or 40 per cent of your total superannuation balance.

‘Superannuation is there to help Australians in their retirement. The evidence shows that the best thing we can do to help Australians achieve financial security in their retirement is to help them own their own home.’

The money can be withdrawn from the superannuation account and used to buy an existing or new home.

If the house is sold, the money taken out to invest in the home will be returned into the superannuation account, including a share of any capital gain. 

Mr Morrison claimed the scheme would slash the average time it took to save for a home by three years. 

He said the plan would make it easier for homebuyers to own their first house and reduce the number of renters.

‘Our plan makes it easier for first home buyers to save for a deposit, reducing the time people need to pay rent, and also means a smaller mortgage with less debt and smaller repayments,’ he said.

‘It’s a plan that gets the balance right – it utilises money that’s currently locked away to transform a family’s life, with the money then responsibly returned to the super fund at the time of home’s sale.’

Under the coalition’s expanded housing policy, up to 1.3 million empty nesters and pensioners will also be able to access incentives to downsize their house, in a plan to help more families get a home.

Australians over the age of 55 will be able to downsize their property and invest up to $300,000, per person, in their superannuation fund outside of the existing contribution caps, from the proceeds of a sale.

Pensioners who downsize their home will also have greater flexibility as the proceeds of the sale of the property will be exempt from the assets test for longer.

They will have two years to structure their assets after the sale of their home without hurting their pension.

Labor senator Murray Watt said his party would always back a good idea.

‘We will support this one. We think this is a good idea worth taking on,’ he told Sky News.

‘But the realty is that just one announcement from this government after nearly a decade in office is not going to fix the housing crisis we see in Australia.’

Mr Morrison also used the election campaign launch to claim his government ‘saved the country’ during the Covid pandemic.

‘We gave our fellow Australians that assurance in those very difficult times that tomorrow would be OK,’ he said at the Brisbane Convention Centre on Sunday.

‘So they could say the same thing to their children, to their employees, and I’m quite sure indeed to themselves.

‘As a leader, this was a time for strength, it was a time for pushing through. I had one focus, as your prime minister, save the country. And we did.’

Mr Morrison defended his record as leader and admitted his Coalition government faced a challenging couple of years.

‘It’s been one of the most challenging times we have ever known,’ he said.

‘But I’m here to tell you today that despite what we have faced, we have remained true to the promise of Australia. And Australia has prevailed.

‘We want to further help Australians get past what is the biggest hurdle on their path to home ownership [and] that is the difficulty of saving for a deposit. And being able to use their own money to do it.’ 

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