QLD Excerpt from the 2011 August Market report

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Brisbane’s currently cooking up a potent combination of well-priced properties and rising yields, creating quite a buzz amongst investors.

“We’re seeing more investors coming out into the market, says Hot Property Specialists managing director Liz Wilcox. “Now’s the time to buy, as we’re swinging at the bottom of our market.”

And these market conditions are helping the buyer’s cause by signing the death knell of a real estate agent tactic that she calls “buying listings”.

“Buying a listing was where the agent would tell the seller what they wanted to hear regarding price – even when they knew it wouldn’t sell at that price,” she explains. “Agents are now educating sellers as to where their property really sits in the market. There are still a lot of unrealistic sellers out there, but when their property’s still for sale after a few months, they drop to meet the market”.

High-end bargains 

Wilcox adds that, while the sub-$500,000 sector is seeing the lion’s share of investor activity, buyers that can afford the top end of the market can capitalise the most out of the current conditions.

“If there are investors out there with a budget of over $1m, then this is where there are bargains to be found with great rental returns,” she explains. “The old saying ‘the bigger they are, the harder they fall’ is so true when it comes to the high end of the real estate market.”

Wilcox suggests looking at high-end suburbs on the riverfront such as New Farm and Teneriffe. “Look for river properties that were not affected by January’s flooding,” she says. “A lot of properties were high and dry, but people are scared and this is slowing sales down. There are great opportunities here.”

But while sales have taken an inevitable hit, partially flooded yet well-located suburbs are showing signs of resilience, says REIQ chief Pamela Bennett.

“While some affected Brisbane suburbs did record a drop in preliminary sales, a number of others that were partially flooded continued to record steady sales over the quarter, which is a testament to the continued desirability of living in locations such as New Farm,” she says, singling out West End and Bulimba as similarly robust picks.

“They’re putting in major drainage now to see if they can eliminate that problem,” she says.

Units yielding well 

If your budget doesn’t stretch to bargain hunting on millionaire’s row, then Wilcox suggests looking at units – especially those within 8km of the CBD that are close to transport and shops.

What’s fuelling the unit market’s attractiveness is its increasing yields. With Brisbane currently going through something of a rental squeeze, the average gross yield for a unit reached 5.2% at RP Data’s last count – and is expected to rise further.

“We certainly expect that rental rates will increase, so that yield’s becoming quite attractive,” says RP Data senior analyst Cameron Kusher.

This is a view shared by PRDnationwide research analyst Josh Brown, who notes that Brisbane’s rental push has been caused by cautious potential buyers deciding to stay in the rental market until interest rates and living costs stabilise.

“This will eventually lead to greater investor activity as yields increase and become more attractive,” he says.

And with the city’s prices now sitting at around 7.5% lower than their all-time peak, Kusher believes that Brisbane investors are turning towards buying for yield and holding for growth.

“Overall, it’s pretty safe to say that the capital gains that we’ve seen over the last 10 years won’t be repeated over the next 10 years, so investors are going to be a bit more savvy and focus on yield more than they have previously,” he says.

Brown agrees that buyers are going to have to play a long game in terms of growth, but adds that strong fundamentals (such as the state’s growing population, low unemployment, robust economy, strong level of business and government investment, and increasing rents) mean that prices – while subdued – won’t tumble in the short term.

“With an increase to interest rates in June a very likely scenario, we can anticipate that the market will remain subdued until the end of the year, with provisions for further price corrections. It is expected, however, that the market won’t move a great deal as it is underpinned by strong fundamentals and the rental market continues to strengthen,” he explains.

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