An improving economy and rising interstate migration rates have put Brisbane in a solid spot as affordability continues to drive demand
Queensland’s economy is on the up, and it’s inspiring interstate migration as buyers seek to capitalize on the affordable housing and stabilizing job market in this region.
“The established housing market, townhouses, and new land are very strong around Brisbane,” explains Matt Lewison, director at OpenCorp.
“There is a shortage of developable land for new housing within 30km of the Brisbane CBD. Still, it’s lots cheaper than Melbourne and Sydney and very strong on the affordability index.”
The northern and eastern suburbs are doing very well, with townhouses in close proximity to the CBD recording low vacancies. Thus Lewison expects growth to pick up in this area as residents grow more confident about the state’s economic prospects.
The positivity extends into the Brisbane-Gold Coast corridor, where sales levels are boosted by the strength of the Gold Coast’s economy. However, employment rates have not yet caught up despite the rising economy, and wage growth remains low.
Moreover, Brisbane is still weathering a case of unit oversupply caused by excessive construction – as a result, the vacancy rate of rental properties is quite high. Fortitude Valley and Woolloongabba, in particular, are potential problem areas. Developers are seeing a bottleneck of completed properties as off-the-plan units are hard to sell.
“The high construction costs, which resulted from the 2015/16 boom in apartment and commercial construction, have caused many developers to ‘mothball’ their projects, so there is a lot less stock coming through the pipeline than previously predicted. This should see a correction in supply over the next 12 to 24 months,” Lewison says.
Buy smart in Brisbane
Brisbane will always be attractive to prospective investors because of its low prices and significant rental yields. However, given the supply and other residual economic issues, it’s vital to approach property buying in Brisbane with caution.
“There are markets within markets, and there is still the opportunity for growth if you buy well in Brisbane,” says Jane Slack-Smith, director of Investors Choice Mortgages.
“Country Queensland outperformed all states with the number of regional towns available to invest in that met these criteria: median values between $150,000 and $600,000, a minimum of 5% per annum rental yield, and a minimum of 6% per annum growth in the next eight years.”
Upon conducting research using Residex prediction data, Slack-Smith also found that Southeast Queensland is likely to be the focus of interstate migrants from the southern states, therefore investors should keep an eye on this area.
2018 will be an interesting year for the residential property market across Australia, as selling prices, clearance rates, and sales numbers all beginning to trend down marginally, according to Enzo Raimondo, CEO of view.com.au.
“The property market in Melbourne has shown signs of softening this spring, with clearance rates gradually dropping from 73 percent in the last week of October to 68 percent in the last week of November,” Raimondo told Your Investment Property. “This followed an average clearance rate of 74 percent in October.
“The number of sales and auctions in November was consistently high, however, all above 1,500 each week in the month (apart from Cup weekend). The slight fall in clearance rates indicates a reduction in demand within the market, which has come as a result of a number of influencing factors.
First-home buyers are finding affordable entry points
Raimondo forecasts a reprieve for first-home buyers, as prices start to stabilize in 2018.
“We should see a break in what has been a yearly double-digit rise in median house prices in both Sydney and Melbourne over the past five years. This will allow those who have been previously priced out of these markets to find affordable entry points.”
APRA’s latest round of macro-prudential measures on risky lending practices has begun to impact the market and will continue to do so next year.
“A tighter focus on lenders has driven up the cost of new interest-only loans, creating room for first-home buyers to move in where investors have taken a step back. Since the GFC, the proportion of first-home buyers entering the market gradually fell to well below 15 percent, but APRA’s efforts have had a clear impact on the market as this percentage has climbed back up over the year to 17.4 percent in November.”
Developments in Sydney and Melbourne
An oversupply of units in Sydney and Melbourne will likely impact the price growth of high-density dwellings within the inner rings, though this is likely to be felt more intensely in Sydney.
“Melbourne’s undersupply of houses should keep prices stable, despite a softening of the market, favouring first-home buyers and investors alike,” Raimondo said.
“For a range of reasons, an increasing segment of the population will remain renters for longer and these changes, which will hopefully come into effect in 2018, will balance the rights of owners and renters and curb the rising unaffordability of rental accommodation in Victoria.”
Strong investment opportunities in 2018
While Sydney and Melbourne will remain attractive to investors, other cities and regional areas are showing potential as investment opportunities in 2018.
“Brisbane is a first-home buyer’s dream – small but steady growth in what is still an affordable city,” Raimondo said. “Hobart has seen some of the highest growth in dwelling values in the country, while regional areas such as Wagga Wagga are experiencing a boom as investments into infrastructure, coupled with increased migration from the capital cities, drives demand.”
At its December meeting yesterday, Governor Philip Lowe and the Board of the Reserve Bank of Australia (RBA) kept the cash rate on hold at 1.5% – making December the sixteenth consecutive month the cash rate has remained on hold.
The last time Australia saw this same prolonged period of interest rate stability was back in 2013-14 when the cash rate was left on hold for 17 consecutive months.
John Flavell, CEO of Mortgage Choice, said he wasn’t surprised to see the central bank ring out the end of the calendar year with another month of rate stability.
“The latest data would suggest the Australian economy is performing relatively well at the moment and doesn’t need to be helped or hindered by a change in the cash rate,” he said. “Property price growth has stagnated across Australia, which is in line with expectations. According to Core Logic, property values across the combined capital cities fell by 0.1% over the month of November.
“At the same time, consumer sentiment took a bit of a tumble, with pessimists once again outweighing optimists. In addition, inflation is currently sitting at 1.8% [which is] slightly below the Reserve Bank’s target band range of 2-3%.
“On a positive note, business conditions hit a new high in October, according to National Australia Bank’s latest monthly business survey. Pleasingly, the strength in business conditions was quite broad-based and felt across most industries. Even retail rallied throughout October.
“When you look at all of this economic data, it is clear that the Reserve Bank of Australia’s decision to leave the cash rate on hold for an extended period of time is having the desired effect on the economy.”
Nevertheless, Flavell said it was only a matter of time before the Reserve bank lifts the cash rate.
“I believe a cash rate rise is inevitable, it is now just a question of when it will happen,” he said. “The Reserve Bank may be willing to leave the cash rate untouched for some months yet. Regardless of what the Reserve Bank does or doesn’t do to the cash rate in 2018, interest rates are currently sitting at record lows and will remain lower for longer.”
According to Ben Kingsley, chair of Property Investment Professionals of Australia (PIPA), with strong economic growth forecast for 2018 and 2019, the Reserve Bank is likely to push the cash rate higher.
One of the reasons why the cash rate hasn’t moved higher much sooner is due to anaemic income growth.
“When you don’t get strong income growth, you don’t get people who are able to spend more,” Kingsley said. “This flows into consumer confidence and spending. We have seen [that] retail spending and overall consumer spending is down, and general consumer sentiment is a little bit softer than we would like to see it.
“So this Christmas-New Year retail period, this Christmas spending period, is going to be important to see this data coming through in February and March to see whether there’s going to be any changes.”
The Reserve Bank also wants to cool Australia’s hottest housing markets.