What to know about Brisbane's unit crisis

What to know about Brisbane's unit crisis

After being told Brisbane was the next investment hotspot and investors subsequently buying in, apartment prices are currently going backwards.

With fears of an oversupply looming, investors are asking themselves whether it’s time to sell up and give Queensland’s capital city a wide berth, or to ride out the sharp downturn that could be round the corner.

But the answer isn’t straightforward for investors with properties in Brisbane, BIS Shrapnel senior manager – residential Angie Zigomanis said. 

“Anyone who has bought a new apartment in the last year or two years is unlikely to sell it for what they bought it for and will increasingly find it different to find tenants as well,” Mr Zigomanis said.

Apartment prices in Brisbane fell 2.3% over July, CoreLogic data shows, while houses remained relatively flat, down 0.7% but up over the year.

This is more so in the inner city, but there has been a “flow on effect” to other parts of Brisbane as well. For those that decide to hold onto their properties, they could be at risk of missing better opportunities in other markets, with many now considering the Gold Coast or even Cairns to have better prospects.

There’s still another one to two years of supply in the pipeline and there won’t be a peak in construction for another 12 months, Mr Zigomanis explained. This may make holding onto a current investment property, to ride out the downturn, a lengthy process. 

“It may well take until the end of the decade for this to wash through,” he said.

Forecasts recently provided by NAB predict apartment price declines of about 1.8% for Brisbane in 2017. 

But the issue isn’t just with an oversupply – it’s also the remnants of the mining downturn that are impacting the economy and, as a result, the Brisbane property market.

“In a couple of years from now, the last of all the mining projects will have worked their way through and will hit construction phase. Interstate migration might start to pick up, but it’s going slowly for Queensland,” he said.

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But the outer areas of Brisbane might not be impacted in quite the same way.

The Urbis Brisbane Apartment Essentials Report pointed to rising construction costs for developments in the $50 million to $200 million range, while smaller sub-$30 million developments in outer Brisbane hadn’t seen as significant increases in cost. The cost increases on high-density dwellings may have been as much as 10 per cent since 2014.

AllenWargent property buyers co-founder Pete Wargent said he had “no doubt” the inner areas were facing an oversupply and wouldn’t recommend anyone buys into the market. 

“Quite a few people have paid a premium to buy new and by the time they come to settle valuations are coming in low,” Mr Wargent. This could be a future pain point for those who signed contracts 12 to 24 months ago. 

“You don’t even need to look at the statistics to know there’s an oversupply. Just walking around Newstead and Fortitude Valley you can see all the development,” Mr Wargent said.

“It’s a two-speed kind of market, where established houses are doing well and the inner apartments are not,” he said. 

But Stepping Stone Property's Dave Ward disagrees with the poor prognosis for Newstead and Fortitude Valley, arguing high household incomes of about $150,000 a year coupled with affordable property prices prove there's still value for money in these suburbs.

And it's likely development is slowing, with banks now starting to reign in their lending to developers, meaning some projects might not go ahead. At the moment, 897 apartments are under construction in Fortitude Valley, he said.

"Rental yields are strong and south east Brisbane in general is under valued," Mr Ward said.

"When the stock is absorbed over the next one or two years, it'll be an attractive proposition... good quality, well presented properties will do really well," he said.

His tip is for investors to consider boutique apartment blocks, with 30 to 40 homes, that offer high-end stainless steel amenities, high ceilings, wooden floorboards and stone benchtops. Two-bedroom homes and even well-designed one-bedroom apartments would be a worthwhile choice. 

The gross rental yield for a house in Brisbane, at 4.2%, is also not far different from that for an apartment, at 5.3%, on CoreLogic figures. For mainland capital city houses, this is among the most attractive house yields available.

 

 

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