As the property markets of Sydney and Melbourne softened, Brisbane took the spotlight in 2018 as the 'next hotspot'. Did the Queensland capital perform as expected? How will Brisbane fare in 2019?
While certain gems in Queensland delivered fair returns for property investors in the past year, experts believe that the state—particularly its capital Brisbane—could have done better.
According to Propertyology’s Simon Pressley, the state’s economy had failed to capitalise on the Asian Century phenomenon—the notion that Asian politics and culture are prominent in the global economy.
As a result, Queensland was believed to have gotten plagued with one of the highest unemployment rates in the country.
“I remain bitterly disappointed with [Queensland's] lack of planning, marketing and boldness to capitalise on the world-wide tourism boom that is now on its sixth year. Despite having more tourism attractions along its coast than any other state, Queensland was ranked a disappointing fifth on most tourism metrics.”
Still, the property expert believes that the next few years hold a brighter future for all of Queensland’s major metropolitan centres, spurred by the acceleration of interstate migration and a boost in the mining sector.
“While I am still not brimming with confidence, I do foresee a brighter future for all of Queensland’s major metropolitan centres over the next few years.”
“In the near term, I think that we’ll continue to see mild growth of 2 to 4 per cent in all South East Queensland precincts, including Brisbane, Gold Coast, Toowoomba, and Scenic Rim,” Mr Pressley said.
Year-on-year, Brisbane recorded increases in house asking prices while unit prices declined, according to research house SQM Research.
Meanwhile, in the week ending 16 December, Brisbane’s home value index held steady, CoreLogic’s Property Market Indicator data shows.
Listings declined across most capital cities for the week ending 16 December, with only Hobart and Canberra recording rises.
Houses remained more popular than units, and the median time for houses on market held steady across most capital cities, with Canberra and Hobart recording the smallest time on market andand Brisbane remaining at the higher end with 72 days and 64 days, respectively.
Vendor discounting was between 4.4 per cent and 8.3 per cent for houses across most capital cities, and between 4.8 per cent and 9.5 per cent for units.
While listings declined, new home sales saw a rise in the major capital cities during the month—a welcome change after consecutive months of softening figures.
The Housing Industry Association found that new home sales rose the most in South Australia, with a 7.4 per cent increase. This was followed by Victoria with 7.3 per cent, Western Australia at 2.2 per cent and Queensland at 2.1 per cent.
“After a string of weak months, it is pleasing to see new home sales finishing the year on a slightly more positive note,” HIA economist Geordan Murray said.
However, overall sales during the month were lower than this time last year and below the established norm since 2014.
Meanwhile, property resales across capital cities resulted in over $14 billion in profits during the September 2018 quarter, which is considerably lower than in previous years.
CoreLogic’s Pain & Gain report showed that Sydney and Melbourne contributed most to resale profits, accounting for 31 per cent and 24.7 per cent, respectively. Brisbane followed the two capital cities by contributing 8.4 per cent.
According to CoreLogic’s Cameron Kusher, while capital cities recorded higher resale profits compared to regional markets, the number of resales at a lose continues to be on the rise in capital cities.
“It’s important to note though, that, although in many of these regions, the share of losses is now lower than at the peak. When you consider the material decline in values across these regions, these instances of loss remain elevated,” Mr Kusher said.
“We expect the proportion of loss-making resales to climb further over the coming quarters as housing market conditions continue to slow.”
Hobart stands as the only capital city where investors saw lesser losses than owner-occupiers, with 100 per cent of all investors selling at a profit.
Over the quarter, the weighted average vacancy rate across all capital cities rose to 2.6 per cent, which indicated ‘a slight easing of the rental market, according to Real Estate Institute of Australia’s Malcolm Gunning.
“The markets of Sydney, Melbourne, Brisbane, Canberra and Hobart have vacancy rates below the 3.0 per cent benchmark, indicating strong demand for rental accommodation in these capital cities,” he said.
Median rents for three-bedroom houses increased in Melbourne and Hobart, remained stable in Sydney, Brisbane, Adelaide, Perth and Canberra, and declined in Darwin.
Meanwhile, two-bedroom house median rents increased in Melbourne, Brisbane and Adelaide, saw no movement in Sydney, Perth and Canberra, and declined in Darwin and Hobart.
Across the country, loan numbers have declined by 11.9 per cent and loan sizes also fell over the quarter, with the average loan declining by 1.8 per cent—the largest quarterly decline since March 2017, according to REIA.
Given the softening of major property markets as well as the tightening of the credit environment, Mr Murray believes that investors will continue to face issues on property financing.
“We are not confident that the lift in sales in November marks the end of the downward trend seen throughout 2018. The tighter lending environment came about as banks adjusted to the more restrictive lending practices demanded by APRA and also responded to the heightened scrutiny stemming from the Hayne royal commission."
“Tighter credit conditions facing owner-occupier borrowers are now weighing on the detached house building market, illustrated clearly by the reduced levels of new home sales and building approvals,” he highlighted.
With the royal commission set to release recommendation in February, the HIA expects the current credit squeeze continuing through to the rest of the new year.
“With the new home market already looking vulnerable, policymakers will need to proceed cautiously when responding to the commission’s recommendations.”
Apart from the recommendations from the royal commission, the lifting of interest-only restrictions is also expected to affect the property market in 2018.
For one, mortgage brokers are expecting a more competitive market as ‘all banks can offer more choice for customers who are looking to a house or apartment’ and existing interest-only mortgagors gain the ability to refinance to another interest-only loan, Australian Banking Association CEO Anna Bligh said.
