Growth momentum remains elusive
Brisbane’s patchy performance continues to underwhelm and disappoint investors
Broadly speaking, Brisbane hasn’t lived up to expectations of better market performance. During the month of January, Brisbane home values fell by -0.7% and only managed a miniscule 0.8% growth over the three months to January, according to CoreLogic RP Data.
Interestingly, median unit values grew faster, up by 4.5% compared to houses, which only saw a 2.6% increase in median values during the year.
However, Tim Lawless, head of research at CoreLogic RP Data, points out that given the abundance of new units being approved across the city, “it is unlikely that the strong performance across Brisbane’s unit market will be maintained.”
Rental market under pressure
Brisbane’s sluggish price growth overall is not the only thing disappointing investors. Vacancy rates have started to rise, while rents remained stagnant during the three months to January. Over the past 12 months, median rents for houses fell by 0.7% and units recorded a 1.2% drop in weekly rent.
Lawless blames the additional accommodation produced by the current building boom, along with recent record high levels of investor activity, as the main drag for the rental market across the larger cities in the country.
“There’s substantial new dwelling supply coming to the market at a time when the rate of population growth is slowing,” notes Lawless.
In addition, Lawless says wages are increasing at their slowest pace on record, which indicates that many renters simply don’t have the means to pay more for their accommodation.
As such, he expects that rental market conditions are likely to remain weak, potentially softening further over the coming months.
“In fact, there is a possibility that rental rates may start to fall on an annual basis. While this is great news for renters, investors are facing the prospect of weaker capital gains coupled with falling rents, which would push down their yields. The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice when looking to renew their lease,” he says.
Andrew Wilson, senior economist with Domain, says Brisbane is still on watch after a disappointing performance over the past two years.
“We had big expectations last year and the market did nothing for nine months. We have high expectations again for Brisbane this year, but we’re still on watch,” says Wilson.
While forward indicators are showing encouraging signs, the fact remains that prices only grew by 4% last year.
Big infrastructure projects are disappearing rapidly
A big part of Brisbane’s weakness is the rapidly dwindling resource-related infrastructures that fuelled Queensland’s economy during the past five years.
Deloitte Access Economics says in its report that engineering construction in Queensland is currently in a freefall as the LNG megaprojects that supported the sector are now almost complete. These include the following:
- The $21.5 billion Curtis Island project
- The $19 billion Gladstone LNG
- The $25 billion Australia Pacific LNG
Of the six big mining projects underway in Queensland, Deloitte Access Economics says only the $1.25 billion Eagle Downs coal project will remain by the end of 2016.
“Things are likely to get worse from here, and other sectors cannot fill the void, particularly in Queensland’s case,” it says. “The State Government is not in a position to fund very much in the way of infrastructure without unlikely Federal funding. Engineering construction activity in Queensland has fallen off the cliff, but the bottom is some way off yet.”
But there’s hope
Notwithstanding the freefalling infrastructure spending, the economic forecaster remains upbeat about Queensland’s prospects.
“Our consistent comment on Queensland for quite some time is that this State’s economy is better than you think. We stick by that view,” says Deloitte Access Economics.
It cited a number of reasons, including the fact that Queensland has already taken a number of lumps. Whereas the construction spend in huge projects in Western Australia has barely begun to fall from its boom-time peak, the matching construction spend in Queensland has already virtually halved since its glory days, according to Deloitte Access Economics. In other words, a lot of Western Australia’s pain is still to be fully felt, whereas a lot ofQueensland’s pain is already behind it.
And whereas some other States have a period of pain awaiting them as their recent housing price surge starts to hurt their economies more than it helps them, Queensland faces few such risks.
SUBURB TO WATCH
Morayfield, QLD: Quiet outperformer
Morayfield, located just 38km north of the Brisbane CBD, has been quietly and steadily growing over the past two years.
In fact, median house values in Morayfield outperformed Brisbane during the past 12 months, growing by 4.6% compared to Brisbane’s 3.4% growth, according to Onthehouse.com.au.
Kevin Young, a real estate agent with Harcourts Pinnacle, says families are attracted to the area, thanks to the larger homes on offer. The family-friendly suburb also boasts a number of quality schools and amenities, meaning it is desirable for both buyers and renters.
It’s located near the Bruce Highway, making it accessible to the Brisbane CBD.
Houses are very affordable at a median price of just $346,500, despite a 4.6% price boost. The rental market is tight with a vacancy rate at only 1.8%. Investors enjoy good rent returns, Young notes. The rent for a four-bedroom house ranges between $345 and $365 per week, and rental yield exceeds 5%.
Morayfield’s local economy is supported by a vibrant retail sector, including the Morayfield Shopping Centre, which also attracts shoppers from other nearby suburbs.
“There’s a homemaker centre, which is good for a growing community,” Young says. There are a number of schools in the area, as well as a community sports centre.
According to Young, the best buys are four-bedroom, two-bathroom houses because they are in high demand from tenants with kids.