Brisbane June 2018

The month in review: Brisbane

By Herron Todd White
June 2018

Brisbane’s stable property market performance is on display once more as we approach the middle of 2018.

There were expectations that Brisbane could ramp up beyond national averages when it came to price gains – perhaps even become a capital growth leader among our major cities. There was certainly some indication at the end of 2017 that signposted a heap of promise, but a confluence of factors has resulted in our town’s performance so far this year being best described as steady.

One of the key indicators well worth watching is Queensland’s net interstate migration number. Historically when this figure is on the rise, Brisbane housing gets a value boost. At the market growth peak in 2003, there were over 25,000 extra residents joining the Queensland ranks from other states and territories. That figure plummeted postGFC. The silver lining is that we’re now well and truly tracking on an upward curve after coming off this low base.

It’s doubtless that many of these buyers are affordability migrants – those now priced out of Sydney’s real estate market who are keen on relocating to Queensland and enjoying the lifestyle. Best of all, many are selling up their Harbour City abodes and buying here mortgage free and with a big chunk of change left over. That said, many new Queenslanders are moving to lifestyle centres rather than the capital. Regions such as the Sunshine and Gold Coasts have been major beneficiaries of population growth – and they’ve got the value gains to prove it.

In addition, the popularity of our relatively affordable inner city suburbs with this new southern crowd is evident. Translation? While inner-Brisbane addresses have done well over the past year or so, strong price growth hasn’t necessarily extended through to the further flung suburbs.

Another tough metric for Queensland is employment, which remains soft. There is a glimmer of hope though, with big infrastructure spends on the cards that might well help drive job numbers higher. The impact of continued low-interest rates is a general positive for our market and a recent relaxation in rules governing investor loans only bodes well for those wanting values to rise.

With these musings as a backdrop, let’s take a look at how Brisbane’s market has performed so far this year. Detached housing remains a firm favourite among Brisbane buyers and the flight to quality that always comes in slow markets continues to be a feature.

Housing within six kilometres of the CBD is definitely a winner. If you watched its performance over the past two years, certain locations have enjoyed a 20% capital gain in median values. This sort of upward movement has moderated a little so far in 2018, but the fundamentals for inner-city housing remain upbeat and values should continue to track in a positive, if somewhat uneventful, manner over the rest of the year.

Stepping a little further out, the mid-ring of housing from six to 20 kilometres from the CBD was hoped to hold a whole heap of promise this year. Upwardlymobile young families priced out of the inner city would be looking for established housing in this sector. There are great schooling options and if you’re handy with a hammer, there’s the chance to buy a renovation project for adding some equity and liveability to your home. That said, demand has moderated over 2018 for the mid-ring. But fear not, this sector is also expected to remain positive with similar characteristics of firm demand and limited stock listed for sale. Expect modest but upward gains during the rest of 2018 again.

Housing in the outer fringe has been a mixed bag really. Supply is good so prices have remained relatively static. One of our larger community projects, North Lakes, went into its final stages so the remaining vacant blocks have sold well as supply dried up. In fact, most comprehensive community projects have seen good demand for vacant land this year as affordability investors look to build their functional and stylish dream homes or decent yielding investment properties with depreciation benefits. As a general observation, smart detached housing investors will continue avoiding secondary locations in this type of market. Main roads, inhospitable surrounding uses, train lines abutting – the usual stuff. There is resistance from buyers for these holdings and they usually only perform at their best when a boom market is underway.

Now onto our unit market. The significant increase in the supply of inner Brisbane city units along with a cooling in demand has resulted in prices softening for new stock pitched primarily at investors. Inner Brisbane includes the Brisbane CBD, Fortitude Valley, Newstead/Teneriffe and Bowen Hills, Hamilton, South Brisbane, West End, Woolloongabba, Kangaroo Point, Stones Corner/Greenslopes and Milton. These suburbs are the focus of development activity, with projects of 50 plus units the norm.

Furthermore, rental vacancy rates have increased over the past few years with evidence that rental levels are falling – in fact, the inner Brisbane vacancy rate is in excess of the equilibrium rate of 3%. Various incentives as well as rental compensations are now quite common in many localities in order to attract tenants. Whilst it’s difficult to establish exact numbers, anecdotal evidence suggests there are some off-the-plan units now failing to settle at completion because their values aren’t stacking up to their original contract prices.

So, what does this mean? Well, in 2018 the impacts of oversupply have come home to roost. Prices for units are down, tenants are being incentivised and new projects that haven’t started construction are being land banked.That said, we can look forward to this softer market washing through sooner than some expected. While we believe there’s more pain to come, much of this has already been factored in, so the landing could be less bumpy than first predicted.

The other bit of bad news for units in Brisbane is that the softening in the new sector has flown through to second-hand units and townhouses too. This means that well located but older apartments within five kilometres of the CBD are tough to sell. The upside is that many now present a good opportunity for buyers – particularly first-timers or investors with a long-term outlook on their holdings. While we don’t expect prices to rise any time soon for these older units, yields are reasonable and the long-term prospects remain positive.

Finally, there are the satellite centres. The western growth corridor out through Ipswich is attracting its fair share of affordability driven buyers looking for growing infrastructure appeal to help boost their property values. Ipswich itself has cranked up its cool factor over the past few years, so expect its current popularity to continue. Similarly, the eastern zones out to Redland remain desirable for those seeking established housing for the longer term. In the Moreton region, upgrades to transport infrastructure and a rise in the availability of essential services and facilities bode well. In this area, supply isn’t an issue. 2018 will again be a year of moderate growth in the north.

In summary, much of the market’s expected urgency has dissipated. Brisbane property will remain relatively sound, however it will be somewhat slower in comparison to the previous 12 to 18 months for housing. The apartment market will continue to be slow with limited demand, reduced values, rents and yields and pricing will need to meet the market in order for the stock to be absorbed.

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