As other property markets experience declines, Brisbane has stood out for its resilience, ultimately gaining the title of “most attractive capital city for property investment”. How can investors make the most out of the Queensland capital today?
The latest Finder RBA Cash Rate Survey found that most leading experts and economists would prefer to invest $500,000 in properties located in Brisbane and Melbourne – both cities garnering 27 per cent of votes each.
According to Finder’s insights manager Graham Cooke: “Sydney has traditionally been Australia’s darling in the property market, but it is no longer the belle of the ball.”
Sydney only received 14 per cent of the votes, along with Canberra, while Adelaide and received 9 per cent of the votes each.
The 2019 PIPA Property Investor Sentiment Survey also named Brisbane as the most preferred capital city for investment, followed by Melbourne and Sydney.
Truly, the impending upward turn in the Brisbane property market has started to become increasingly evident, supported by housing affordability, internal migration and consistent population growth, according to the latest quarterly Queensland Market Monitor by the Real Estate Institute of Queensland (REIQ).
The research revealed that Queensland house prices are proving strong, “reflecting the state’s ongoing consistent growth and highlighting the state’s resilience when compared with more volatile markets, such as Sydney and Melbourne”.
REIQ CEO Antonia Mercorella said: “As a result of its livability and value for money, Queensland’s internal migration rates remain the strongest in the country.”
“Those consistently high numbers of residents choosing to relocate to Queensland from the southern states will no doubt see the local population skyrocket, pushing supply down, and in turn, driving prices upwards.”
Further, interstate buyers have also developed a growing appetite for property investment in Brisbane, buyer’s agent Melinda Jennison said.
“Our investment yields are a lot more attractive… and Brisbane has all of the fundamental drivers of solid price growth in place. Many large research groups including QBE Housing Market Outlook and BIS Oxford Economics who are predicting very good capital growth – up to 20 per cent across the next three years – in Brisbane.”
Insurance giant QBE predicted that Brisbane’s housing market will grow by 20.3 per cent over the next three years, far and beyond any other Australian market.
The growth will be supported by several economic drivers, such as:
Overall, property experts believe that Brisbane is at the right stage of the property cycle, having balanced supply and affordability.
CoreLogic’s Hedonic Home Value Index reported that national dwelling values rose by 0.9 per cent over September – marking the second month of gains recorded by the research group’s national home value index.
Further, there has been a lift in the national value of housing by a cumulative 1.7 per cent since the market found a floor in May 2019.
SQM Research found that Brisbane saw a 1.2 per cent value increase across houses and a 0.3 per cent value increase for units over September.
While the higher end of the market drove the strongest capital gains in Sydney and Melbourne, according to the latest CoreLogic Property Pulse, Brisbane’s middle- and lower-priced segments of the market were more resilient to falls than the top end.
In the September quarter, the middle- and lower-valued properties across the Queensland capital rose in value by 0.8 per cent and 0.7 per cent, respectively.
According to CoreLogic’s head of research Tim Lawless: “The different performances of the housing market across broad valuation groups highlighted how diverse conditions can be below the surface. Factors such as housing affordability, lending policies, market cycles and local economic and demographic conditions can have a significant bearing on market activity.”
Australia-wide, the median unit asking price in Australia is now $568,300, while a house will set an investor back $942,400.
Unit price growth has also been projected in all capital cities except Sydney, where unit prices are expected to drop by 0.3 of a percentage point over the same period.
Unit values are projected to rise sharpest in Darwin (9.2 per cent), followed by Canberra (6.7 per cent), Perth (5.3 per cent), Adelaide (4.7 per cent), Melbourne (3.8 per cent), Brisbane (3.2 per cent) and Hobart (2.8 per cent).
The median property price in Brisbane currently sits at $647,500.
SQM Research revealed that national residential property listings was falling by 4 per cent for September, or from from 325,963 in August to 312,754. Compared with data from a year ago, listings were down 6.9 per cent.
According to SQM Research’s managing director Louise Christopher, the listing decline during the month was “an abnormal result”.
“Listings normally rise for the first month of the spring selling season. New listings did rise. It’s just that older listings recorded a large decline. It suggests stock is being absorbed at a quicker rate,” the managing director said.
All capital cities experienced a decrease in property sales listings over the month, with Hobart experiencing the highest decrease at 6.4 per cent, followed by Melbourne and Perth, both with a 5.8 per cent decrease and Sydney with a 5.7 per cent decrease. The lowest decrease was Canberra of 1.1 per cent over the month.
