June 7, 2020
Doyle's Guide

Market Overview – Property & Real Estate, Queensland 2016

The below market overview was prepared for Doyle’s Guide by Matthew Rollason and the Property & Projects team at DibbsBarker.  

The Sunshine State – shifting from mining to renewed tourism investment?

The last couple of years have seen a strong appetite for residential apartment development in the South East and real estate lawyers have had to remind themselves of the requirements for “off the plan” sale contracts for developments of significant scale. Australian REIT’s have been active on the commercial and industrial landscape in Queensland and have taken the opportunity to acquire valuable assets that were not available to them pre and immediately post GFC.

But with the resources sector weighing down the state of the Queensland property market, in particular in its regions, a new player may have emerged.

With 5 or 6 major tourist hubs on the cards, good times might roll for Queensland in the tourism sector. Some have characterised the State’s outlook as a two tier property market with developers pulling out of regional centres and slowing down their appetite for residential apartment development in the South East, but investment dollars appearing are once again in the State’s growing tourism markets from onshore and offshore sources.

The year looks to be one to be dominated by strong fundamentals driven opportunities (principally location and sector), and not speculative, and real estate lawyers need to identify those opportunities and those that are active in them.

(Re)Emergence of Tourism

There has been a boost in overseas tourists visiting the state, up 7.0% for the year end March 2015, which has given rise to new hot spots for the real estate market.

Chinese visitor rates are second (behind New Zealand) and are projected to grow by 9% during 2016, as Australia continues to be ranked second as an overseas destination for the Chinese. Resort hot spots, such as Hamilton Island, are investing in this market, and putting all staff through mandatory mandarin language training. Cairns has recently recorded an occupancy rate of 80%, a significant increase over recent years. It was projected that $20m would be splashed out in the Cairns region by Chinese tourists over the 2016 Lunar New Year Celebrations. The high Chinese visitor rates are largely driven off the back of their desire for all things Queensland has to offer – clear air, safe food and frequent flights direct from China.

While Queensland’s natural attractions such as The Great Barrier Reef, rainforests and beaches remain a popular drawcard, the Chinese tourist also rates as top attractions gaming, dining and luxury shopping. The nature of development must therefore change to incorporate these elements. The State has been looking at capitalising on this interest by considering opportunities for gaming driven developments such as Queen’s Wharf, Aquis Great Barrier Reef Resort, Gold Coast Integrated Resort and Great Keppel Island. Developments are changing to identify locations that support destinations with a retail and commercial focus. What this demonstrates is that offshore investors requires projects of scale and law firms must have capacity to handle such projects.

The weak Australian dollar is also encouraging development which is orientated to the offshore tourist spend. An offshore balance sheet that can assist local developers secure financing is proving attractive and one of the only ways to unlock significant developments. Law firms are scrambling to capture this inbound investment and win these emerging (and lucrative) clients.

Tumble of the resources sector

By comparison with tourist hotspots, regional centres are facing a tumbling real estate outlook. Gladstone, Rockhampton, Mackay and Townsville and to their west are hardest hit and we have seen real estate values fall, with supply, particularly of residential property, surplus to demand.

The same cannot be said for Toowoomba. Toowoomba has created opportunities by being on the periphery of the Surat Basin and enjoying a more diverse economy. These factors and the opening of the new airport and the regional spend on infrastructure has seen real estate growth.

The Queensland Government is facing a true “two tier” market across regional centres, where, with an average population growth of 2.4% each year, a more sustained effort needs to be focussed on the regional areas to stimulate growth.

What is a Property Client?
Law firms are now looking beyond the traditional property industry to industries that are real estate dependent but not characterised by their real estate holdings, for example, health, education, logistics, fast moving consumables, to build revenue in real estate practices. This is driving collaboration in law firms to grow client relationships beyond the area in which a law firm has traditionally acted for a client to include real estate. The challenge though is to displace the incumbent firm and to define a point of differentiation in an area of law where it is often hard to do so. This is in a price competitive market increasingly constrained by the commoditisation of traditional work and the emergence of LPO’s.

The South East continues to be hot
Both Brisbane and the Gold Coast remain strong real estate investment hubs.

