State of the States 24 Apr 17: NSW still on top; ACT lifts to 2nd
Put simply, Brisbane has not experienced the population or jobs growth of Sydney and Melbourne. Population growth is down substantially on its average, particularly amongst interstate migrants, which is the kind of population growth that leads to more property being bought (as opposed to babies being born!). Migration is heavily influenced by jobs growth, and Brisbane has only produced 8000 new jobs in the last 12 months (half as many as the Gold Coast). Income growth has been subdued as well.
At the same time, there are has been some major issues with oversupply in the unit market. The number of units settling in Brisbane in 2016 is double the total number of average yearly unit sales (both new and established). This is an extraordinary figure. This wave of new supply isn’t getting soaked up, because there is not the demand either among the young professional or downsizer markets these properties cater for. As a result, prices are falling and vacancy rates are rising in these areas of new supply.
In summary, softer demand and pockets of oversupply have led to relatively modest price growth. This isn’t all bad news for investors though. It means:
- There is less competition in the market
- Prices are much more sustainable relative to incomes than in Sydney and Melbourne
- Rents are strong in many areas
- Interest rates are at all time lows
It does mean that investors hoping to buy in the market and experience the kind of lazy capital growth seen in Sydney are likely to be disappointed. You’ll need a more strategic approach than that. We’re now going to dig a little deeper and see how events have unfolded on the ground in Brisbane’s individual property markets, and what to expect in the future.
WHAT PROPERTY IN BRISBANE HAS PERFORMED WELL IN 2016?
As predicted, the most consistent growth has occurred in detached housing in Brisbane’s inner to middle ring suburbs. Brisbane’s northside has generally performed better than the southside, with growth rates on average between 4-5% versus 2-3%. Brisbane’s inner west has also been a strong performer. Some of the standout suburbs have been:
- Nudgee: 11.0%
- Everton Park: 10.0%
- Kenmore 8.4%
- Toowong 8.4%
The prestige market has been shakier, with some big falls in blue chip suburbs such as Clayfield, Ascot and Balmoral. Outer suburb growth has been modest. Double digit growth is very hard to find in any of Brisbane’s suburbs.
Our research suggests that if you bought a house in the $450,000-$650,000 bracket, in a well-located area with limited new supply, you had a good chance of outperforming the Brisbane average.
WHAT IS LIKELY TO PERFORM WELL IN THE BRISBANE PROPERTY MARKET IN 2017?
With the market balanced between low interest rates on one side, and weak jobs and income growth on the other, the main driver of property price growth over the next 12 months is simple – supply and demand. So for property investors looking for return, we need to ask ourselves: where is demand likely to outstrip supply?
Demand is greater than supply for detached housing in most of Brisbane’s middle-ring suburbs, which should lead to some price growth or at worst price stability. Demand for detached housing is strongest in the following areas:
$350,000-$450,000 – Brisbane Southwest. Houses in Forest Lake, Durack and Inala are achieving strong rental returns and are affordably priced given they are under 20kms from the Brisbane CBD. The area has a fair bit of gentrification still to occur, but prices are coming off a low base and should perform above the average.
$450,000-550,000 – Brisbane Northeast. The suburbs of Arana Hills, Ferny Hills and Keperra are seeing arguably the strongest demand for property in Brisbane. Properties at the sub $500,000 price point are particularly attractive amongst first home buyers, looking to buy in this leafy pocket only 13kms from the city.
$550,000-$650,000 – Brisbane South. There are pockets of strong demand throughout Brisbane’s south, including Holland Park, Salisbury, Sunnybank Hills and Mansfield. These suburbs are well located with good schools and transport infrastructure, and are close to most of the major employment hubs of Brisbane.
WHAT IS LIKELY TO PERFORM POORLY IN THE BRISBANE PROPERTY MARKET IN 2017?
The Northside Unit Market – with so much supply coming on, it’s hard to see much growth occuring here. Worst affected are Windsor, Chermside, Lutwyche, Albion & Kelvin Grove Windsor, Chermside, Lutwyche, Albion and Kelvin Grove.
Vacancy rate figures are a leading example of how generalised data can be dangerously misleading for real estate consumers.
Research companies like to publish statistics which describe an entire city in a single figure. One might tell us that “Sydney house prices” have risen 8 percent in the past year, but what does that mean for a metropolitan area with over 700 suburbs and five million residents?
