Townsville real estate prices close to the bottom.

Interest in properties is on the rebound in recent weeks with many agents reporting an increase in homes under contract and enquiry levels.

Is it s sign we are nearing the bottom of prices in the Townsville property market ?

The answer – an unequivocal yes if we referring to houses – not units.

So how can we draw this conclusion – one undeniable fact is Townsville does not have an over supply of land – yes we may think land is sitting longer and prices have come back – but the reality is that the developers cannot absorb sale prices of $130000 to $150000 on any size block of land indefinitely – so they will simply stop releasing new allotments.

A valuer recently mentioned that the head-works costs in cutting a new allotment is now in the vicinity of $110000. Add to that the burden of acquiring the land parcel in the first place and holding costs and you have a loss leading situation – and the developers with sufficient cash flow to weather out these cycles will simply sit on their hands and wait for demand to increase.

This is a economic fundamental – supply vs demand.

Building costs in Townsville have remained constant for the past 5 years – the cost of building a 4 bedroom home of say 200 sq meters works out to roughly $1200 per sq metre.

Take a line through this and will give you a very good example. We were asked to look at marketing a home in The Avenue’s of Kern Brother’s Drive Kirwan several months ago. We knew the home was approximately 240 m2 square under roof – in today’s terms brand new about $288000 to replace. It had an in ground pool – replaceable at say $30000 and sat on a traditional block of land worth say $180000 in rateable or resale terms (The local government valuations are not to far out in some instances). There was a garden shed (larger than normal. So the house new at say Kalynda Chase (5 minutes up the road and land selling as low as $166500 for 600m2 block in January) based on above assumptions $500000.

There was a neighbouring sale of much larger home across the street which backed up these assumptions.

I mentioned my thoughts on replacement costs – the owner, who had the home represented immaculately ands was very house proud mentioned two against had tools him it could be marketed at $579000. The owner questioned our commitment to marketing the home at this level – and whilst we said we could try but being realistic and with respect for his marketing budget we believe it would need to be brought within a more acceptable range within 2 weeks or it could become “exhausted”.

The property as listed with another agency $579000 negotiable – then $549000 negotiable – then low to mid $500000’s and this week (some three months later) -offers over $500000 ?. (Ultimately the agent will be driven by the owners requests – and we know the owner was very proud of the home and want’s the maximum dollar for their home. So you cannot always blame the agent for listening the owner).

Now the general comment is always it’s a buyers market – I disagree with stereotyping people property or markets – all are unpredictable. However if you can put the same home on the ground brand new for $500000 why would you pay $579000 ? When buyers are so well educated – and some will prefer new over old the likelihood is they will pay under replacement cost – but well presented properties will sell at a premium to that figure and they may get a sale at the replacement cost based on the motivation of the vendor.

Perhaps it’s my banking background and talking for 30 years to valuers how are slammed in a rising market as conservative and slammed in dropping market “That’s the valuers view – it means nothing – it’s what someones prepared to pay”.

But I will bet that on the law of averages that pricing will generally reflect the above formula less the allowance for old vs new – and it’s not the cost of building the home that has come down. it’s the land value’s – and If my theories are correct – we are close to the bottom of prices in the Townsville Real Estate Market.

In my next article I will discuss the unit market – and why you should be buying now !

Graham