Holiday hotspots: Noosa

How could it happen? How long will it last? Despite estate agents’ best efforts to talk up the market, Noosa property prices are soft with few signals that prices are about to improve anytime soon. It's very good news for investors who would have watched agape as prices absolutely soared from 2001 to 2004..

Over the past two years Noosa prices '” while not quite returning to earth '” have at least drifted to a point where long-term investors will find rewarding investments.

Better still, this soft patch is giving the town a chance to recover from the breakneck pace of development set over the past decade. Centred on the glamorous retail strip of Hastings Street, the resort town has made the headlines for all the wrong reasons over the past few months. There have been reports of contaminated algae at the main beach and traffic congestion throughout the district.

There have also been reports of complaints from landlords that the dominance of Jetstar as the main airline into the nearby Maroochydore airport will erode the upmarket reputation carefully cultivated over the past few years. Michael Matusik, a Queensland-based property researcher, says: "I really think the downgrading of the air services is important. Noosa sees itself as a place for Qantas Club customers and now its getting the mass market."

The air services debate has already had a run in nearby Hamilton Island where the same story has been heard . Nevertheless, it has made little difference to the success of property developments at Hamilton: Bob Oatley's 35 villas at Great Barrier Reef Yacht Club sold out in two weeks in September with average prices of $2.7 million.

Moreover, a stroll through Noosa on a sunny October afternoon with cafes abuzz, convertibles cruising the streets and more expensive sunglasses than you might see on a day trip to Beverly Hills, suggest Noosa is in no danger of losing its glamour status. Indeed, the top end of the Noosa market can still break records: an apartment with ocean views in the centre of town recently sold for $8 million.

The real issue for Noosa is affordability; the town's prices ran so high in 2003 that it has taken some time for the rest of the nation to catch up. The median house price for the Noosa Shire for the three months to September 2005 was $622,000, down 12% from six months earlier.

Sales volumes also fell substantially; in the last reported figures they were below the 10-year average. House sales in the three months to June 2005 had fallen to just 204 against a decade-long average of 309. The figures are patchy (and woefully slow in coming through the system) but the trend is clear: prices in Noosa are flat, reflecting softer prices in Sydney and to a lesser extent Brisbane and Melbourne.

Unit prices were better. Agents say that during the six months to September 2005 the median price, at $470,000, had improved by 28% over the previous year. The most strongly supported sector of the unit market is the $300,000–400,000 category. As always real estate agents will always release the best figures to tell the best story. The most quoted sales figures are based on the Noosa Beaches district over the optimum time frames, so it's safe to assume there is much better value appearing than the official figures suggest, especially in outlying areas such as Noosaville and Tewantin.

The other key pointer to a softer market in Noosa is the severe drop off in new dwelling approvals in all sectors; house approvals in the year to December 2005 slumped from 355 in 2004 to 270 in 2005.

Among the options for new buyers in the Noosa Shire area are four substantial developments:

• Settlers Cove, a waterside development by Ralph Sarich's Cape Bouvard group with 15 houses and 33 apartments (stage one).
• Doonella Noosa, a Stockland development at Noosa River with 22 allotments (stage one).
• Beach Road, a development by private held Petrac group on Noosa River with 90 houses.
• Elysium, a development by the privately held Pearson group with 189 houses.

Apart from these four large developments, construction activity around the immediate Noosa district is relatively light. Moreover, if the prices stay slow in the near future these larger developments will take longer to complete than planned.

Unlike many coastal regions, Noosa is an unusually sophisticated market with very different flavours inside several districts: Hastings Street is the top end with apartments looking over the sea; similarly, the Little Cove area and surrounding hillsides are exclusive; Noosa Hill also offers premium property. Down at the water's edge, Noosa's extensive waterways mean there is wide selection of waterfront properties at Noosa Sound, Noosaville and Noosa Waters. Outlying areas include Noosa Springs, Noosa Heads Tewantin, Timbeerwah and North Shore.

So where are the bargains? Dan Dowling, a director of estate agents Dowling & Neylan, points to Noosa Waters. "I think we had tremendous price rises in Noosa Sound in recent years and it's inevitable now that Noosa Waters will catch up," he says. "There' s also good value emerging in Noosaville.”

Brad McDonald, a director of PRD Nationwide says: "Across the whole area there is great value in waterfront properties; they are selling at relatively good prices. Noosa Waters is exceptionally good value at the moment with a lot of stock on the market. I'd also say that Tewantin is very good value, especially in the $350,000–450,000 range."

The issue for investors in Noosa will be the paltry level of rental yields in the area: although prices have softened they remain high and rents have not caught up. Sources in the market suggest net rental returns are running on average at about 3%, a level that barely keeps pace with inflation and certainly would not sustain a mortgage financed property where you will be paying more than twice your rental yield in mortgage rates.

But Noosa is without doubt one of the best resorts in Australia, and easily the best of the larger conurbations on the Sunshine Coast. On this basis, long-term investors could catch a rare lull in prices over the coming term. As McDonald suggests: "The investor-only market is tight and that's hardly surprising but if you are buying for lifestyle, it's an excellent market with the prospect of another period of exceptional gains in the future."