Wednesday, November 6, 2013

Reasons to invest in Cairns?

Some interesting comments from one of the more reputable property observers Terry Ryder, who has also been around a while: There's many reasons to invest in Cairns, but a grandiose resort complex is not one of them.
Terry is somewhat sceptical of the proposed scale of Aquis and suggests it really isn't necessary as a reason to invest in Cairns property anyway. This aspect fits my own view that Aquis is not the only alternative to a "bleak" future as is being promoted. I think Aquis is likely to proceed or certainly be approved, contrary to the scepticism here, albeit with some (unintended?) adverse consequences, particularly related to the scale.
Not sure Terry is fully up to date with local activity, such as the now scratched entertainment centre, but an interesting perspective form an 'outsider':

There are many reasons to consider buying in Cairns. But a grandiose plan for a $4.2 billion resort complex should not be one of them.

Earlier this year, Hong Kong businessman Tony Fung announced his plan for the biggest tourism property development Australia has seen. Aquis will have nine hotels with 3,750 rooms plus 1,200 apartments, a sports stadium, a convention centre, an 18-hole golf course and an aquarium clustered around an aquatic paradise. The artist’s impression looks like something you might expect to see in Dubai or Macau.
Queensland Premier Campbell Newman got quite excited about it and promised to wave it through the approval processes as only a conservative Queensland government can.
And, according to reports, many developers and investors are excited, too. Suddenly Cairns is on the radar screen, in a way that hasn't happened since the frothy days of Japanese mega investment in the eighties. There's been a surge in building applications which the council says is inspired by the Aquis proposal.  
Frankly, it's all rather ridiculous; a $4.2 billion resort development in a regional city of 150,000? I'll believe it when I see it.
There are, however, good reasons to consider investment in Cairns - reasons grounded in reality.  
Money is being spent on infrastructure. A $450 million hospital project is under way. The Cairns International Airport has completed a $200 million upgrade and further major improvements are planned. Various highway upgrades are happening and there is a $110 million expansion in the pipeline for the port.  
Other proposals include a $94 million performing arts centre, a $117 million tropical medicine project, a $35 million aquarium and an $85 million shopping centre.
The Cairns region has a resources economy, rather surprisingly given an image mostly associated with the reef, the rainforest and all things touristic.
The resources sector is the third biggest industry in the region, after tourism and agriculture. There is also a substantial number of local residents who work in the resources sector is distant locations as fly-in-fly-out workers. The resources boom in Papua New Guinea is having spinoffs for Cairns as well.
The city council is seeking to generate development and local jobs by offering to waive major fees for developers. It says $400 million in local construction projects were fast tracked after if reduced its headworks charges.
It's all part of the Cairns fight back, after hovering too long in the shadow of Townsville, the much larger and economically stronger city to the south.
Cairns realises it needs to generate economic diversity, while recognising that tourism is and probably always will be its bread and butter.
Tourism is rebounding strongly, helped along by an upturn in visitors from China. There are now direct flights to Cairns by Chinese airlines, as well as growing markets between Cairns and Japan, PNG and Hong Kong. Cairns is now ranked the No.1 regional destination in Australia for international conventions.  
And with tourism comes investment.
It's presumably the motivation for the grand resort plan of Tony Fung.
For residential investors who like Cairns’ prospects, there is some pretty good buying right now, especially in the unit market. This is because values have dropped considerably in recent years. The Cairns market has been one of the poorest in Queensland for capital growth in the past five years. The median unit price for Cairns City has dropped 10% in the past 12 months.

So it's possible to buy well - but whether it's good buying or not depends on whether Cairns can do better in the next five years than it did in the past five.
Indications are that it will, based on improvements in core industries like tourism, increasing spending in infrastructure, and efforts to broaden the economic base and encourage local development and employment.

Another recent post from Terry Ryder may also be of interest: Investor focus should switch to Queensland

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