Developers' headaches are Gold Coast investors' healthy returns

No matter what political commitments there are to delivering new housing, Australia will be in serious undersupply for many years to come.

This reality of Australia’s serious undersupply of homes is made starkly obvious by the emergence of shortages in the location best known for bouts of major oversupply – the Gold Coast.

The Gold Coast market has traditionally delivered weak capital growth because of regular periods of oversupply of high-rise apartments, but these days it’s the opposite.

The market has been trending towards undersupply for two to three years. It’s getting worse and will continue to do so for the foreseeable future, particularly with the Gold Coast’s population tipped to surge to 1 million residents within the next 20 years.

It is this notable history of population growth that has made it a prime target for big developers in the past, which led to periods of oversupply. As a result, just three years ago, the median apartment price in Surfers Paradise was at the same level as a decade earlier.

But times have changed and it is unlikely the market will ever go back to those periods of massive oversupply and rollercoaster property prices.

If there is one thing people learnt during Covid lockdowns, it was that they could work from anywhere in Australia and the Gold Coast became a prime target for those seeking a more affordable lifestyle in an appealing coastal city.

At the same time that buyers were rushing the Gold Coast market, major construction dropped off dramatically. The cost of building apartment towers soared as construction costs grew so fast developers found it too difficult to budget for the cost of a project that would take years to plan and construct.

As a result, big developers cancelled or deferred projects and the Gold Coast market is now in severe undersupply and likely to get worse.

Good news for property investors

The good news for investors is this massive undersupply is leading to higher prices and stronger rental returns.

Average annual long-term price growth ranges from 4.1 per cent to 11 per cent, with the vast majority of Gold Coast suburbs above 6 per cent. 

Median dwelling values on the Gold Coast have increased by 76.2 per cent in the past five years while median asking rents are up by 51.9 per cent during the same period.

In the 12 months to July 2024, 30 Gold Coast unit markets have achieved double-digit median price growth, with seven of those above 20 per cent.

Surfers Paradise, one of Australia’s largest unit markets, has a median unit price of $715,000 that has increased by 14 per cent in the past 12 months alone – an appreciation in the tens of thousands of dollars.

Rental yields in more than half the Gold Coast apartment markets are above 5 per cent.

While the market may not add up for developers anymore, the figures for the time being are certainly adding up for investors.