"Perfect storm" of problems for Brisbane apartments

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Brisbane’s inner city apartment market is in the middle of a “perfect storm” with more than just the number of new dwellings in the area to worry about.

While oversupply concerns have been a common talking point for the inner city market in the Queensland capital, the style of apartments being built in the area is also likely to cause some serious headaches in the near future.

As the number of new apartments in the area impact prices, developers have resorted to increasing the number of dwellings in each project in an attempt to shore up profits, but Zoran Solano, senior buyer’s agent at Hot Property Buyers Agency, said that is likely to exacerbate problems.

“We’re seeing the end product value really stagnate and that’s reduced developers’ profit margins, so what they’ve needed to do is fit more on the site to achieve the yield they’re after,” Solano said.

“That reduces the sizes of units and we’re seeing that now. Unfortunately developers are probably going to be stuck with undesirable stock that they thought would sell or lease easily,” he said,

There are already mounting signs that demand for apartments in the inner Brisbane area has faltered, with research from Place Advisory showing sales have dropped dramatically to start the year.

According to Place Advisory’s latest Inner Brisbane Apartment Market Report, the March quarter saw 828 unconditional sales in the inner Brisbane apartment market, a 36% fall on the 1,293 sales in the December 2015 quarter.

While Place’s figures show a significant fall in sales, Solano said he believes the market may be even weaker than that.

“I would even suggest that [decline] could be a very conservative number. Interest levels for property in Brisbane are very strong, but the shift has definitely occurred away from units, away from large complexes and high rises,” he said.

“I’ve got developer clients, who we assisted buy sites for their projects, they’re only doing 20-unit complexes and they’re starting to find it quite difficult to get sales away.

“I don’t think we’ve seen the bottom of that either.”

While sales may be declining, Place Advisory director and report author Lachlan Walker said there may be some hope for the market as it attracts more owner occupier attention.

“The Brisbane off the plan apartment market has benefited from the high levels of demand in recent years, however the market is definitely changing and must adjust to the next property cycle,” Walker said.

“We have already witnessed a defined shift from what has been an investor driven market back towards the owner occupier market,” he said.

Solano agreed that there has been an increasing in interest from owner occupiers recently, but he said the fact that so many small apartments have been built recently could jeopardise that.

“There is a bit of interest from owner occupiers at both ends of the spectrum, first home buyer as well the downsizer demographic.

“Having said that, the downsizer demographic is very fussy. They’re coming from a large property and going to a unit is a very dramatic change in size for them

“The owner occupiers we’re seeing in that area are being very, very selective and are avoiding small units and we’re seeing that across all of Brisbane.”

According to the Place report for the March quarter, the weighted average sale price for an inner city apartment was $602,415, a 2% drop compared to the December quarter.

While prices and sales are down, Solano said they are unlikely to be the only falls for the market as he hold concerns about the viability of the rental market going forward.

“A lot of these properties were sold to investors and it’s going to start eroding rental yields.

“People who thought they were going to get $500 week are probably going to have to settle for $450 a week and we’re already seeing investors and property managers highly incentivising tenants to take up leases.

“We’re seeing rent free periods, we’re seeing gym memberships thrown in with 12-month leases, iPads thrown in, free internet, a whole range of things. When you start seeing those things it really starts to be concerning about just how viable that market is.”

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