Brisbane stays positive in the face of uncertainty
The affordability of properties continues to drive the market despite looming oversupply concerns
Although market activity in this city has quietened slightly, Greville Pabst, executive chairman of WBP Property Group, confirms that “the Brisbane market remains in good shape”.
“Low interest rates and affordability continue to be the main drivers for the Brisbane market,” Pabst says.
“With continual low interest rates and typically higher rental yields than Sydney and Melbourne, the property environment in Brisbane is performing positively.”
It may be performing well, but that doesn’t mean it is all plain sailing in the Sunshine State. The number of overseas migrants moving to Queensland is in decline, a factor that usually coincides with a drop in demand as well.
Gareth Aird of Institutional Banking & Markets says that for now there are other factors at play to maintain property demand, including low rates, a strong investor appetite, and expectations of capital appreciation.
Moreover, Aird suggests that the job market has improved given that the worst of the mining downturn’s effects have apparently been observed and some areas have seen a boost in domestic tourism.
The Herron Todd White Month in Review
for June 2016 confirms that properties near the city are performing well, particularly in suburbs that are 5km to 10km away.
“Consolidation began in early 2016 and prices seem to have stabilised. We can probably expect more of the same … with performance being flat to slightly rising,” Herron Todd White states.
Additional building approvals boost supply
Although these suburbs appear to be in strong demand, such areas are not expected to experience significant capital gains in the near term. This is because apartment oversupply is all but inevitable in Brisbane. In fact, the Housing Industry Association indicates that the number of home building approvals in Queensland have increased by 6.7% over the last 12 months.
“There are still heaps of projects that are yet to come online or are in the planning phase,” says the Herron Todd White report.
“They are also predominantly investor driven, and this could be a recipe for a lot of heartache – particularly as a large percentage of buyers are interstate and international investors.”
As an example, Pabst notes that Newstead has “more than its fair share” of new and under-contract unit towers. Unit developments are also under construction in Bowen Hills, Albion
and Fortitude Valley.
However, the sales volume of many smaller land subdivisions to investors has increased, which typically suggests that production is levelling off.
Rentals take a fall
These increases in apartment supply may be causing rentals in inner-city regions south of the Brisbane River, such as West End, South Brisbane
and East Brisbane, to become more affordable for tenants.
Rents have been dropping in Brisbane since the beginning of summer, according to the Property Council of Australia.
“In the last quarter we have seen real rents in Brisbane actually fall for the first time in 20 years of data collection,” says Chris Mountford, Queensland executive director of the Property Council of Australia.
“Brisbane is back below the national average after nearly a year of growth that exceeded the rest of the country.”
Mountford identified a number of factors that have driven this unprecedented fall, namely high levels of supply and the tightening of the state economy.
Still, many off-the-plan projects in Newstead continue to be purchased by interstate and international buyers.
“Several have a 4% to 5% cash rebate and/or rental incentives built into the purchase price, resulting in valuations below contract price,” Pabst states. “Rental vacancies continue to be at high risk of increasing in these inner locations.”
Regional markets face economic challenges
It’s not only the Brisbane market that is experiencing a downturn in rents. According to a recent Real Estate Institute of Queensland Market Monitor
, the regional rental market in the state continues to be challenged as it is highly sensitive to changes in the employment market. Thus it bears the brunt of the effect of low rates and transitions from tenancy to home ownership.
, for instance, slipped in the March 2016 quarter by 2.3%. Nonetheless, the infrastructure works program, the new stadium and the Singapore defence force movements are expected to sustain its economy.
“Confidence is the major issue, and until there are signs of an improving economy and jobs growth, our market will remain pretty static,” Herron Todd White states.
SUBURB TO WATCH
Greenslopes: Hilly suburb grows steadily
A 10-minute drive south of Brisbane will lead you to Greenslopes. Houses in this suburb experienced considerable growth of 9.5% in the last quarter, suggesting the area’s growing appeal. The rental yield for units is reasonable at 5.2%.
Locals are served by Greenslopes Mall and Greenslopes Private Hospital, which also provide ample employment opportunities. The suburb is also home to Greenslopes State School, and the Australian Institute of Applied Sciences’ College of Natural Medicine has its base in Greenslopes. The college is another big factor in the local economy’s development.
To cater to its growing population, there are various restaurants and cafes serving different types of cuisine, as well as several factory outlets. For those looking to commute, buses run to the CBD daily.