Helped by strong growth in southern markets, both regions have seen a lift in unit approvals and are now in a significant construction phase. But is the appetite for new projects softening, is the trade in sites becoming too expensive with the arrival of patient offshore capital, have prudential limits slowed the Australian Banks’ appetite for real estate lending? These are very important questions for the industry as they may stall growth in 2016.

Brisbane and the Gold Coast have been bolstered by strong growth in education, particularly by overseas students, resulting in good stimulus for the property market as demand for student accommodation is positive. This is supported in the case of Brisbane City by Council incentives (a similar scheme to that used by the city to encourage the development of 4 and 5 star accommodation prior to the G20). The health sector is also strong in both regions.

The Gold Coast, a continued hot spot for the tourist dollar, is likely to see a surge in activity as the host of the upcoming Commonwealth Games. Recent Government expenditures on infrastructure including the Gold Coast Metro have been popular, with useage of light rail above projections and a stage 2 extension to Helensvale tabled. The proposed extension of the Gold Coast airport is also a boon for the Gold Coast.

What may hold back the South East is a ‘wait and see’ approach being undertaken with infrastructure investment. This is a vastly different approach to that in New South Wales where there is a clear statement by Premier of New South Wales, Mike Baird that he ‘wants to make a difference’ and proposes to fund major infrastructure projects by releasing capital locked up in the electricity network businesses. As part of the $20 billion Rebuilding NSW plan, the State will invest in infrastructure works such as WestConnex extensions and Sydney Metro. Funds will also go towards schools, hospitals as well as regional water security.

Legal opportunities and risk
Unlike many other areas of the law, law firms cannot expect significant legislative change to drive opportunities in real estate in 2016. Law firms must look to the market and increased investment by overseas players, particularly out of Asia, to drive opportunity. This will require:

– improved cultural and business understandings
– a capacity to handle projects of scale
– a realisation that often offshore capital is patient and a project may have a longer lifespan than traditionally the case
– knowledge of investment vehicles for funds, joint ventures and other structures to facilitate offshore participation in projects by debt or equity or ownership
– drafting of more complex documentation with an ability to deliver the complex in a simplified form for easy translation
– increased FIRB advice and consideration of its impacts and those of the Commonwealth and State foreign disclosure requirements

Offshore investors will require services beyond their real estate contract, and law firms will need to help fill the void with advice on issues such as gaming, regulatory compliance, employment, taxation and procurement contracts. The larger firms are likely to be the ones that can deliver the multifaceted advice required to offshore investors and to fit the mould of trusted advisor status.

By comparison, with the resources decline, lawyers are increasingly advising regional investors/developers on restructuring of debt, and in some cases insolvency. Recovery work in the regions has also seen an increase. There may be an added impact for real estate lawyers dealing with complex environmental issues which can last over many years following mine closures.

Lawyers have also been busy structuring new, integrated community developments. These are developments of scale, for example, the Aura development on the Sunshine Coast, developed by Stockland (and branded as “City of Colour”), is a multi-purpose development taking in residential, education, retail, industrial and retirement living. The development also has its own transport infrastructure and will be Australia’s largest 6 star Green Community. The implication for lawyers is how to deal with contracts on a scale not seen in Queensland for many years.

Sites are also becoming harder to find and real estate lawyers need to be innovative as to the process by which those sites may be unlocked. One area of reform that is contemplated by government is the review of the Body Corporate and Community Management Act 1997 and the ability of members to collapse a scheme by resolution of the body corporate. There have been very few, perhaps not more than one, examples in Queensland of orders having been granted to allow the collapse of a scheme and that is on the Gold Coast. If this can be resolved in a way that allows a reduced majority of owners to compel the collapse of a scheme and allow a site to be redeveloped, this could be a bonus for owners and developers, by simplifying the process and allowing older sites fatigued by maintenance costs to be reborn as new sites. On the Gold Coast in particular this could allow a significant number of prominent beachside sites to be unlocked.

But the elephants in the room remain the impact of the foreign investment regulatory environment and the impact that any tax reform may have on the property and construction industries.

The below market overview was prepared for Doyle’s Guide by Matthew Rollason and the Property & Projects team at DibbsBarker.  

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