Ignore the sales pitch, Mackay is still falling

Posted on 25/07/2014  
Ignore the sales pitch, Mackay is still falling

I suppose you can't blame them for trying. But you can blame them for the lack of originality and imagination.

People developing a residential estate in Mackay, where the market's a tad unwell, are trying to pump up business. Their sales pitch? Now is the time to buy!

The market's bottomed, recovery is just around the corner, so don't delay or you'll miss out. Compelling stuff.

First, a reality check on Mackay. A double-whammy has struck in the past 12 months. Demand inspired by the coal industry has fallen away, at a time when developers – always a year or two behind the play – have brought on lots of new supply.

At the end of 2012, residential vacancies were below 2%. In the 18 months since then, they've been rising steadily. They're now 7% and they're still going up.

A year ago in central Mackay, the median house price was a tick under $400,000, after 10% growth in the preceding 12 months, and rents were strong, providing a median yield of 6.5%.

Fast-forward 12 months and the median price is down to $355,000. Rents have fallen also and the median yield has reduced to 5.9% (Australian Property Monitors figures). It takes six months to sell a house, on average, and 13% is the typical discount to make a sale.

Around other parts of the Mackay market, it's a similar scenario: prices down as much as 10% in the past 12 months, including a significant reduction in the past three months. The clear message is (1) the Mackay market is down, and (2) it's still falling. This is definitely not the time to buy.

The bottom line is, this should not be happening. Mackay is a solid citizen of regional Queensland. It has lots going for it, including an export port, a strong agricultural sector and plenty of tourism. Even with the local resources sector in decline, its market would normally remain steady.

But developers did what they always do – they piled into what appeared to be a boom market and built too much too late. In their inimitable fashion, they've plucked defeat from the jaws of victory.

Do these people ever do any research? Do they notice that they're not the only people trying to exploit a boom market?

It's as if each operates in an isolated bubble and eventually wakes up, with: oh my god, I didn't notice all those other projects being built at the same time.

So here we have Xcel Properties putting out a press release, trying to convince people they should dash out and buy a home, preferably in their estate, which I gather is not Xcelling at the moment.

Xcel says the current over-supply means great deals for buyers. And it says the market is tipped to recover in the second quarter of 2015.

So, let's see what they're saying. We've just ended the second quarter of 2014, and "property valuation experts" tip a recovery in the second quarter of 2015, so now is the time to buy?

I would have thought that, by this line of logic, early next year would be the time to buy. Right now, the market is still falling.

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