Ticking Boxes Versus Ticking The Right Boxes

Ticking Boxes Versus Ticking The Right Boxes
July 11, 2019 Simon Pressley

Australian real estate commentary has always been littered with generalisations, stereotyping, a lack of understanding of property market fundamentals, naivety, and personal biases.

It’s little wonder that a high proportion of property investors never give the time of day to many of the locations that may in fact offer the best potential.

A list of ignorant statements that I see and hear being made every day include: “It’s not a capital city… I wouldn’t live there… I don’t like the weather… prices don’t grow much there… there’s not enough jobs… I’d be concerned that I wouldn’t get a tenant…”.

Right here, right now, one of the strongest property markets in all of Australia is the inland regional Victorian city of Mildura, but only those who remove the blinkers stand a chance of knowing that.

The 7.8 per cent increase in median house price over the last 12 months is superior to 8 out of 8 capital cities. Only Hobart, Canberra and Melbourne have produced a higher rate of capital growth over the last three years.

You’ll get change from $300,000 for a good quality house in Mildura and the 6.1 per cent median rental yield, regardless of the size of your deposit, puts a standard investment property in cash flow positive territory.

Whereas several capital cities are currently feeling the pinch from housing over-supply, Mildura’s vacancy rate of 0.6 per cent is reflective of one of the tightest rental markets in the country.

As for employment opportunities, the 6.9 per cent increase in job advertisements over the year ending May 2019 is higher than 6 out of 8 capital cities.

With a population as at June 2018 of 55,515, Mildura is Australia’s 40th largest city.

There’s no such thing as a ‘perfect’ property market however, as you’ll see throughout this Mildura Property Market Research Report, this location certainly ticks a lot of the right boxes.

Property Market History

With a median house price of $270,000 (December 2018), Mildura is Australia’s 56th most expensive city / town. You get big bang for your housing buck!

Over the last 28 years that official property data records cover, Mildura’s median house price has more than tripled, from $78,000 in 1990 to $270,000 as at December 2018.

The trend line in the below chart confirms how incredibly consistent the market has been for just shy of 3 decades. The average annual growth over the period was 4.5 per cent.

For proof of Mildura’s resilience, the median house price declined only 5 out of the last 28 calendar years.

The largest property market downturn ever experienced in Mildura was in 2008 (the year of the GFC) when the median house price declined by $10,000. Yep, that’s all! Contrast this against the $225,000 decline in middle-ring Sydney over the last two years and one can only hope that property investors are now starting to re-evaluate whether it’s still appropriate to bracket all regional locations as ‘higher risk’.

Mildura’s most prosperous real estate period was the 4 years ending 2004, when the median house value increased by 58 per cent.

Over the most recent 5 years (ending March 2019), Mildura’s 25.6 per cent price growth is on par with Canberra and superior to Brisbane, Perth, Adelaide and Darwin.

As for rents, according to CoreLogic, Mildura’s current median house rent is $320 per week. Rents have increased by 18.5 per cent over the last 5 years and 6.7 per cent over the 12 months ending March 2019.

Population

Located on the Victorian side of the Murray River, Mildura is the largest settlement in the Sunraysia region.

Mildura is a very important service centre for dozens of smaller country towns within a 100-kilometre radius in each direction of the compass.
The 0.8 per cent population growth rate in Mildura over 2017-18 is equal with Adelaide and just below Central Coast NSW (0.9 per cent), Perth (1.0 per cent) and Hobart 1.1 per cent).

Generally speaking, overseas migration makes the largest contribute to Mildura’s population growth. It’s my understanding that the demand from overseas migration is driven by skilled labour, particularly to support the region’s agriculture productivity.

According to Census 2016, 79.3 per cent of Mildura’s population were born in Australia – that’s well above the national average of 66 per cent.
Mildura’s median household age is 40 (national average = 38).

A higher than average portion of Mildura dwellings are owned without a mortgage and the 30.3 per cent of dwellings which are occupied by renters is below the national average.

Housing Supply

Based on Mildura’s average annual population growth over the last 5 years of 477 and its average household size of 2.4 people, the base-level demand for extra housing in Mildura is 199 dwellings per year.

