While Brisbane has not exactly provided extraordinary returns in the recent years, experts laud the capital city for being “stable and consistent” in terms of property values and return on investment. Should investors jump into the Queensland capital or find better opportunities elsewhere?
According to Propertyology’s Simon Pressley, the entire state of Queensland has been underperforming economically for the past decade. While NSW, Victoria and most Australian states have recovered from the global financial crisis in 2007, Queensland has yet to secure its footing.
The economic instability, which is largely brought about by the lack of development planning, deprives the property market of the stimulus it needs to resuscitate.
However, despite the underperformance of the capital city for years now, the state of the Brisbane property market could actually be a good area for investors with a long-term strategy. The decade-long lack of significant movement generally translates to reliable and consistent returns.
Right now, as the property markets of Sydney and Melbourne continue to follow a downward trend following an unprecedented property boom years ago, Brisbane might just be the safest bet for property investors.
Mr Pressley said: “Brisbane and broader Queensland is a lot safer than those two cities. The rental yields are better and the annual cost to hold that property is a lot less than it would be in our really big, expensive cities, which gives us a degree of comfort while we're patiently waiting for that price growth to arrive.”
Having said that, the property expert warned investors against coming to Brisbane thinking that it will automatically follow suit on the property boom experienced by Sydney and Melbourne because, at the end of the day, all three markets have marginally different economic drivers influencing market growth.
In the wake of the cooling of Sydney and Melbourne, Brisbane remains in the same state it was in five years ago — a nice city. Unless your thorough research and due diligence lead you straight to Brisbane, he advised looking into other Australian property markets until the capital city finds its niche.
“Nice doesn’t make things grow. There needs to be something different about it to really, really draw people there. Don’t just adopt your default behaviour and pick Brisbane as the next opportunity up the road,” Mr Pressley highlighted.
None of the capital cities saw a significant rise in value over the last week of August.
While property values in Adelaide declined by 0.2 per cent and 0.1 per cent, respectively, property values in Sydney, Melbourne and Brisbane remained stable.and
On the other hand, asking prices for houses were mostly steady across capital cities. Brisbane and Canberra are the only two markets that saw a rise in asking prices for units at 0.1 per cent and 0.3 per cent, respectively.
Despite the stability in the market, overall returns in Brisbane remained weak over the last 12 months. At 4.8 per cent, this has been the weakest result for the capital city since 2013.
CoreLogic’s Cameron Kusher said: “With dwelling values now falling and gross rental yields close to historic lows, the total returns from residential housing are not looking so attractive and a greater share of returns are coming from the yield component.”
Regional Queensland performed slightly better at 5.2 per cent, but it’s still a stark difference from last year’s 9.2 per cent. This has also been the weakest result for the area since 2012.
Residential listings across states and territories increased over the month, with Melbourne, Sydney and Canberra leading with the highest percentage of increase.
Brisbane came in fourth at 5.2 per cent increase to 31,608 listings, followed by Adelaide, Hobart, Perth and Darwin with increases in the number of listings at 4.9 per cent, 4.5 per cent, 3.8 per cent and 2.2 percent, respectively.
With 251,751 new units planned to be completed nationwide over the next two years, Brisbane is expected to see an 18.4 per cent increase in unit supply — the greatest percentage increase across capital cities.
Inner Brisbane, in particular, tops the list of the 25 regions that will see the highest unit supply in 2020.
However, the significant increase in unit supply may not exactly be an indication of better days coming in the Brisbane property market, especially considering the falling values and rental growth deteriorating markets across capital cities recently.
Mr Kusher said: “Considering that dwelling values have generally trended lower over the past 12 months, buyers who have purchased a unit ‘off the plan’ may find the unit value at the time of settlement is lower than what they may have expected at the time of signing the contract.”
“In some cases, the settlement value may be lower than the contract price, implying buyers may need to top up their deposit in order to meet their lenders loan to valuation requirements,” he added.
Despite falling values and asking prices, the supply of affordable properties, priced $400,000 and below, continues to be limited across capital cities.
Of all available houses in capital cities, only 13.9 per cent is priced under $400,000, a historic low, while only 25.8 per cent of all available units lie in the same price bracket.
In Brisbane, the share of houses priced $400,000 or below is currently at 22.8 per cent, down from last year’s 26.1 per cent. Meanwhile, the share of units in the same price bracket increased to 46.8 per cent, up from last year’s 45.3 per cent.
As property values continue to fall, exclusive properties become considerably more affordable for investors and homeowners alike.
However, the number of sales of properties priced $1 million and above declined by 0.8 per cent over the 2017-18 financial year — a trend that is expected to continue in the near future, according to Mr Kusher.
He explained: “With dwelling values declining and much more rapid declines across the most expensive housing stock, it is reasonable to expect the share of $1 million sales to trend lower over the coming year,” Mr Kusher said.
“This will largely be driven by weakening in Sydney and Melbourne. Smaller capital cities are also likely to continue to see the share of $1 million sales climb further,” the property expert added.
