27 Dec 2013
Words Glenn Millar

The Importance of Management Rights to the ongoing sucess of the QLD Tourism Industry

It's a fact that the management rights industry in conjunction with unit owners who have entrusted their units to short-term letting, form the backbone of the Queensland Tourism Industry. The majority of apartment owners are mum and dad investors who bought an investment apartment with the long-term dream of retiring in sunny Queensland. The boom years for property development of the 70’s, 80’s and 90’s saw large numbers of apartments built, which in turn provided the accommodation that enabled tourism to grow right across Queensland However due to the economic climate and in some areas oversupply of stock, the number of new build apartment developments has all but stopped and the loss of apartments from the holiday let market to owner occupiers continues. With the large number of baby boomers looking to retire to Queensland, the loss of holiday rental apartments to owner-occupiers is likely to increase further. Put simply, more holiday-let apartments are being lost from holiday rental pools to owner-occupiers than are being built to replace them. The loss of holiday rental apartments to permanent owners has the potential to seriously affect Queensland’s Tourism industry, as ultimately tourists will have less accommodation available. It will also reduce the business values of management rights businesses as their rental stock dwindles. To demonstrate the value of tourism to Queensland alone the following figures really say it all Employment. In 2011-12 tourism directly accounted for 136,000 jobs (5.9%) and indirectly accounted for 99,000 jobs (10.1% of employment in the state). This is substantially more than the mining sector (66,300 direct jobs) or even agriculture, forestry and fishing (77,700 direct jobs). Cafes, restaurants and takeaway food services had the largest share of tourism employment (26%), followed by retail trade (19%) and accommodation (13%). Gross State Product (GSP). In 2011-12 direct and indirect tourism GSP was $22 billion, or 7.8% of total Queensland GSP. Tourism supports small business in Queensland. No other sector of the economy has more small businesses, with 9 in 10 tourism businesses employing less than 20 persons. Previously, it was estimated that Queensland had 115,500 tourism businesses as at June 2007. A methodology change has revised the classification of tourism related businesses. It is now estimated that as at June 2011, Queensland had 55,700 tourism related businesses, representing 12.9% of all registered businesses in the state. Tax revenue. Net taxes on tourism products arising from tourism consumption in Queensland raised $921 million in federal, state and local government revenues, and was 25.7% of total taxes on tourism products as a whole. Overseas Exports. For the year ended June 2012 overseas tourism exports were $5.7 billion for Queensland. Tourism is the state’s second largest export, behind coal. Based on these figures it appears investor owned apartments make a significant contribution to the Queensland Tourism Industry and by default the Queensland economy. So the question is - how do management rights operators protect their businesses and the interests of apartment owners as well as providing desirable accommodation to maintain and hopefully grow the Tourism Market? The average age of all holiday-let apartments is getting older. It's likely a survey would reveal the average age of Queensland holiday apartments would be around 15 years old. A small percentage of these apartments have been totally refurbished, most have been well-maintained and sadly some are old, dated and worn out. Despite the best efforts of owners and managers, the overall standard of Queensland holiday accommodation is deteriorating as time passes. The owners of managed apartments see net returns in the vicinity of 1% – 3%, with negative gearing and depreciation helping to make the investment bearable. Different owners have different investment strategies and vastly different budgets. Both of these factors lead to different apartment maintenance strategies. So we have a number of serious issues facing our industry that, by default, are all interconnected; - Holiday let apartments are crucial to the success of Queensland tourism. - Tourism is a significant contributor to Queensland employment and GDP. - The overall quality of Queensland holiday apartments is decreasing as they age (as evidenced by AAA’s recent ratings) - The net quantity of Queensland holiday let apartments is decreasing as permanent tenants move in - Declining quality holiday apartments is a huge risk to Queensland Tourism - Lack of new holiday let apartments being built is a risk to Queensland Tourism - Poor returns make holiday let apartments an undesirable investment. - Poor owner returns mean owners have little incentive (or ability) to improve holiday let apartments These issues are very serious and we as an industry need to find a workable solution to overcome these problems. Maybe we need to look at the WA model where tourism product is just that, no owner occupation for more than 90 days, no permanent lets. Perhaps The Qld Government needs to investigate options to protect and grow this crucial industry such as stamp duty rebates and increased depreciation for holiday-let units. Food for thought - your comments are welcome