Year-on-year, Sydney’s listings declined by a significant 20.4 per cent. Melbourne, Brisbane and Adelaide, meanwhile, declined by 5.9 per cent, 4.6 per cent and 6.3 per cent, respectively, while Perth and Darwin declined by 4.6 per cent and 3.6 per cent, respectively.
Canberra and Hobart, on the other hand, saw an increase in listings over the year at 8.4 per cent and 3.1 per cent, respectively.
By 2022, Brisbane is expected to see the sharpest rise in house prices, and according to QBE, a misalignment of supply and demand, or a supply and demand “imbalance”, along with lower interest rates, government incentives, an easing in lending restrictions and a drop in construction completion, will spur the property price growth in the coming years
QBE Lenders’ Mortgage Insurance (LMI) CEO Phil White said: “Building approvals fell by 19 per cent in 2018-19, and completions are forecast to fall to 163,500 dwellings by 2020-21, down by 22 per cent from the average over the past five years.”
“With population growth expected to remain strong, that’s well below underlying demand. This could mean some previously oversupplied markets will tip back into undersupply by 2021-22.”
Further, he said that a “discrepancy” between the current demand for housing and the timing of future supply of units would also result in “greater volatility and upward pressure on property prices”.
However, he warned investors in the Brisbane property market to be more careful as oversupply can still affect price growth.
“At the same time, while forecasts for the Brisbane house market point to solid growth, and the fundamentals do look very strong, there is a risk that consumer caution and oversupply of units could temper these projections,” according to Mr White.
Brisbane continues to be the only capital city to record increases in weekly rents over the month for both houses and units at 0.6 per cent for houses and 0.9 percent for units, according to SQM Research.
Meanwhile, the national residential rental vacancy rate marginally declined over the month, bringing the total number of vacant properties in Australia at 75,757 – a decrease of 589 over the month but up 5,310 dwellings over the past 12 months.
Sydney, Perth and Adelaide recorded minor decreases of 0.1 per cent in vacancy rates, while Brisbane, Canberra and Hobart increased by 0.1 per cent... All other capital cities remained steady over the month.
“Residential property rental vacancy rates remained largely steady for the month of August with perhaps the exception of Perth which continues to record a recovering rental market,” Mr Christopher said.
Overall, Sydney continues to have the highest vacancy rate in the country at 3.4 per cent, an increase from last year’s 2.8 per cent.
Over the years, the apartment oversupply in Brisbane has been concentrated in the inner city suburbs, ultimately affecting vacancy rates as investors were met with negative results on capital growth and rental yield.
However, Ms Jennison remains positive as construction commencements and vacancy rates continue to drop, population growth continues to accelerate and a record volume of infrastructure projects come underway, helping stabilise the local economy through the next couple of years.
“That said, the housing market in Brisbane has been performing strongly in some suburbs – even in light of the fact that the median price growth for Brisbane houses over the last 12 months has shown a relatively flat market,” the buyer’s agent said.
“We have been purchasing properties for clients in suburbs that have shown consistent year-on-year price growth upward of 5 per cent per annum for the last five years. It all comes down to local drivers of supply and demand and understanding, at a local level, what is happening in the Brisbane property market. “
Over the next five years, Ms Jennison believes that Brisbane will be seeing significant growth in the housing market.
Among the factors that will spur growth in the capital city are rate cuts, a reduction in building commencements, population growth and employment and wage growth.
“Generally, if we’re looking at the fundamental drivers of property prices, we’ve got supply that’s going to be drying up and an accelerating population growth. If we can see some employment growth and wages growth, I think that we’ve got the perfect recipe for upward pressure on prices.”
Propertyology’s head of research Simon Pressley said that there are five main opportunities for property investors to capitalise on in the current market, namely low interest rates, high yields, vacancy rates, median house price guides and economic development.
According to Mr Pressley, the country is seeing the lowest interest rates “in any living Australian’s lifetime”, which make property financing more accessible than ever.
“It’s the cheapest time that you will have ever had in your life to do something proactive for your future. Take advantage of it.”
Further, the property expert encouraged investors to seek locations where there are industries that have a strong outlook, including natural resources, education, agriculture, tourism, and renewable energy.
While ripe with strong property fundamentals such as good rental yields, housing affordability, population growth and big infrastructure spend, Brisbane, like all other property markets, presents risks to investors.
Among the main things to consider would be flooding, Ms Jennison said.
“We are on a flood plain, but a lot of people don’t think to check flood maps, especially in cities… In our most recent floods, we all know the devastation that has occurred, and it’s possible that it happens again at some point in the future,” she said.
