Cairns skyline from Wharf

Property Investment: What is driving the Cairns property market

01-Mar-2021
Written by Jade Kilpatrick

Property Investment: What is driving the Cairns Property Market?


Property has always been a hot topic in Cairns. With traditionally low vacancy rates for rentals, and a healthy, stable housing market, investors are always looking for the next boom or trying to swerve the next bust. Whilst tourism and hospitality bore the brunt of the pandemic, the property market in Cairns has been the benefactor of many positive influences for investors. These have resulted in property values rising, and strain being placed on the rental market as demand far outstrips supply.

Banks and mortgage providers are betting big, with double digit growth figures in Australian property prices predicted for both 2021 and 2022 (source: Property Update). With Mortgage and Loan Deferrals falling according to the APRA, mortgage lenders have every reason to be confident that values will continue to increase. CoreLogic Index Results also highlights an increase in dwelling values of 7.9% for regional Australia, indicating that the demand for regional property markets is already having an impact on places like Cairns.

What are the driving forces behind the rise in property values?
Anecdotally, a surge in house prices is being attributed to more people heading to the region with Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella stating the estimated interstate demand for property had increased by about 20 percent on last year (source ABC News). Relocations due to COVID scares combined with remote working have become the new normal which has seen an influx of interstate buyers and those looking to escape major cities. However, there are other fundamentals that are making it easier for those looking to buy.

Interest rates are at an historical low
With some mortgage lenders now offering home loan rates as low as 1.69% (source: News.com.au) this has enabled home owners to access low rates and save on mortgage repayments. In addition, it has helped many first time buyers access the market, with owner occupier first home loan commitments rising 9.3% in December 2020, which is 56% higher Year on Year (source: Australian Bureau of Statistics).

This is helping increase demand within the property market, with first time buyers enabling current homeowners to upscale their properties. When property owners are paying less on mortgage repayments it helps drive up the returns on investments, but for traditional owner occupiers, it also frees up their cash, which drives up consumer confidence.

Consumer confidence is high
There are many reasons to be cautiously optimistic, with some major retailers experiencing a great 2020 and Australians diverting their holiday funds to renovate and improve their homes. Westpac-Melbourne Institute’s consumer sentiment index for December 2020 was the highest reading since October 2010, reaching 112.0. This shows that people were optimistic rather than pessimistic about the future economic performance and falling unemployment expectations.

With bank deposits rising dramatically during 2020, consumers were naturally trying to build up their security funds should the economy falter. Whilst there are still challenges ahead, if the economy continues to improve, there will come a point when consumers begin to spend, which may explain why banks are anticipating large rises in house values over the coming years.

Government building incentives
Both State and Federal Government incentives targeted helping First Home Buyers entering the property market. With the focus on new build, this resulted in applications for new builds increasing and consequently, land plots went up in value in and around Cairns. As a by-product of this activity, the economy has benefited too, helping to support job growth within construction (source: Property Council of Australia).

Fear of missing out (FOMO)

Humans behave in strange ways, and no one wants to miss the boat on the next big thing. When there is momentum in price rises, naturally people want to enter the property market before they are priced out altogether. This fear of missing out will encourage those to step into the market sooner rather than later, further exacerbating the demand for property.

An earlier and stronger bounce back of the Australian economy

Whilst unemployment rose and economic output declined during 2020, the downturn was not as severe as predicted. Employment growth since the middle of 2020 has been strong, with the RBA predicting that it will continue to improve as unemployment rates steadily decline from their August 2020 high.

With more people in work and Australia avoiding the 10% unemployment rate it was once predicting, property investors can be more confident that the rent will be paid on time by their tenants.

Even though domestic and international travel levels are nowhere near where they were a year ago, this will change as tourism begins to recover throughout 2021. We will also see an increase in the need for short-term holiday rental properties and long-term tenanted homes.

Making the move

As we begin to cautiously yet optimistically, see the light at the end of the pandemic tunnel, many people have made decisions that they wouldn’t have expected too be making this time last year. Whether that’s been to explore Australia more instead of heading overseas for the usual holiday, taking a calculated risk and embarking on a tree or sea change, or simply flipping their direction in life for no reason other than ‘because if not now, when?’, one thing is for sure, we will always need somewhere to live. Whether that’s for recreation, short term rental, investment, or a forever home, we need a base. So even if your plan is that there is no plan, it pays to keep an eye on the property market in Cairns as you never know what lies around the corner. Dodge the bust or ride the next wave? Time will tell.

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