Brisbane the new investor favourite, but experts warn of risks
With Sydney and Melbourne now in a downturn, all eyes are on Brisbane to lead the country’s property markets. But there are risks to be aware of, according to experts
At a time when the country’s biggest markets are faltering, could a smaller city like Brisbane take the mantle and lead this year?
Many experts have been predicting Brisbane’s resurgence for two years now, but so far the city has underwhelmed with its subpar performance.
However, there are now stronger signs it may finally be rising to the challenge. In the month of December when many markets fell, Brisbane’s property values grew by 0.9%. This may seem small, but compared to Sydney’s loss of 1.2% during the same period, it’s a solid performance.
Brisbane’s performance during the December quarter was even more impressive. Values rose by 1.3% – the strongest growth of all capital cities.
During 2015, Brisbane investors racked up a total of 8.8% total gross returns, the third-highest in the country, behind Sydney and Melbourne.
Tim Lawless, head of research at CoreLogic RP Data, predicts a brighter year ahead for Brisbane.
“The city showing the most promise for capital gains in 2016 is Brisbane, and for that matter, the broader Southeast Queensland region,” says Lawless. “Yields are much higher compared to Sydney and Melbourne; the rate of capital gains has been moderate but sustainable to date, and affordability is far superior to the two larger cities as well.”
Further helping demand is the positive interstate migration into Queensland, which is likely to increase with growth in the job market last year, says Lawless.
Andrew Wilson, senior economist at Domain, sees a similar trend in the market, and adds: “The market has shown some improvement in December, which is usually the strongest month for Brisbane. The unemployment rate fell due to the construction boom in inner Brisbane, similar to Melbourne,” he says.
“I think Brisbane is truly now in catchup mode, particularly with the improving economy and buyer sentiment, as we’re seeing in the rising activity in budget suburbs. Brisbane prices are still half of those of Sydney. With prices like that, it’s almost irresistible to buy.”
While the numbers are promising on the surface, Wilson remains wary about Brisbane’s long-term prospects.
“The investment market is now softer in Brisbane,” he says. “Yields are still higher compared to Sydney and Melbourne, but vacancy rates are rising and yields are starting to fall. Interestingly, Melbourne now has lower vacancy rates, and there’s no problem getting tenants there. There’s still upwards pressure for rental increases in Sydney and Melbourne. In contrast, Brisbane’s been flat for a year now, and that will only push yields lower. Rental growth flatlined, and vacancy rates are rising, not just units but also houses.”
Wilson says this is a by-product of significant growth in first home buyers, which inevitably took the heat out of the rental market.
Robert Mellor, managing director at BIS Shrapnel, is equally downbeat about Brisbane’s prospects.
“Brisbane is a place where we’ve changed our minds the most over the past 18 months,” he says. “About 12 to 18 months ago we would have said Brisbane would be the place to invest to get significant price growth if you picked wisely in that market. But now we think price growth is going to be modest. Population growth is very weak. We’re seeing much lower overseas migration going into Queensland compared to, say, three years ago. We’re seeing lower numbers of people coming in from interstate – now only about 6,000 people compared to the peak when it was 20,000–30,000 people.”
Mellor also points out that construction recovered strongly, particularly in highdensity construction in inner Brisbane. While the detached housing market is only up modestly, he believes there’s a significant risk of oversupply developing over the next 12–18 months.
While Brisbane may present an attractive value proposition, Mellor urges investors to consider the long-term prospects of their investments.
“Brisbane’s fundamentals are not that good. There’s not a stock deficiency. There was a stock shortage 18 months ago, but that’s already gone. Now that market is going quickly into oversupply by early 2017, and I suspect it might happen sooner in the inner-city apartments.”
Interestingly, Mellor is more positive about the prospects of the Gold Coast, long seen as a perennial underperformer due to the supply glut of the past five years.
“Gold Coast is in much better shape now,” he says. “Gold Coast has been getting 5% growth per annum over the last two years, so it’s seen good, steady growth, which is better than Brisbane.
The oversupply situation has been reversed. In fact the market has been weak in terms of supply for some time now. Construction fell sharply, so now there’s undersupply.”
SUBURB TO WATCH
St Lucia, Qld: Prestige suburb’s growth slows
A highly popular Brisbane suburb, St Lucia is dominated by the main campus of the University of Queensland. It’s located just 4km from the Brisbane CBD and has a significant amount of Brisbane River frontage. Aside from a high student population, the area draws a diverse crowd of wealthy professionals and families.
St Lucia will always be a popular area for students, but its leafy, riverside settings – conveniently close to the CBD – mean it will continue to have a future as a family area as well.
However, there are signs that affordability constraints are starting to bite. With a median house value of $1.03m, there haven’t been that many takers during the past 12 months.
This is significantly lower than the 7% growth the suburb recorded the previous year, according to OnTheHouse.com.au. Units are more affordable at under the $500k mark, but the growing supply near the river is weighing on prices.
Can you afford to buy in this suburb? Find out how much you can borrow