Negative price growth and gloomy prospects cast a dark cloud over the Sunshine State.
In the three months to April 2010, the Brisbane house market slumped 2.30%, making it the worst performing capital city market in the country. Unit prices grew by a modest 2.12%, the second-worst result of any capital, after Darwin.
So why is Brisbane not enjoying the same gains of its neighbours to the south? “You haven’t got that flow through the market that occurred in Sydney and Melbourne,” explains John Lindeman, chief property analyst with Residex. “The reason is simply that houses are much more affordable [in Brisbane], so there’s never been that pent-up demand from first homebuyers.”
Despite this, many Queenslanders are having trouble getting a foothold in the market, according to the Real Estate Institute of Queensland (REIQ). First homebuyers now make up just 13% of the lacklustre market. “[This] really shows how much of a struggle it is for prospective homeowners to get into the market in Queensland,” says REIQ managing director Dan Molloy.
Premier Anna Bligh recently announced a new incentive of $4,000 for people building their first home in regional areas. This is not good enough for Molloy. “The reality is many young people want, and need, to live in South East Queensland due to the employment opportunities available there,” he says.
In any case, if they wait, affordability will probably improve because house prices aren’t going anywhere. A plodding stability is the best-case scenario for Brisbane over the next six months. In fact, if construction continues at its current rate, prices could start to fall rapidly across the south east. Unlike Melbourne and Sydney, which are suffering from undersupply, no such issue exists in Brisbane. On the contrary, “what you’re seeing is a possible oversupply building up in Brisbane”, Lindeman says. “Certainly there’s an oversupply of units in Brisbane and the Gold Coast.”
Even so, Queensland developers are pressing ahead with major projects in the south east corner. Sunland Group will start construction on a 40-storey, $250m residential tower in the Brisbane CBD this year. A high-rise in Labrador, on the Gold Coast, is also in Sunland’s pipeline.
And what of Queensland’s famed population growth, fuelled by interstate migration? “Every year, the growth is less,” says Lindeman. “The number of interstate departures from Sydney and Melbourne is decreasing, and Brisbane gets nowhere near as much overseas migration as Sydney and Melbourne do.”
Lindeman predicts merely CPI growth or just above in the near future. “I think Brisbane is a problem area and will be for some time,” he says.
Economic basket case
Rural Queensland saw massive price rises during the height of the minerals boom. “That’s come to an end and it’s highly doubtful it will rise again, because of the federal government’s super profits tax,” Lindeman says.
Heavy reliance on both mining royalties and stamp duty from house sales has finally caught up with the Queensland government. “They just overestimated the growth that was going to occur in both areas and got themselves into a lot of trouble,” Lindeman says.
“So the whole state is an economic basket case. For the next three years they’ll have deficit budgets because they borrowed so much money on the basis that they would be able to pay it back from growth in royalties and stamp duty which never actually occurred.”
Investors in a number of country areas are now suffering as a result of over-optimistic growth expectations. The only exceptions appear to be coal mining areas, where high-quality steaming coal is in demand. Towns like Emerald, Moranbah and Blackwater in central Queensland are among the state’s best performers.
According to Lindeman, however, investors should tread with caution in these far-flung mining towns. Moranbah, for example, is showing $1,000 a week average rent, but has vacancies of up to 30 days. “It’s only if the mining companies offer you a four-year lease and a guaranteed amount of money that you’ll get that sort of rent,” Lindeman explains.
“If they’re not expanding operations, then there’s simply no demand for new rentals. So don’t go in there thinking, ‘I’m going to get $1,000 a week rent, 9% rent return,’ because you’ll only get that if you’re one of the lucky ones selected by the mining companies. There’s never such a thing as easy money, and the figures don’t tell you that,” continues Lindeman.