Timing the market comes down to knowing when to exit it as much as when to take the leap – and for those contemplating Brisbane right now, it appears that a lot of change is sweeping through the balmy capital.
Melinda Jennison, property investment advisor and managing director of Streamline Property Buyers, says that while recent years have seen Brisbane’s market heavily impacted by an oversupply of units, it’s forecast that by the end of this year there won’t be enough residential dwellings to meet accelerating population growth.
“What we are seeing more recently is that construction commencements have taken a dive, so it started with declining approvals for development and now it’s coming through as declining construction completions for residential dwellings,” Jennison says.
Furthermore, in December 2019, Queensland recorded its lowest unemployment rate in 10 months at 6%, and in the June 2019 quarter, annual population growth tracked 2.3% above the decade average, according to CommSec’s State and Territory Economic Performance report for January 2020.
With detailed knowledge of the local market, Streamline Property Buyers specialises in connecting investors to profi table and high-performing property assets across Brisbane.
“We are all about ensuring that people make really informed decisions,” Jennison says. “We are also property developers in Brisbane ourselves, so when we assess how a property may perform in the future, it’s about not only seeing Brisbane as it is today, but looking forward based on the planning schemes and understanding what Brisbane will look like 10 or 15 years from now. There’s a lot of land in Brisbane that’s zoned for a potential future use that investors can either capitalise on or avoid, based on the likely impact in the years ahead.”
Timing the market right
Jennison says Streamline Property Buyers receives a large number of enquiries from first-time investors, some of whom are priced out of Sydney and Melbourne. This is likely because a massive price disparity exists between Brisbane and Sydney, Jennison notes, because while values in Sydney and Melbourne rocketed before they dipped in more recent years, values in Brisbane didn’t experience the same growth.
“Investors looking at the unit markets in Sydney and Melbourne may recognise that this segment of these markets is moving through a period of potential oversupply. These cities are a few years behind Brisbane in terms of where the unit market is cycling,” Jennison says.
Brisbane’s more attractive entry point is refl ected in CoreLogic’s Home Value Index results for February, which reported that the capital’s median house value came in at $503,265, making it almost $370,000 more affordable than Sydney and $186,000 more affordable than Melbourne.
“If you can afford up to $500k, in Brisbane you can still get a decent house on a block of land within 25km to 30km from the CBD, and often even closer, with that sort of money, and the investment will still produce a decent rental yield,” Jennison says.
“People can quite often buy into Brisbane where the gross rental yields are higher than the interest rates they are being charged on the loan to borrow the funds. The holding costs of a property are not signifi cant, so it’s quite achievable to purchase a property that is self-sufficient, where the income from the rent covers the interest as well as the cost associated with holding that property on an interest-only loan.”
BIS Oxford Economics’ Residential Property Prospects 2019 to 2022 report forecasts that Brisbane is set to experience the biggest surge in housing values, of up to 20% by June 2022, meaning the timing is right for investors to buy into the market before values potentially climb further.
A healthy rental return
Also in Brisbane’s favour is its strong rental market. While suburbs perform at different levels, there are many opportunities to find property assets that will deliver both cash flow and growth, Jennison says.
“I definitely think there are locations in Brisbane that will deliver a very good balance of consistently strong capital growth of between 5% and 6% per annum, as well as strong rental yields of between 4% and 4.5%,” she says.
The performance of an investment property ultimately boils down to its location, she adds, and there will be a compromise on rental yield when pursuing higher capital growth, because you will be looking at properties that are closer to the city.
“The entry price for single houses closer to the Brisbane CBD is a lot higher, and it is less likely that you will be receiving a rental yield above 4% – in some cases, you will be dropping back down to a 3–3.5% gross yield,” Jennison explains.
That said, population growth, together with a limited supply of dwellings and relative affordability, are all factors that have put Brisbane on investors’ radars – and with big infrastructure development now underway (see boxout below), investors are expected to reap the benefits.
“The thing that has been missing is the booming economy and good job prospects, and I think the tides are turning, because some of these huge projects are going to drive the local economy,” Jennison says.
“It’s about not only seeing Brisbane as it is today, but looking forward and understanding what it will look like 10 or 15 years from now”
“The big drawcard is the fact that there is so much infrastructure spending at the moment, which is a combination of government and private spending. This is going to generate huge changes to the local economy and create future jobs, and that’s a big thing that has been missing for Brisbane in terms of the final piece of the puzzle.”
Tailored approach to investing in Brisbane
As a specialist buyer’s agent for the Brisbane market, Jennison says it’s crucial for investors to home in on the locations that are most likely to deliver long-term returns.
“Some people haven’t thought through which investment strategy is most suitable for their personal circumstances. Getting the balance right between capital growth and rental yield comes down to what an individual investor needs,” Jennison says.
That involves exploring not only their property investment strategy but also their finance strategy and the individual’s tax position, and requires an understanding of the investor’s needs, goals, exit strategy and their appetite for risk.
“Because we are Brisbane property experts, our due diligence is extremely comprehensive ... we are seeing real-time demand for property by being at the open homes every Saturday in different locations around Brisbane,” Jennison says.
“We are able to add that value for our clients. We don’t just look at data to make investment recommendations for clients, which is all retrospective because it is reporting what has happened two or three months ago, but we are looking at what’s happening right now.”
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