With the economy expected to grow faster than many other capital cities, Queensland’s property market is on a solid growth path.
Like the rest of Australia, the Queensland economy appears to have turned the corner with the latest data from the Australian Bureau of Statistics revealing it grew by 1.3% in the December quarter.
The future looks rosy too with many economists counting on the strong demand for resources from China and big spending from the state government to continue to underpin growth for the sunshine state.
“Continued government and business spending is a big plus for the Queensland market over NSW,” says Paul Braddick, head of property and financial systems analysis at ANZ. “From the macro viewpoint, now that China is growing strongly and commodity prices are starting to move, there will be enormous potential for some very big mining and resource related projects over the next five years.”
Braddick notes that 12 months ago Queensland and Western Australia were viewed as the two states that would be laggard throughout 2010 and perhaps beyond as the commodity bust hit. All of a sudden, he says, the commodity boom mentality has returned. “The change in sentiment has been remarkable and it’s boom time again,” he says. “You cannot ignore the remarkable strength of the Australian economy relative to many countries around the world, but a lot of that is due to what we’re seeing in China at the moment. The Queensland story is pretty positive largely because of that.”
The South East Queensland Regional Plan and the Queensland government’s $18bn commitment to infrastructure projects, including roads and other transport projects, are pointing towards big rewards for investors willing to ride out short-term underperformance.
The upbeat sentiment in Queensland is beginning to translate to stronger property market performance. Over the three months ending January 2010, median house prices climbed by 3.51% to $475,000, recording the fastest growth of all capital cities bar Melbourne according to data from Residex.
Fundamental strengths and challenges
One of Brisbane’s advantages over its rivals is the ongoing strong population growth. During the year to June 2008, Brisbane’s population grew by 43,400. While the data for 2009 wasn’t available at the time of writing, the current figures show Brisbane has averaged just over 40,000 annual population growth since 2004.
In 2009, Brisbane recorded 12,397 total dwelling approvals – falling well short of the 15,400 recorded in 2008.
“Given the surge in Queensland’s population in 2009, Brisbane’s population growth should also have risen,” the Westpac report states. “Allowing 2.6 persons per dwelling, dwelling approvals of 12,937 in 2009 would house population growth of 33,640. Even before the consideration of demolitions and nonstarts, the market is woefully undersupplying.”
Brisbane would need annual approvals of between 16,000 and 18,000 to house population growth of 40,000 to 44,000 according to Westpac.
Westpac also noted that vacancy rates almost doubled in the six months to September 2009 as a result of the large number of renters moving into home ownership as a result of the government boost.
“While we believe Brisbane is undersupplying with new stock, part of the increase could be due to the first homebuyers vacating the rental market. However, the extent of the rise from 1.7% to 3.3% by Q3 2009 appears excessive.
“We forecast vacancy to fall into 2010, particularly as the first homebuyer exodus has ended and new supply remains slow. Rising mortgage rates and the lack of first homebuyer boost should drive rents higher in 2010. However, if the 3.3% vacancy is correct, the extent of the increase in the first half of the year could be muted,” the Westpac report says. Looking ahead, Westpac says the lack of supply, improving confidence and only average level mortgage rates could sustain growth of around 5% in 2010 as rising jobs lift income levels and debt levels rise further.
According to the latest data from the Australian Bureau of Statistics, the number of dwellings financed by first homebuyers across Queensland has dropped 21% in the second half of 2009 compared to the first half of the year.
The withdrawal of the boost and the state government’s decision to reduce the grant eligibility to $750,000 from $1m from mid-2010 is expected to see a continuing decline in the number of first homebuyers through 2010.
“The number of first-time buyers in the market continues to drop following the removal of the government boost and the end of historically low interest rates,” says REIQ managing director Dan Molloy. “However, upgraders and investors are now returning to the market in larger numbers and this change in buyer demographic has resulted in stronger prices in the mid-range areas usually targeted by second- and third-home buyers.”
Queensland’s population continues to boom and in the south-east there remains a drastic undersupply of housing and issues with infrastructure,” adds Molloy. Braddick agrees that Brisbane is still notching up the largest population growth, and confirms that the undersupply issue will only get worse. “With building approvals having cooled, the migrant inflow still occurring, and the mini baby boom boosting underlying demand, demand is only going to get tighter. That’s the whole story going forward – it’s very positive for investors but not so good for renters or first homebuyers that are still yet to get into the market.”