The current slowdown in Brisbane is a perfect time to grab a bargain before the market takes off later in the year
While Sydney has managed to reverse its seven-year curse by doubling average annual growth in its latest year-on-year performance, Brisbane has done the opposite. Over the 12 months to February 2010, median house values rose by just 6.52% to $469,000. This is almost half its annual average growth of 11.81% over the past 10 years. In February alone, median house values fell by 1.33%.
Units fared even worse with median values dropping by 1.77% to $357,500 over the three months to February. In February alone, units lost another 1% to take the year-on-year growth to just 3%, the worst performance by any capital city in terms of units, according to Residex.
“Brisbane is still a concern,” says John Lindeman, head of research at Residex. “There’s very little growth in the market. It’s doing the opposite of what Sydney is doing in terms of growth. The country markets are going to perform a lot better because of the revival of the resources sector, but Brisbane is a real problem at the moment and I think it’s best to stay away from it for now, particularly the unit market.”
Angie Zigomanis, senior analyst with BIS Shrapnel, adds that Queensland as a whole is probably the weakest state, suffering from the double whammy of a poor economy and a protracted downturn in resources and tourism.
Even Tim Lawless, research director with rpdata.com, who has maintained his bullish outlook on Brisbane, agrees that there are no signs yet of the city entering a sustained upturn.
“The current growth rate is well and truly lagging across all dwellings in the last quarter with growth just half a percent, so it still is a flat market,” he says. “We haven’t seen signs that the market is ramping up and outperforming the national average but I think it will start to become apparent later in 2010.”
While the overall figures are pretty weak, there are parts of Queensland that are racking up impressive gains, led by the bread and butter of the property market – houses in areas such as Townsville, Gold Coast, Sunshine Coast and Cairns, according to Aaron Maskrey, research director with PRDnationwide.
Brisbane’s luxury unit market, which accounts for approximately 17% of total new units available in the state capital, saw resale levels more than double in the six months to September 2009, Maskrey says. “This suggests a slight strengthening in the luxury market, as confidence has returned, but do not expect the Brisbane luxury unit market to recover until after 2010.”
Rents stayed flat in 2009, with only a 2.6% increase from the previous year, taking asking rents to $390 per week. Maskrey expects that vacancy rates will decrease during 2010, especially in inner Brisbane, which hit a vacancy rate of 4.4% due to rising property prices.
“With vacancy rates decreasing, median asking rents will also experience a shift northward. Rental yields will still be positive, but will most likely remain relatively low at around 5%. Investors will gain most from capital growth during the next couple years,” says Maskrey.
Lawless shares this upbeat outlook despite the current weakness in the market.
“I think Brisbane or South East Queensland as a whole is a good market to be buying into if you want to position yourself for the next growth spurt,” he says. “It’s still got strong population growth and it’s got massive infrastructure projects planned and underway. Since it hasn’t seen the same growth in 2009 as the other parts of Australia, it would appear this market is behind the cycle, which means you’re buying at the low point in the cycle, unlike the ones we’re seeing in Melbourne and to a certain extent Sydney. Brisbane still has a pretty good level of affordability, particularly in some of the key outlying areas like Logan, Ipswich or Caboolture, which are still popular for those looking for a more affordable property.”
Zigomanis sees strong potential in the state over the long term. “Queensland has got solid fundamentals – it’s got a diversified economy, the resources sector has picked up, so you’ve got all these things going for it,” he notes. “In the near term it will be affected by where it’s at in the cycle. In terms of prices, it’s been one the strongest markets over the past few years prior to 2009, but we’ve seen prices drop over the past 12 months. In some cases, Brisbane prices are still relatively expensive compared to other states, so there is probably still a brief period of underperformance as the market continues to consolidate.”
Strong population growth to put pressure on supply
Population growth in Queensland hit an all time high in excess of 116,000 persons for the year ending June 2009, according to the Australian Bureau of Statistics (ABS).
“Queensland is Australia’s third largest state and is expected to overtake Victoria between 2030 and 2040,” says Bill Morris, author of the Midwood Queensland Investment Report. “We estimate Queensland’s population (residents and visitors) to be approximately 4,480,500 in February and 4,601,500 in 2011.”
As at June 2009, the population of South East Queensland grew by 80,900, accounting for 69% of the total growth in the state, according to ABS. Brisbane recorded an increase of 2.1% or 21,200 people, Gold Coast was up by 3.1% or 15,600 persons and Moreton Bay by 13,300 or 3.7%.
The Housing Industry Association (HIA) says the large jump in population growth will add to the current housing demand that’s already straining supply.
As of 2009, Brisbane’s housing shortage was clearly the most severe, with a shortage of 6,474 dwellings, according to an HIA report.
“Many of the LGAs with the greatest housing shortage are also the same regions with the highest level of demand,” says the HIA report. “It’s the growth areas in the greater Sydney areas and South East Queensland where demand will be among the highest in the country. Current construction levels in these areas are not sufficient to meet the population growth needs. Not surprisingly, the underlying demand for housing over the next decade is expected to be the strongest in three prominent SE Queensland LGAs – the Gold Coast, Brisbane and Ipswich.”
Based on their respective current building trends, HIA says the shortfall in dwellings will be substantial. However, Brisbane’s shortage is expected to be significantly softer than that of other areas, with a shortfall of 2,936 dwellings expected.
Ipswich and Gold Coast are expected to emerge in 2020 with projected deficits of 18,777 and 10,777 respectively.