“Increased competition across the industry will mean customers have more ability to shop around for the best deal for them when looking at an interest-only home loan,” according to her.
The challenge for investors right now would be in picking lenders who will have the appetite to take on interest-only loans given that the Australian Prudential Regulation Authority (APRA) has vowed to keep its eyes locked on lending practices.
Many lenders have also increased their prices on interest loans and may keep them that way in 2019.
Neue Black’s Marshall Condon said: “Generally speaking, when the changes came in, the majority of the time it just wasn’t really palatable for clients to look at an interest-only loan because of the rate differential. I think the rate differential had more of an impact rather than the cap—but that was partly due to the banks taking advantage of that benchmark.”
“I don’t think we’re going to see a spike in interest-only loans until that price differential disappears. It is my point of view that the removal of the cap, therefore, won’t have too much of an impact on people getting interest-only loans.”
Across the property market, the changes in serviceability assessment are expected to continue presenting issues for both lenders and investors.
“I'd like to think that it will get easier to secure financing for property, but there are some real changes made around serviceability and I don't think that's going away. There are still going to be certain lenders that might have some struggles there and there are still going to be some clients out there that will have a bit of a tough time,” according to Suburbanite’s Anna Porter
“I think what they're trying to take out of the marketplace is some of the dodgier deals—people positioning loans incorrectly or brokers putting down information that's not as correct as it should be. That sort of stuff will have to stop. They shouldn't have been around anyway.”
Going into the new year, investors who have got strong serviceability and a good buffer for their portfolio will have no trouble getting a home loan, she said.
Experts advise investors to maintain strong serviceability and a good cash buffer for their portfolio to avoid any trouble when getting a home loan.
At the end of the day, having a sustainable portfolio will allow them to stay in the market despite fluctuations and ultimately grow their portfolio.
“If you haven't overleveraged yourself by using more capital or getting high loan amounts for your purchases, considering the possibility of rents contracting in today’s rising market, you’re going to be fine,” Right Property Group’s Steve Waters said.
“When you have a market that has done well, like Sydney, and you've been very deliberate in where and how you've purchased it so you don’t over-leverage, different markets will give you the best opportunity to diversify.”
Despite the general negativity across some of the major markets, there are certain positive elements that occurred in the market in the past year and are expected to carry on through to 2019.
Among the factors that could help Brisbane maximise the potential of its property market is the population growth, which can ultimately impact the supply-and-demand dynamics in the residential property market.
According to HIA, Australia’s population grew by 1.6 per cent over the year, with Victoria and ACT seeing the largest rise at 2.2 per cent, followed by Queensland with 1.7 per cent, New South Wales with 1.5 per cent, Tasmania with 1.1 per cent, Western Australia with 0.8 per cent and South Australia with 0.7 per cent.
“Over the last twenty years, Australia has been very successful in attracting skilled workers to our shores. This has been an important factor underpinning our record run of continuous economic growth."
“If we are going to extend this run of growth, then migration will have a huge role to play,” Mr Murray said.
The announcement made by the Morrison government that the federal will be returning to surplus in 2019 is also good news for investors, according to Mr Pressley.
“Why that’s good for property investors is because it means our economy is the best it’s been in a decade, and the single thing that has the biggest influence on property markets is the economy.”
As a result of the good state of the economy, Australia had experienced two consecutive years of at least 300,000 jobs, data from the Australian Bureau of Statistics showed.
With more people needing dwellings near their job, this data could easily translate to increased demand for homes and, ultimately, greater returns on investments.
Despite the lacklustre performance, Brisbane provided consistent growth to investors for the majority of 2018. Moving on to 2019, the Queensland capital joins the list of areas with good investment potential.
In fact, Mr Pressley expects a high level of growth from the entire state of Queensland for 2019 largely due to its affordability and the abundance of infrastructure projects.
Over the last 12 months, Noosa emerged as the best performing property market with a 7.5 per cent median house price increase and Gympie also saw an impressive four per cent increase.
Across the greater Brisbane region, Redlands, Logan, Brisbane City and Moreton Bay were the best performers of 2018, Mr Pressley highlighted.
Brisbane may still have the potential to see a growth of up to six per cent in 2019 provided that lending conditions are softened.
“I couldn’t rule out somewhere close to double-digit annual price growth in Brisbane and Adelaide over the next two to three years, and conditions in Canberra still look solid—although steer clear of apartments,” according to the property expert.
Other regions in Queensland tipped for growth in 2019, based on CoreLogic’s Property Pulse report, are:
|Bowen Basin - North, Qld||14.00%|
|Kenmore - - Moggill, Qld||6.00%|
|Tablelands (East) - Kuranda, Qld||5.80%|
|Gold Coast Hinterland, Qld||5.30%|
|Gympie - Cooloola, Qld||5.10%|
|Central Highlands, Qld||4.90%|
“Construction of the University of the Sunshine Coast’s Petrie campus is underway, which aims to attract 10,000 students in its first year of operation in 2020,” Mr Walsh said.
“Petrie is also located within Moreton Bay, which is one of Australia’s fastest-growing regions, with its population expected to growth by a staggering 40 per cent over the next 20 years.”
With a median house price of $343,000 and located at just three kilometres from the centre of Ipswich, Raceview allows for a more centralised access to the benefits of the region’s economy, such as health care amenities, social assistance, retail trade and manufacturing services.
Moreover, a $5 billion-defence contract with Amberley is a significant boost to the region, along with a $340 million upgrade to the Cunningham Highway.
“With a median house price of just $343,000 that is achieving gross yields of 5.5 per cent, it’s not hard to see why Raceview is a solid investment option,” Mr Walsh said.