The overall vacancy rate for Melbourne is a healthy 2.1 percent, according to SQM Research, but does that make investment in the city generally safe? Behind that generalised figure lie myriad different situations, including some (like inner-city Southbank and suburban Doncaster) where vacancies are in the 5-6 percent range.
The Brisbane metropolitan area provides a sobering case study for this topic. The overall vacancy rate is 2.9 percent, which is within the accepted comfort zone.
But closer examination reveals some worrying information. The city’s generalised vacancy rate has risen from 2.6 percent a year ago to 2.8 percent in June and 2.9 percent in July.
But specific areas show much higher vacancies and it’s not just the inner-city apartment markets. The unit development frenzy has extended to the suburbs and some precincts have alarmingly high vacancy rates now.
The latest figures show the Brisbane CBD has a vacancy rate of 5.3 percent. Surrounding near-city markets including South Brisbane, Woolloongabba, Kangaroo Point and Fortitude Valley all have vacancies in the range from 4.1 to 5.8 percent.
With major projects under construction, many of these rates will get considerably worse before they get better.
But now suburban markets well beyond the inner-city high-rise precincts are joining this disturbing trend.
There is major new construction of units happening in many of the suburbs on Brisbane’s Northside, in the middle ring suburbs where houses have dominated in the past. Thousands of new apartments received council approval in the financial year just ended.
The suburbs most impacted are Albion, Chermside, Everton Park, Kedron, Gordon Park, Wooloowin and Lutwyche. https://ljgillandrealestate.wordpress.com/2017/04/24/all-those-positive-qualities-population-growth-good-transport-links-employment-growth-and-great-services-and-amenities-can-be-overpowered-and-rendered-meaningless-by-one-simple-fa/ via @GillandDebello
The Albion postcode now has a vacancy rate above 9 percent. The postcode covering Kelvin Grove, where major urban renewal projects have been targeted, has a vacancy rate above 5 percent.
The postcode covering Lutwyche and Windsor is at 4.4 percent, while Herston is 4.8 percent.
Chermside’s vacancy rate is currently reported as 3.7 percent but is trending upwards and is likely to go much higher as there is widespread new development in this area.
There was recent publicity for this area, based on a research report that Chermside would become a property hotspot because of projected population growth. This was based on recent residential building approvals. Property marketers weighed in, suggesting this was a good place to buy.
There’s no doubt that the Chermside precinct has many good qualities – well-established residential areas supported by major infrastructure, facilities and jobs nodes. It’s part of a precinct that I wrote about favourably a few years ago, when Brisbane Northside generally was leading price growth in metropolitan Brisbane.
But those days have passed. The momentum has shifted to other parts of the Brisbane market and, in the meantime, developers have dived en masse into the Northside market.
All those positive qualities– population growth, good transport links, employment growth and great services and amenities – can be overpowered and rendered meaningless by one simple factor: oversupply.
Brisbane’s overall vacancy rate of 2.9 percent does not alert us to the reality that places like Chermside have much higher vacancies, which are rising steadily and set to become worse.
The worst performers are likely to be medium to high-rise apartments, many of which are located on busy roads, have little amenity and no unique selling points. It’s hard to see people paying $450K+ for apartments like these, unless they’re an uneducated investor, and with all the negative publicity on apartments it seems that this particular jig is up.
Vacancy rates are also climbing beyond 4%, driven by a lack of demand amongst renters for this kind of product. Expect to more incentives being thrown at both buyers and tenants to try to entice them to purchase this kind of stock.
The Luxury Housing Market – This market seems to have peaked, and there’s not a lot of heat in it at the moment. Rental yields are looking more like those of Sydney and Melbourne suburbs. Until the higher-end job market starts picking up, it’s hard to see prestige properties booming.
OTHER OBSERVATIONS ON THE BRISBANE PROPERTY MARKET
The Outer Suburbs – There is strong demand for both houses and units in the cheaper established outer suburbs, particularly in the Logan area. Without rising incomes, however, it’s leading more to rental growth than capital growth. Properties in these areas can make good entry-level investments, but be very careful to stick closely to the median price, particularly with new builds. Overpaying by $50,000 for a new unit or $100,000 for a new house in these suburbs can cost you years worth of growth.
Sources:- various articles, hotspotting & corelogic