Borrowers struggling in tourism areas

TOURISM hot spots and areas favoured by sea-changers have among the highest concentration of borrowers falling behind on their mortgage repayments, figures show.

By InvestSMART · 22 Aug 2012

By InvestSMART ·
22 Aug 2012

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TOURISM hot spots and areas favoured by sea-changers have among the highest concentration of borrowers falling behind on their mortgage repayments, figures show.

In a sign of weakness in the holiday-home market, the rate of mortgage arrears has continued to rise in key beachside areas in New South Wales and Queensland, according to figures to be published today by Fitch Ratings.

Victoria, on the other hand, has lower levels of mortgage delinquency than most of the other big states.

Despite rising numbers of people falling behind on their mortgages in north-west Melbourne, the state's overall arrears rate was 1.28 per cent, compared with 1.73 per cent in NSW and 1.86 per cent in Queensland, Fitch said.

The figures, collected in March, showed arrears rates rose in several suburbs around the Gold Coast including Surfers Paradise and Tweed Heads, and the report said there was "no sign of stabilisation" in the area.

Nelson Bay in NSW, a popular holiday destination north of Sydney, had Australia's highest share of mortgage delinquencies, at 7.8 per cent of loans by value.

The weakness in key tourism areas highlights that local economies in tourism areas are feeling the strain as more Australians take holidays overseas.

RP Data research director Tim Lawless said the biggest falls in the "lifestyle" market had occurred in Queensland and NSW.

Prices of units in Cairns have fallen 22.2 per cent from their peak, while units on Victoria's Surf Coast have lost 6.8 per cent.

"All these markets really have quite a similar performance in the sense that we've seen some material declines in values," Mr Lawless said.

The ongoing sharemarket slump has also choked off housing demand from some Australian retirees, many of whom have deferred plans to retire on the coast, he said.

"All those people that were aspiring to put their feet up at the Gold Coast and retire, a lot of them are rethinking because they've seen a halving of their share portfolio and their retirement savings aren't what they used to be," Mr Lawless said.

The ongoing weakness in beachside regions suggests the poor performance of regional tourism is hurting the value of holiday home investments.

On the Gold Coast, for instance, Fitch analyst James Zanesi said many of the borrowers who were falling behind on their repayments were investors, rather than owner-occupiers.

"When house prices are going down you might have a borrower who is trying to hold onto a home because they don't want to make a loss."

Most regions in Western Australia performed better than the rest of the country as income from the mining boom spread through the state's economy.

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Frequently Asked Questions about this Article…

Why are mortgage arrears rising in tourism hotspots and beachside areas?

Fitch Ratings and market commentators say rising mortgage arrears in tourism hotspots reflect weakness in the holiday‑home market: fewer local tourism dollars as more Australians holiday overseas, falling holiday‑home values, and weaker rental demand are all squeezing borrowers, particularly investors who rely on tourism income.

Which Australian regions have the highest mortgage delinquency rates?

According to figures collected in March and reported by Fitch Ratings, New South Wales and Queensland showed higher overall arrears (around 1.73% and 1.86% respectively), while Victoria’s overall rate was lower at about 1.28%. Certain holiday towns, like Nelson Bay in NSW, had much higher local delinquency shares.

How bad are delinquencies in coastal towns like Nelson Bay and the Gold Coast?

Nelson Bay recorded Australia’s highest share of mortgage delinquencies at 7.8% of loan value. On the Gold Coast, arrears rates rose in suburbs including Surfers Paradise and Tweed Heads, with Fitch noting there was “no sign of stabilisation” in the area at the time of the report.

Are investors or owner‑occupiers more likely to fall behind on holiday‑home loans?

Fitch analysts observed that many of the borrowers falling behind in beachside markets are investors rather than owner‑occupiers. Investors often struggle when rental income falls or property values decline, and some try to hold properties to avoid crystallising losses.

How have unit prices in lifestyle and tourism markets changed recently?

RP Data research cited sharp value falls in some lifestyle markets: units in Cairns were down about 22.2% from their peak, while units on Victoria’s Surf Coast had declined around 6.8%, reflecting broader weakness in holiday and lifestyle segments.

What role has the sharemarket slump played in coastal property demand?

The sharemarket slump has reduced retirement savings for many Australians, causing some retirees to defer plans to retire on the coast. That has cut housing demand in coastal lifestyle markets, further pressuring holiday‑home values and owner/investor affordability.

Is the weakness uniform across all Australian states?

No. While coastal tourism areas in NSW and Queensland showed notable weakness, Victoria’s overall arrears rate was lower and many parts of Western Australia performed better, helped by income flowing from the mining boom into local economies.

What should everyday investors watch for in tourism and holiday‑home property markets?

Investors should monitor local mortgage arrears and vacancy trends, price movements in popular holiday towns, and broader indicators like tourism demand and retirees’ financial confidence. Rising arrears in places such as Surfers Paradise, Tweed Heads and Nelson Bay, and large price falls in markets like Cairns, are warning signs for holiday‑home exposure.