Then, there are also the so-called “character homes”, or homes built several decades ago, which could be good investments but may entail additional costs as they typically have special requirements for development or renovation.
About this, Ms Jennison said: “Brisbane has a lot of character homes. Our councils do have certain protections in place for any homes built prior to 1946 that are also protected by what we call a character overlay or a pre-1911 overlay within the council code.”
“Those types of homes have special requirements if you do want to change the front facade, add a set of steps, renovate them. Depending on the scope of the renovation works, you would actually require a development application to be made to council,” Ms Jennison highlighted.
“An application to council automatically triggers additional expenses, but that’s okay as long as you’ve priced that in upfront and you understand that the cost may come down the track.”
Other issues to take note of when buying a property that will be renovated in the future are timber, lead paint and asbestos, which can all add to the cost significantly and increase the necessity of structural change.
In order to make the most out of the Brisbane property market today, PIPA advised investors to avoid timing the market as it has the potential to cost them hundreds of thousands of dollars over the long term.
PIPA’s latest research, which looked at very capital city market over the past 15 years to determine whether time in the market or timing the market produced the best capital growth, found that an investor trying to time the market could potentially lose nearly $140,000 over a 15-year period.
It found the top three performing capital cities over the past 15 years were Melbourne, Hobart and Darwin, with median house price growth of between 147 per cent and 106 per cent.
By comparison, the best capital city between 2003 and 2008 was Darwin at 91 per cent growth. Meanwhile, from 2008 to 2013, it was Sydney at 41 per cent; and from 2013 to 2018, it was Sydney and Melbourne at 38 per cent.
“What the data also shows us is that no market is the strongest for a sustained period of time… Trying to time the market is not only extremely difficult for most investors, the transactional costs of buying and selling multiple times, including stamp duty and capital gains tax, eat up a significant chunk of your potential profit,” PIPA chairman Peter Koulizos said.
According to him, most investors have neither the skills nor knowledge to expertly select the best markets to invest in over the short term.
“Most people are only thinking of the potential price uplifts when they try to time a market and naively don’t consider the inherent risks involved in such a market gamble,” he said.
To further reduce the risks, investors are advised to do their research on the market cycle, look at growth drivers on the suburb level, buy a well-located property that is appealing to several demographics, negotiate well, implement a long-term buy-and-hold strategy and remain vigilant with the possible changes to the lending landscape.
As a Brisbane-based buyer’s agent, Ms Jennison usually advises her clients to invest in “train line locations”.
“Brisbane is very widespread… There’s blue chip suburbs and fringe suburbs just on the outer areas of those blue chip locations. We know that, in some cases, there’s a price disparity between one suburb and the next, but train lines connect them,” she said.
“So, fringe suburbs with a train line are certainly locations that we’re looking at right now. They’re the types of opportunities that we’re locking in for our clients at the moment.”
She also recommends looking into opportunities in and around the new education precinct where the University of theCoast will stand, where a lot of land has been rezoned and properties can go for under $500,000.
However, she said: “We’re not going Logan or Ipswich, in those directions, for the simple reason that it’s all about supply and demand. The availability of future supply of land in the Moreton Bay region is a lot more limited than it is when you go west toward Ipswich or when you go south toward the Gold Coast.”
Meanwhile, according to the CoreLogic Pain and Gain report, Redland City has a potential for giving property owners high resale profits as it has succeeded in providing the highest resale profits over the quarter when compared with other Brisbane council regions.
Other regions that recorded the lowest proportion of resales at a loss were Lockyer Valley and Moreton Bay, while the highest proportion of resale losses occurred in Scenic Rim, Somerset and Brisbane.
Ms Mercorella said: “Redland City is a bustling and expanding region, appealing to a wide range of demographics, so it’s little wonder it’s performing so well. This is evidenced by its high level of local migration, with REIQ data showing multiple Redland City suburbs appearing in the top 20 destinations for new resident arrivals in Queensland.”
Redland City was the region with the most expensive housing outside of the Brisbane LGA, reporting a median of $520,000, based on the recent REIQ Quarterly Market Monitor.
“The Redlands’ proportion of profitable resales was higher than the national average, with 90.7 per cent of sales making a profit, compared with 89.7 per cent across Australia,” she said.
On the other hand, the highest percentage of loss-making resales were recorded in Townsville, Cairns and Toowoomba.
On multimillion-dollar sales, East Brisbane and Kalinga both recorded exceptional sales this month, with properties achieving $4.8 million and $2.05 million, respectively, according to the Queensland Market Monitor.