Cairns is a residential investor’s paradise, with low vacancy rates resulting in stable rental returns.
The latest REIQ figures showed the coastal city has record-low vacancy rates at 0.9 of a percentage point in the last quarter, with Urbex Realty general manager Craig Covacich telling Real Estate Business it is due to a few fundamentals.
The situation in Cairns is the result of legislation used to control investments in the big cities. Now it has restricted the ability to build more residential facilities, and there is a large number of people who want rentals. This situation is unique to Cairns, Mr Covacich said.
Although the legislation was meant to put the brakes on Melbourne and Sydney, it has now impacted Cairns.
“Cairns has a younger population where the average income is good,” he said. “And the city also attracts a lot of transient workers who tend to stay for one to three years, and they are struggling to find accommodation.
“We would usually supply new housing in a market like this, but because of the credit squeeze, we have not been able to do that.”
As a result, it has created an investor’s paradise with significant rental yields.
“In Cairns, it is cheaper to buy a property and pay a mortgage than it is to rent,” Mr Covacich said.
However, many Millennials are not prepared to settle down, and many in Cairns want to rent.
“As credit from financiers become more available, there is a great opportunity for investors to generate a good yield in the residential property market.”
Also, Cairns has a lot of offer as its economy is stable and people are still heading to the town.
As a result of what is happening in Cairns and the generational change in how people view home ownership, Mr Covacich believes the future of real estate is with rental yields.
People look at housing differently, and there could be a return to the boarding house mentality as Millennials want a stable life while renting, he said.
“When you are talking to these people, home ownership is not a big deal. A good income is a big deal, and so is a balanced lifestyle.”
When Mr Covacich was growing up, he had the mentality he had to work hard, buy a house, and that would set him up for retirement, but that attitude is changing around the globe.
While the mentality towards home ownership has changed, for those younger generations who do want a home, they do not want a large house, which is the staple of the Australian market.
With the outlook changed towards housing, Mr Covacich believes builders, developers, planners and the government need to listen to the next generation to create a product that suits this new market.