PROPERTY AND PLEASURE

Apr 17, 2018
Michael Matusik

Cynics are quick to quip that the Gold Coast is all about ‘property and pleasure’ but I think there is much more behind it these days.

Much will be written about the Gold Coast in coming weeks and months.

This post I want to cover the recent employment trends on the Gold Coast and the city’s residential investment risk profile.

But before I go too far, I covered the Gold Coast market via three Missive posts earlier this year.

The headline summary from those posts was:

The Gold Coast current momentum is being somewhat influenced by new construction associated with the Commonwealth Games.

We expect – post the Commonwealth Games – that the local market will cool, but the good news is that there is little to warrant a market bust – values aren’t inflated and there are serious limits on housing supply.

An increasing number of things could change the above scenario.  That’s a watching brief, but for now and under the current parameters, the Gold Coast’s housing market is looking pretty solid.

This still applies and to revisit these missives see the links below:

https://mailchi.mp/matusik/2ruot318kl-833941?e=9758050059

https://mailchi.mp/matusik/2ruot318kl-833945?e=9758050059

https://mailchi.mp/matusik/2ruot318kl-833949?e=9758050059

Gold Coast Employment

There is little doubt that a lot of new construction has taken place on the Gold Coast, with the Commonwealth Games being a driver.  A major event does bring the infrastructure spend forward and see its delivery lumped together.

The three charts below show that a lot of jobs have been created on the Gold Coast in recent years, but most of these new jobs haven’t been in construction. The local unemployment rate is also improving.

Many tell me, even property practitioners from the Gold Coast, that heaps of the recent jobs on the Gold Coast are associated with construction and once the Commonwealth Games are over the utes will go elsewhere and the local economy will slump.

But the employment statistics tell a different story.

Only one in seven jobs (15%) of the jobs on the Gold Coast are in construction and real estate services.  Many more work in services (27%).  A further 25% work directly in tourism/retail and 20% work in education/health/social services.

Over the past five years (up to February 2018) there has been a 18% increase in total employment on the Gold Coast.  The overall size of the construction/real estate sector has increased by 19% over that period, with the number of people employed in education/health lifting by 24%.  People employed in services rose by 17%.

When looking at the total employment growth over that five-year period – being an increase of some 52,000 new jobs since February 2013 – construction/real estate accounted for just 12,000 or 23% of these new occupations. Services accounted for 17%; tourism/retail some 26% and health/education 33%.

So, whilst many of us have grown tired of the tradie traffic and congestion of late on the Gold Coast; and yes, there will be some pullback in new construction work and associated workers; there is a lot more going on behind the Gold Coast employment scene than just construction.

Investment risk

In Howard Marks’ great audiobook (it is a real book too) The Most Important Thing he talks about understanding risk.

He says that most think of risk and return as two separate things, but the experienced investor knows that they are two sides of the same coin.  High risk and low returns stem from high prices or poor value.  Low risk and high returns stem from low prices or good value.  Being aware of the relationship between price and value is essential when assessing risk.

I stress I am not a financial advisor and my comments below aren’t advice just my observations.  Please do your own research.

But given current price points and present rental levels, Gold Coast dwellings don’t look like a ‘high investment risk’ to me.  Again this my opinion and not advice.

My reasoning is that assuming that a 5% gross rental return is the fair value benchmark indicator in the current residential marketplace, then with a median dwelling value of $525,000 and weekly rents at $500 (once you clean out all of the statistical noise) Gold Coast dwellings are showing a 4.95% median yield or return.

True, values have risen in recent years, with detached house prices rising by 7.9% over the last twelve months and attached dwelling prices growing by 5.9%.  But these most recent increases are not that out of line when compared the last five-year average of 6.2% per annum for house prices and 4.7% per annum for attached prices on the Gold Coast.

My thinking is that Sydney and Melbourne have much higher investment risk profiles with gross rental returns of 2.3% and 2.5% (for houses) respectively.

This is especially the case when you factor is buying affordability.  Sydney dwelling values are 11.2 times household values, whilst Melbourne’s are 8.5 times.  The Gold Coast are about 6 times.

Cynics are quick to quip that the Gold Coast is all about ‘property and pleasure’ but I think there is much more behind it these days.


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Until next time,

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Michael Matusik

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