Off-the-plan apartments in inner Brisbane are expected to take off this year but oversupply pressures could weaken the market later in the decade, according to a new report.
BIS Shrapnel’s Inner Brisbane Apartments 2013 to 2020 report said the initial strong performance of these properties would be underpinned by low vacancy rates, low interest rates, attractive yields and the overall strengthening of the Brisbane residential market. The report predicted greater demand from interstate buyers would also fuel off-the-plan sales.
Senior project manager and author of the report Angie Zigomanis said inner Brisbane apartments have become increasingly attractive to investors as reductions to interest rates narrow the gap between rental income and mortgage repayments.
“Initial yields in many new apartment projects in Brisbane have been above five per cent for some time now,” said Mr Zigomanis. “However, with many expecting that the Brisbane market has now bottomed out and the risk of further price declines is dissipating, the impetus to enter the market has increased.”
Mr Zigomanis said demand from interstate investors was also likely to rise and supplement local investor demand, as high apartment prices in Sydney and the prospect of oversupply in Melbourne encourages buyers from these markets to look elsewhere.
“In previous market upturns, interstate investors have accounted for up to 40 per cent of off-the-plan sales in inner Brisbane. In particular, buyers from New South Wales are likely to find the value proposition for apartments in Brisbane more attractive compared to prices of apartments in inner Sydney after the recent rises that have occurred there,” he said.
Despite the positive outlook, the report cautions that this surge in interest could drive a historic peak in inner Brisbane apartment completions by 2016, which has the potential to cause supply pressures and a subsequent period of subdued rents and prices.
The peak in new apartment supply will mean that landlords of newly completed apartments will have to be more competitive with rents to attract tenants because owners will be unable to command a premium over existing stock, according to the report. Owners of older apartments may also have to discount in order to attract tenants from neighbouring suburbs.
The report predicts excess supply pressures will weaken rental growth, purchaser demand and price growth around 2016, and will remain subdued until vacancy rates tighten again towards the end of the decade.