April 2018 Month in Review by Herron Todd White: Brisbane at tipping point
Southeast Queensland real estate is just the sort conservative, long-term market investors adore – traditional, predictable and relatively affordable. Brisbane property is accessible to a variety of demographics as buyers can easily become real estate owners in our city, and many are happy to wait for the eventual long-term gains.
In comparison to our big southern cousins, Brisbane also sees decent gross yields, so it’s nice for landlords to know tenants will help cover a large chunk of their loan servicing costs while they wait for values to skyrocket. Our market responds fairly predictably to movements in the metrics too. A change in certain measures can make some Brisbane buyers and sellers react in a knee-jerk fashion, but history tells us the smart money looks beyond micro-movements and plays a long game.
Interest rates are certainly a universal shifter of confidence and Brisbane buyers can cool quickly when the Reserve Bank announces a rise in the cost of money. After the initial announcement, buyers can often become be a little coy, and if rises continue over a sustained period, there is usually a slowing in general price growth and demand levels. Over the last decade or so this hasn’t been a problem, however, it’s a measure worth watching as future increases in the cash rate are fairly certain.
When there are sustained interest rates rise they are felt most substantially in our investor, first homebuyer and low-priced markets initially, with a flow on slowdown to middle ring family markets. The sector that seems least affected in Brisbane is normally the prestige and ultra-prestige buyers. Many appear to carry enough reserves to purchase regardless of interest rates.
Another all-important measure for Brisbane is net interstate and overseas migration. We aren’t a huge population compared to Sydney or Melbourne, so when new residents start calling our River City home, we feel it with force. In the early part of the millennium, our State enjoyed a bumper net interstate migration number reaching well above 20,000 per year as mining booms and lifestyle appeal brought in a plethora of new Queenslanders. This was a time of 20 to 30 percent annual capital gains across many real estate markets and property types. Fast forward to 2012 and our migration numbers were floundering well below 10,000. This was the period where Brisbane housing just couldn’t catch a break. At present, our migration number is sitting around 16,000 per annum which is a very healthy base on which to build. There are plenty of commentators out there watching the figure carefully to see if we can create more momentum.
Going hand in hand with migration is employment. Our current unemployment rate of around six percent is not something to be proud of. As such, we continue to see relatively subdued value growth during a period where Queensland’s net migration is on the rise. While we are attracting new residents, many are cashed up southerners heading to lifestyle centres on the Sunshine and Gold Coasts. A rise in our employment prospect will help boost the Brisbane region’s appeal, so homeowners can see long-awaited gains. Rising migration plus falling unemployment will be part of the magic formula for Brisbane property price growth.
Along with the growth in population and jobs will need to come infrastructure spending. The benefits are twofold. Firstly, we have our own difficulties with rush-hour gridlock, so infrastructure helps alleviate the stresses of our growing city. The second part is a boost to employment and expenditure. Infrastructure development creates jobs thereby decreasing unemployment and boosting cash flow in our southeast Queensland economy. Population growth, jobs growth, and infrastructure spending is like a perpetual motion machine for Brisbane region value gains. A number of infrastructure projects are proposed for Brisbane such as Cross River Rail, Queens Wharf, Brisbane Live, Brisbane Metro, Brisbane Airport upgrade, Millennium Square, Brisbane Quarter, Howard Smith Wharves, Brisbane Showgrounds and Northshore Hamilton.
Vacancy rates and rental returns are already important numbers that have been hit by the oversupply of investors grade high-rise units in the central suburbs. Investors want high yields to help service the debt but a growth in unit numbers has seen returns soften. If owners continue to lose confidence in landing a tenant who will pay a decent rental, then prices will continue to trend lower in this sector. Fortunately, established housing in the inner and mid rings has proved price resilient, which demonstrates how housing that appeals to owner-occupiers is somewhat immune to falls in the rental metrics.
So, what are the numbers telling us about Brisbane and the surrounding councils? We are at a tipping point… and it’s in a good way. Our population is growing and if job numbers and infrastructure spending continue to rise, then it bodes well for our region’s property. The oversupply of units is a concern, but there are signs that absorption of the stock and repricing in the sector is underway. Keep an eye on us Australia. While 2018 might not be our boom year, the right metrics will reward long-term buyers of South East Queensland property.
Extract from: https://storage.googleapis.com/htw-website-uploads/cef65d6c-month-in-review-april-2018-1.pdf
Posted 11 April 2018
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