Cairns northern beaches.

[pango]

Some time ago I posted a thread highlighting what I believed was undervalued properties in Cairns. Specifically I was talking about the Clifton Beach, Palm Cove areas but I also see this trend in other beach suburbs.
Presently, decent blocks of land in Cairns,in good suburbs like the new release near trinity park, canopy's edge and smithfield are north of 250k.

Now once again, I would like to mention the cost of building a home these days, which if you can get a builder to take on the project with less than 12 months completion time will cost you just over $1200 per square meter.

I constantly see properties that are on 850 plus meter blocks 100m from the beach, pools,spas, closed in carports and lovely gardens on the market for less than you could replace them.
The last time I mentioned this on this forum, one felllow asked me to list them and he would buy them all.
The only reason I didnt was that one was next door to me and I did not want tenants giving me the ****s.
Now this market is still the same. I have bought a 2 story architect designed home less than 100m from a beautiful beach, it has a new pool on 850 square meter block on what was once voted the best street in Cairns.
This cost 640k.
My point is if this block was on the market here, it would be around 370-400k. The replacement cost of the house is now 500k plus. Add the pool, gardens and all the associated costs and you dont get change out of 900k.
Now before anyone says something stupid again about buying them all, can I get feedback from astute PI,s about this occasional trend that happens from time to time. I have seen it in Broome a couple of years ago, and also in Perth in the late 90s.
Both times a quick realization bought the properties back in line with the build costs of the time.
I am wondering firstly why this trend is happening in Cairns, and also what triggers the revaluation back in line with replacement cost.

Anyone??

 

[Ray Brown]

Very good question Pango.
I wouldn't say I was astute, but I'll have a go at answering it...

I am wondering firstly why this trend is happening in Cairns,

(Established vs New replacement cost.)

1. The cost of building materials has risen sharply.
   
2. You've heard of the 'builders premium' but that might explain only some of the discrepancy between newly built and established house prices.
   
3. and something I would call Inertia i.e. "why buy an old house when I can have this shiny new one with all the mod cons in woop woopsville."

Of course the last point is where the canny investor will kill the pig, assuming they purchased in the best location rather than just buying the newer house 'wherever'.

I am in the process of selling my established PPOR and building a new one in Stratford and maaaate, it hurts when I see what builders will charge. I am trying to do a swap - building the new one with the proceeds from the old one. In doing so, I will lose features I have in my current PPOR just to get the new one into budget.

I can't explain it either. Would you say that in Broome now if you built a new house next to an established one, the cost to build would be similar to the old houses value?

So for Cairns, either the cost of building has to decrease (?) or the value of established houses has to increase.
I would suggest that Cairns prices may be due for a correction - UP.

what triggers the revaluation back in line with replacement cost

Perhaps it just varies in a kind of cycle, high demand for builders should eventually wane with the slowing economy. No sign of that anytime soon in Cairns though.

 

[asdf]

You can easily buy below replacement costs these days for relatively new homes. If the owner paid $100k for that $400k block, what does he care if he sells below replacement? The recent boom has bid up blocks many times fold.

 

[pango]

Thanks for your reply Ray Brown.
In regards to your question regarding Broome, it has certainly corrected there now. A block next door to me would now sell for 550k, add around 450k for the build ( and thats very modest as builders there are in another costing league again) and you would be marketing to sell it for around 1-1.1m.
Not many people have the canastas to speculate on a development there as holding the 1m could sink you if it sat on the market too long.

I can appreciate your pain in builders costs, I am doing a light reno on my place in Clifton Beach. Its not only the builders that have increased charges for their services though. I recently paid $285 for a 1.5 hour pest inspection, $200 for a 20 minute drain clearing job and hardware is getting out of hand. These are brain surgeon rates mate.

A mate just sold his 4 by 2 in Clifton for 405k. Its 200m to the beach, has pool and big shed/workshop on 780sqm. Its absurd to think what the difference in sell versus replacement cost is. There will be a correction in the future I agree, just dont think it will be anytime soon.

Is your plan to get into your new place without a mortgage or without increasing your current one.
I guess you will have to look at doing as much as possible yourself to save coin. I am doing 45sqm of decking at the moment. will cost about 5k doing it myself. Quoted $250 sqm so it is certainly worth my time and effort.
Are you building on an old block or something new higher up the hill. I love stratford as an area, I work at the airport and get lunch there often. Great butcher too. All very friendly in that area.
Finally, I dont think we will see Cairns prices rise until we see wages in the tourism/hospitality industry rise. So much of the local economy is determined by this point. They are still earning rubbish money yet costs for everything has shot up. Its gotta change some time.

Pango.

 

[Insan3]

Working in the building industry, I can tell you the slow down is coming. Sub Contractors are already having to hunt for work - prices will start to come down, as they can't charge huge prices. (Although, $50-$75/hr is generally not a huge price, but seems high. People forget the builder is there for 3 months. You see your GP for 3 minutes!).

Suppliers prices I can tell you are about to skyrocket. We have been informed by companies we deal with (Steel, Concrete, Roofing) that their prices will increase approx 25% by end of year. They are employing the outlook that total customer numbers are going to drop, so we'll charge the rest more to maintain our profit levels for as long as possible

Currently, issues with concrete - can't get any! All the powder was allocated to SEQ/SWQ during our wet/floods. Now we can't get it back, because sales figures aren't high enough!

I think prices will come down. Lots of people have over-exerted themselves (including a few developers!) and purse strings will need to be tightened. Hence why you are seeing these big houses for sale for cheap - less than replacement. I had a drive through bluewater on the weekend. Lovely spot, but too expensive for most people at 10% Int Rates.

Doesn't help on the southside that we allowed CEC to dominate, now they are marking down all their unsold houses, again affecting valuations.

One final point (I'm all over the place in this post!), land is becoming scarce on the north. Vacant land can attract a premium. So while a vacant block may fetch $300k, throwing a $500k house doesn't make it $800k - esp if there are some fire sales in the area. Some will pay more to create THEIR dream home, not live in someone elses creation.