Brisbane Property Market - Bull or Bear?!
There seems to have been no hotter topic this year than that of Brisbane’s property market – particularly, what on earth is going on with all of these apartments?! The media is of course all over it – nothing sells newspapers like a bad story, right – here’s just a small handful of examples in the last few months:
- Apparent ignorance by the banks as to the country’s home lending debts (which one would assume would be likely to cause systemic problems)
- BIS Oxford Economics forecasting price drops due to oversupply, and valuers saying it’s already hitting
- Opinions that the Brisbane apartment market hasn’t been as badly affected as originally expected and that it’s probably already corrected
- Yet at the same time we’re in a glut with prices “plunging” (but not all bad news given the construction activity has supported jobs)
- Cases of older apartments having to be discounted to get a sale
- And to top it off, an RBA official flagging concerns of an apartment glut
There would rarely be a meeting we go to – whether in a boardroom or over a coffee or beer – without this topic coming up; after all, everyone has a vested interest in property in some form or another.
So to see out 2017, we’re putting in our two cents in our usual style…
Here’s some key factors to consider…
“THE” PROPERTY MARKET - it's not that simple
There is very rarely a single “property market”. We all know this is true on a national basis, but it's also the case on a much more local basis. There are many “sub-markets” (for want of a better term), in which there can be sizeable differences in capital gains or losses within the same city, even within the same suburb.
I shake my head and laugh anytime I read “[insert city name here] property values increased by x%”… Even more ridiculous was one forecast last year (by a highly-respected financial institution, no less!) about how much “Australian property values” would move by, as though there’s any sense in putting Sydney, Alice Springs, Chinchilla and the back of Bourke in a single basket??!!
The movement of property values can vary significantly when taking into account location (even pockets within a suburb can perform differently), price point (e.g. sub $500k vs over $5m), product type (e.g. 1 bedroom apartments vs 4 bedroom houses), buyer demographic, etc.
FINANCE - it's tougher
Access to finance for investors has tightened in 2016 and 2017. Banks lowered LVRs in “high density” postcodes (see here and here for a couple of examples), also recently lowered them for investor loans, whilst APRA have mandated the banks to a 30% limit of new home loans being able to be interest-only.
As a side note re the postcodes – some of this really has been a case of bank credit managers in Sydney/Melbourne putting in Qld restrictions for suburbs that they have no clue about. Case in point – one major bank has a restriction in postcode 4000 for “Parliament House” (how many apartment projects are going up there??!!).
I’ve even seen a restriction on postcode 4002. If you’re wondering why you’ve never heard of 4002, that’s because it is City East and Wintergarden post offices… again, I haven’t noticed too many apartment projects going up in those post offices!
Meanwhile, I’ve seen blacklists devoid of suburbs that ACTUALLY have an oversupply problem… go figure.
OFF-SHORE BUYERS - tougher again
Hit particularly hard, it is now harder for them to get a home loan at a reasonable rate and LVR; on top of that, China has put major restrictions on capital leaving their shores (if their money isn’t already out of China, it probably isn’t getting out now).
NET INTERSTATE MIGRATION - picking up
It’s picking up a bit again. With the price disparity between SE Qld and Sydney/Melbourne, why wouldn’t you sell up down south and move to this beautiful part of the world?! Retirees (or those not far off) are on the move to the Gold and Sunshine Coasts – in that age bracket, even the average punter will be sitting on a home worth north of $2-3m, so a move to the beach with a cheaper but better home, plus a good wad of cash in Super, doesn’t sound too bad.
But nowhere near the number are moving as what we were experiencing in the early 2000’s – the problem is that we don’t have the jobs! There’s a lack of meaningful infrastructure activity (this is where we need government spending), mining is of course off the boil (but coming back again?!) and construction may be about to slow down somewhat.
UNEMPLOYMENT - pretty good
The unemployment rate in SEQ is doing pretty well. Property market crashes tend to be linked to unemployment – interest rates go up a bit then you cut back, but you can’t pay your mortgage no matter how hard you try, if you don’t have an income! Drastic interest rate increases can of course play a factor though, particularly if household debt levels are high. Thankfully, drastic rate increases aren’t likely to come anytime soon, hopefully nor will unemployment.
Some decent infrastructure projects, like these, will certainly help this.
So, what are we seeing?
There is undoubtedly an oversupply of “Brisbane apartments” – but for heaven’s sake lets be specific.
Investor targeted 1 and 2 bedroom “dog boxes” in a small handful of concentrated locations – namely Newstead/Fortitude Valley/Bowen Hills, West End/South Brisbane/Woolloongabba, to a lesser extent Chermside & Mount Gravatt – is the problem.
These locations are already experiencing reduced rents (sometimes a fair bit more than 10% off the peak), increased vacancy and some stupidly high rental incentives. Want to argue this? Just go and jump onto realestate.com.au and do a search to rent a 1 bedroom apartment in the Valley.
Capital values – for these products in these locations – are also definitely down, and not just from nervous valuers, but from actual re-sale transactions.
BUT NOT OVERSUPPLIED…
Values and rents are holding up where QUALITY is involved – in terms of location, amenity, transport, building and apartment quality and design – AND where the price point was right in the first place.
Someone put it to me perfectly recently – valuations aren’t stacking up for 3½ star product that was sold [mostly to overseas or interstate punters] at a 5 star price. To Brisbane locals in the property industry, there are some very obvious examples of projects that fit this bill perfectly – and guess what, they’re the ones for which valuations aren’t stacking up.
Owner-occupier targeted stock is where the market is actually going really well - definitely not oversupplied. Thanks to all the babies that were made post WWII, there are a LOT of over 50's with a big house and no more kids, looking to move into something smaller and happy to part with $1m+, provided of course that it's top quality in a top spot. These buyers aren't looking for an apartment in a building of 300 others, they're looking for something a little more special.
We’ve been working with a number of developers with good quality projects, well designed, focusing more on owner-occupiers (but also selling to investors that have an eye for quality), in good locations.
Guess what? They’re selling pretty well - because they are aligning supply with where the demand is - and those projects are moving into construction.
People want brand new apartments, but they don’t want huge body corp fees, they don’t want hundreds of revolving tenants, they’re no longer interested in buying just any dog box with 4 walls…
So GOOD apartment developments are and will continue. Apartments that are in good locations, with good design and priced right for the target market, are valuing up and selling just fine. Maybe not running out the door like they were 2 years ago, but they’re continuing to stack up.
It’s the s**t that has and will stink in the market. Stick to quality and your property in "the Brisbane property market" will probably do better than what the media writes up.
Oh, and houses are selling well, zero problems there.
A short endnote on that point, re interest rates - a particularly great thing about having prices significantly lower than Sydney & Melbourne is that, when interest rates do move up, home owners in Brisbane won't feel nearly the mortgage stress that southerners will, thereby giving us a much more comfortable buffer. Happy days!