According to ABS data, an average of 293 new dwellings (288 houses plus 5 attached dwellings) have been approved in Mildura over the last five years.

Data doesn’t confirm what volume of building approvals either didn’t proceed to completion, or how many new dwellings were just ‘replacing’ an existing dwelling with a new one.

On face value, the data suggests recent supply should have been sufficient for recent demand, but the reality says otherwise.

Census data provides us with another form of analysing Mildura’s dwelling stock.

Mildura’s dwelling stock increased by 428 between the Census periods – sufficient for an increased population of 1,027 people. According to ABS data, the actual population growth across this period was 2,742 (1,715 more than supply accommodated for).

  2011 Census 2016 Census
Detached houses 16,414 16,631
Semi-detached 1,045 1,711
Apartments 1,478 1,142
Other dwelling types 345 226
Total dwellings 19,282 19,710

Rental supply in Mildura is currently at crisis levels!

For much of the last decade, roughly 70 residential dwellings were recorded as ‘vacant’, or a vacancy rate of just shy of 2 per cent.

While that in itself is low (3 per cent is the generally accepted equilibrium point), data sourced from SQM Research confirms that there were only 35 empty dwellings as at May 2019 (0.6 per cent vacancy).

All considered, Mildura’s rental stock would benefit from an additional 40-50 dwellings.

Economy

As a full-time student of Australian real estate history, it never ceases to amaze me that the industry/s which (today) are most important to the economy of each individual city are still the same industry/s for which the city was originally established. This is certainly the case for Mildura.

Throughout much of the 1870s and 1880s, all of Victoria was in drought. As a means of exploring a sustainable solution for essential food supply, the Victorian government commissioned the advice of Canadian irrigator, George Chaffey. In 1887, Chaffey chose Mildura as a location for development as a major agricultural precinct.

Today, the region is one of Australia’s most productive agriculture precincts. The sheer volume of production from this region is staggering. The diversity of agricultural commodities is equally impressive and includes lentils, barley, grapefruit, mandarin, oranges, grapes, olives, apricots, nectarines, peaches, almonds and sheep.

By industry volume, Health is Mildura’s largest industry employer (13.2 per cent of the workforce).

Highlighting the mini capital city role that Mildura plays for the broader region, employment within the retail sector (12.3 per cent) is also significantly higher than the national average (9.9 per cent).

Agriculture is easily the most important industry sector, employing 10.8 per cent of the workforce (well above the national average of 2.5 per cent).

The seasonal nature of agriculture creates pronounced peaks and troughs within total employment volumes.

The primary reason for Mildura’s property market outperforming large parts of Australia over recent years is the strength of its local economy.

A sustained strong economy creates confidence within a community and attracts new people to a city for employment opportunities.

The latest data from Department of Jobs confirms that the volume of new jobs advertised in the region continues to follow an upward trajectory. The 6.9 per cent year-on-year increase to May 2019 is superior to 6 out of 8 capital cities.

By population size, Mildura is Australia’s 40th largest city. By virtue of its increased popularity (for business and pleasure) Mildura is home to Australia’s 30th busiest airport.

Property Market Outlook

While property investor amateur’s remain fixated on stereotypes and generalisations, each and every year numerous regional locations will to perform strongly. Mildura is one such recent shining example.

  • Housing affordability with sub $300,000 median house price and low interest rate environment making Mildura one of the most accessible property markets in Australia for owner-occupiers and investors;
  • Current housing under-supply places pressure on real estate prices;
  • Continuation of tight supply (reflected in low building approval volumes) is likely to maintain pressure on prices;
  • Strong housing demand is driven by healthy local economic conditions and overseas migration to meet skills labour shortages;
  • Exciting outlook for Australian agriculture sector in this Asian Century presents a great opportunity for regional cities like Mildura. Several relatively new Free Trade Agreements provide a great platform for the sector to capitalise;
  • Strong investor cash flow supported by high rental yields and prospect for further rent rises;
  • Declining internal migration;
  • Property growth cycle is already underway, although this is no suggestion of the cycle being too advanced for new buyers to benefit from.

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