Coffs Harbour Property Watch Q4 2012

MARKET OVERVIEW
The following report is the result of an investigation into the historic and current market conditions of the Coffs Harbour Local Government Area (LGA). High yields are attracting investors to Coffs Harbour despite softer house and unit prices, and the stabilisation in rent prices experienced in the first half of 2012.

Units

Unit activity increased in the 12 month to July 2012 for the first time since July 2010, providing early signs for the bottoming of the market. The 168 units transacting over the period equated to an increase of two transactions over the same period in 2011. The median price remained unchanged from July 2011, closing the period at $266,000. The average five-year growth in median price equated to 3.9% per annum, exceeding that of detached houses (2.4% per annum). Buyers were most active in the $200,000 to $299,999 price bracket, accounting for 41% of transactions.

However, capital growth failed to maintain the gains recorded in previous periods. The resale analysis, which examined the gains achieved by vendors who exited the market in the July 2012 period, resulted in an average 2.5% per annum growth in the July 2012 period. The result signified a decline from the July 2011 figure (4% per annum) and July 2012 (3.9% per annum).

Recently, first home buyers activity declined, with the withdrawal of incentives for purchasing existing homes. However, second and third home buyer activity is expected increase, while investors are already targeting high-yielding product toward the bottom end.

Houses
The level of house stock-on-the-market has been declining since December 2011, signalling tightening stock levels. However, it may also point to disillusioned vendors withdrawing their houses from the market. The median price of a house in the LGA closed the July 2012 period at $380,000, representing a 2.6% decline from July 2011.

House activity remained soft, registering 429 sales in the six months to July and declining by 1.8% from July 2011. That said, the figure remained seven transactions above the January half year providing early signs of a rising market. Most transactions were recorded in the town of Coffs Harbour, accounting for approximately one third (32%) of house sales. Boambee East and Toormina followed with nine per cent and seven per cent respectively.

PRDnationwide Research examined the capital growth achieved by vendors who exited the market in the July 2012 period. The examination revealed lower average growth in 2012 (3.6% per annum) compared with the July periods in previous years, 4.9% per annum in July 2011 and 6.4% in July 2010.

The investment market
Strong yields were the result of lower capital prices and high rents. These proved attractive to investors, with an average gross yield of 6.5% recorded for units over the 12 months to July 2012. While the average return on a two bedroom unit equated to that of the broader market, yields for a three bedroom unit closed lower (6.0%). The average return for a detached dwelling in the region equated 5.4%, with a three bedroom house yielding 5.2%. The current yield has become increasingly close to the cost of borrowing, providing a low-risk environment to investors who seek income producing assets.
Recent rental figures indicate of little change in the median rent price over the past year. The median rent for a two bedroom unit closed at $240 per week, with the rent for a three bedroom house registering $350 per week. Over-supply of four-bedroom dwellings led to a 4.5% decline in the median rent ($420 per week).
The rental market is expected to rebound in the fourth quarter, with employee relocations following the creation of new seasonal jobs. Anecdotal evidence points to a measured recovery in leasing activity, with three bedroom homes exhibiting a letting up period of 30 days or less.