Investing in the Brisbane inner city

Investing in the Brisbane inner city

There has been much written about the oversupply of units in the Sydney, Melbourne and Brisbane CBD markets over the past 18 months – 2 years. In this article, I am going to take a deeper look at the Brisbane Apartment market and shed some light around the facts of what is going on in this market. We have been purchasing up in parts of South East Queensland throughout the past 2.5 years and have an intimate understanding of the demand and supply market dynamics and value propositions within these markets. 

In short, comments around the Brisbane unit market losing 30-40% are a long way from reality unless we have an event such as a massive spike in interest rates or unemployment rapidly rising to more than 7% in the Brisbane market place. 

{{top_five_optin}}

Is the Brisbane Inner City Market Really Oversupplied?

Research carried out by Stepping Stone Property has unveiled the following facts about the Brisbane unit market:

1. Projected Population – Resolution Research

In June 2016 Resolution Research advised the population in Fortitude Valley, located around 700m from the Brisbane CBD was forecast to grow 54% between 2016 and 2036, from 5,545 residents to 10,790 residents. This equates to a 4.0% per annum growth rate for the suburb. 

Looking over to Newstead located in the inner Brisbane CBD ring, approximately 1km from the Brisbane CBD, Resolution Research projected the population to grow 54% between 2016 and 2036, from 12,700 residents to 25,000 residents. This equates to a 4.2% per annum growth rate for the suburb. 

Interestingly, Resolution Research has projected population growth in both suburbs to be around 1% per annum higher than Brisbane’s population forecasts over the same period. 

2. Income & Demographic Analysis

According to Homesales.com.au incomes in the 4006 postcode for individuals are $1,412 per week vs $1,130 per week for individuals in the Brisbane LGA.

3. Market Supply

This has been a major talking point in the media over the past 18 months. In addition to this, there has been much speculation about unit values declining in the Inner City Brisbane markets by as much as 40%. From a future short term supply perspective, the finance available for projects that have yet to be commenced has become very difficult to secure by developers. Most of the major banks now require up to 150% of the total project debt secured with unconditional pre-sales and 10% deposits (of the purchase price of the apartment being purchased). Developers also need to have demonstrated a long history of delivering successful projects before funding can be secured. It is fair to say that the probability of developers securing project finance in these markets is very slim, and will most likely remain that way until the bank changes its lending policies. This could be as far away as the next property cycle.

In May 2016 Urbis advised that the projects currently under construction in these markets are:

 

Project/Developer

Address

Number of Units

   Status

FV Valley HouseGurner

191-203 Brunswick Street, 145-153 Alfred Street, 223-259 Barry Parade, Fortitude Valley 

 

 

297

Under Construction – Completion Late 2016

FV Flatiron – Gurner

191-203 Brunswick Street, 145-153 Alfred Street, 223-259 Barry Parade, Fortitude Valley 

 

 

354

Under Construction – Completion Late 2016

Belise – Kidley Group

CNR St Pauls Terrace and Brookes Street Fortitude Valley

 

228

Under Construction – Early 2017

Broadway on Ann – Metro Property Development

Commercial Road, Fortitude Valley

247

Under Construction – September 2016

La Vida – Jon Build & Bekka Group

27 Commercial Road, Newstead

187

Under Construction – December 2016

Unison Stage 1 – Mirvac

58 Wyandra Street, Newstead

144

Under Construction – Completion Late 2016

Newstead Central – Stages 1 & 2 – Metro Property Development

Ann, City & Beach Roads Newstead

335

Under Construction – Completion Mid 2017

There are currently 1,126 units under construction in Fortitude Valley and 666 under construction in Newstead. There are also a number of projects in both locations that are currently being marketed and looking to achieve the pre-sales required to commence construction, however with current media sentiment around the Brisbane city over supply and tightened lending policies to foreign owners and developers, new project commencements will be subdued for the foreseeable future, which of course creates an opportunity for savvy investors looking to capitalise on the favourable market fundamentals in these markets (High individual household incomes and limited short term supply). 

How Can You Capitalise on These Opportunities?

When analysing the market, we are looking for a gap that exists to take advantage of. The elements to be aware of in these markets are that rental vacancies are rising and rents are likely to remain soft whilst the units under construction reach completion and settle. If you are to attract tenant demand in these markets, I would suggest the following elements need to be a part of your apartment to stay attractive for the long term:

1. Top Grade Finishes and Inclusions – Items like stone bench tops to kitchen and bathrooms (the thicker the better as it gives a more exclusive feel to an apartment), high ceilings of at least 2700mm, ducted air conditioning, frameless shower screens and high end branded European appliances are a must in an apartment market where high income earning professionals are the main residents in the suburb.

2. Larger Unit Sizes – Developers have gravitated towards maximum yield on parcels of land they are developing over the past 5 years. It is common to see 1BR apartments as small as 40m2 and 2 bedroom apartments 70m2. I would suggest ensuring you have an apartment at the larger end of the size spectrum available if investing into these markets now. That is 1BR apartments that are 60m2 and 2 bedroom apartments that are at least 90m2.

3. Ensure you have a car space included – As time moves on, car spaces become a far more valuable commodity within an apartment complex. Although there are many jobs within walking distance of these suburbs, a car spot is a must. It will also ensure you get $40 - $60 per week extra rental income for an additional $35,000 - $40,000. These apartments also tend to have a lower vacancy rate as they are the first to be leased when they become vacant.

4. Ensure You Apartment is Designed for Liveability – What does this mean? Elements such as designs suited to capture a lot of natural light, large open living spaces that give the occupants the chance for privacy when needed, large balconies that can be used to entertain. The biggest consideration here is to ensure the apartment complex has a small number of apartments in it. The sweet spot is a complex of 30-45 apartments, but I would recommend no more than 70 at the high end. Buying into large blocks of more than 70 apartments doesn’t give residents the feeling of exclusivity or privacy, both of which are required to maintain the highest values possible for owners and also appeal to investors and owner occupiers in the event you wish to sell in the future. 

Whilst there are risks associated in buying into these markets where media sentiment has been largely negative over the past 12-18 months, there are also some excellent opportunities that exist for investors willing to do the work to find the right property. In my view, based on the analysis conducted, the oversupply the media continues to talk about is not credible and lacks any factual evidence. To say a market will fall by 30-40% is irresponsible and proves many don’t understand what research to undertake before making comments like this.

We will watch with interest over the next 2 years as these projects come to completion. 

Subscribe to our newsletter

Weekly updates Weekly headlines, delivered to your inbox

Join the conversation!

Suggested Stories:

Dual key properties

Dual key properties

Brexit – likely impacts on Australian property prices

Brexit – likely impacts on Australian property prices

Presentation is Everything

Presentation is Everything

Sydney’s boom is over: where to buy now

Sydney’s boom is over: where to buy now

What to know about Brisbane's unit crisis

What to know about Brisbane's unit crisis

Managing your risk in a changing climate

Managing your risk in a changing climate