Brisbane bucks the trend in most capital cities with a historic high of property sales for $1 million and over at 9.2 per cent for houses and 3.3 for units, up from last year’s 8.1 per cent and 2.8 per cent, respectively.
Median rentals across capital cities remained stable for both houses and apartments, except in Melbourne, Brisbane and Perth. Most of the capitals’ median rents are also currently above $400 per week, except in Perth and Adelaide where rates are cheaper.
Brisbane’s median house rental price increased by 2.4 per cent to $420 a week, while median apartment rental price is stable at $400 a week.
One of the economic drivers expected to help the Brisbane property market improve its performance is the consistent population growth across the state of Queensland.
Queensland’s population as of June 2017 is at 4,928,457, with a 1.6 per cent growth rate comparable to NSW and the Australian average. The state is also the biggest beneficiary of interstate migration in 2016-17.
In Brisbane, all five city councils (Logan, Ipswich, Moreton Bay, Redland and Brisbane) saw population increase, with Ipswich and Moreton Bay experiencing the fastest growth.
“Brisbane as a function of the size of the population is creating jobs at a more rapid rate than any of the other four major capitals, Melbourne included. It hasn’t done much for a long time and we see that as being really good potential over the next three to five years,” he said.
In order to get past being “boring Brisbane” and achieve a stronger economy that will result in more attractive investment opportunities, experts strongly encouraged local leaders to practice boldness and aim for a clear direction towards overall development.
Brisbane continues to display good property market fundamentals — from population growth to good dwelling stock — but the last time that the capital city saw double-digit growth is in 2007.
Mr Pressley said: “Brisbane’s long-running underachieving property market is a reflection of a city with enormous potential but lacking boldness and a clear direction. Of course, that is not helped by the fact that Queensland had four premiers in just 10 years.”
One of the most effective ways to make the capital city stand out is to establish significant attractions that will captivate the attention of both national and international visitors.
According to Mr Pressley, Brisbane needs landmarks as remarkable as the Sydney Harbour and the Golden Gate Bridge. These, together with the city’s nice weather, laid-back lifestyle and accessibility, can definitely draw in tourists, workers and even local or overseas migrants.
Essentially, Brisbane should establish itself as a world-class city to be able to offer investment returns as big as Sydney’s and Melbourne’s during their property markets’ peak.
“Brisbane is fast losing its relevance, so industry, community, and political leaders all need to put their big-boy pants on, get bold, and begin behaving like Brisbane is a world-class city, not a big country town,” Mr Pressley highlighted.
Over the next 10 years, several planned development projects will commence in Brisbane, including the Queen’s Wharf, Brisbane Live, Howard Smith Wharf, the Brisbane Metro and various new hotel and commercial office towers.
With a bolder vision from capital city leaders, experts hope to see the Brisbane property market strengthening in the near future.
For investors looking to invest their money in Brisbane-based assets, experts advise implementing a long-term strategy and securing cash flow by purchasing in affordable corridors where properties don’t cost much to hold.
The north, west and south of Brisbane currently attracted attention from local residents, interstate migrators and investors because of the affordability of their properties.
Right Property Group’s Steve Waters said: “As people wrestle with the whole affordability scenario, especially in today’s lending environment where you’ve got finance that is hard to get, people naturally start to look for these more affordable areas. Try and identify those [upcoming] hotspots. Get in there before [the boom] happens.”
Even if Brisbane is far from experiencing the property boom seen by Sydney years ago, the capital city is not threatened by significant price declines and, instead supported by consistent capital growth, good yield and long-term potential. The Queensland capital also boasts strong interstate and overseas migration, improving infrastructure and an improving general consumer sentiment.
While there will not be any record-breaking movements or quick fluctuation in its property market, Brisbane can provide stability and consistency to investors.
Mr Waters said: “Yield is abound Brisbane. Brisbane's got good yields when you compare it to the average. While the cash flow is there, it gives us longevity in the market, and that's the important thing.”
“I just don’t think we're going to have the same rate of growth that we had in Sydney, and that's a really strong point I want to make,” he highlighted.
Experts also advise investors to pay attention to demand in order to maximise the earning potential of their asset. By investing in the type of dwelling most desired by tenants or buyers, you ensure consistent cash flow for your property.
Being aware of the existing demographic trend and projections can also help you satisfy the demands of the market.
By 2026, the population of greater Brisbane could be led by the 20 to 24-year-old age group or young professionals moving to the city to study or work. This demographic is likely to rent or buy their first property, making apartments the more sensible investment option for its affordability.
Proximity to the central business district and access to public transport also remain among the most important deciding factors for aspiring homeowners and tenants alike.
“Price growth cycles are still ahead for Brisbane, Adelaide and Perth, so high cash flow options are likely to pay off sooner in terms of value gains,” he said.
Track the major market movements in Brisbane and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018, May 201, June 2018 and July 2018 market updates. Visit Smart Property Investment's Property Market News page to get updates on other major capital cities.