The Brisbane market proved hard to peg down in 2012. Its exposure to the resources sector had a number of commentators expecting a reasonable level of upside to the economy; perhaps not to the extent of Perth and Darwin, but certainly on the same track. As it turned out, Brisbane remained quite flat, due to a number of factors offsetting the benefits of the resource exposure.

“Most people have been speaking of the two-speed economy and they think that means Queensland should be out in front with Western Australia,” says Paul Braddick, ANZ head of property research. “Queensland is getting a significant portion of these major resources projects, particularly in LNG and the coal space, but the Queensland economy is a lot more diverse than Western Australia. This means it is multi-speed within the state boundaries.”

One of the market’s great current burdens is the state’s reliance on tourism. The strong Australian dollar has seen more tourists steer clear of Australian shores in the past couple of years, while domestic holiday makers are travelling elsewhere to spend their money. This has caused problems for medians in coastal areas such as the Gold Coast and Cairns.

“Those regions are highly dependent on tourist numbers,” says Braddick. “When you look at the data, the international tourists are still coming to Australia, but they aren’t necessarily going to Queensland as much; they’re going to Sydney and Melbourne. The bigger problem is that the domestic tourism is now going offshore.”

While Braddick expects the Australian dollar to remain strong, others are not so sure.

“A lot of analysts are predicting the dollar will drop below parity, potentially down to the 80 cent mark,” Braddick says. “This would have a positive impact on those coastal regions.”

In direct contrast to struggling tourism areas, the state’s resource regions were firing from all cylinders in 2012.

“The markets that have done well in 2012 have been places where demand has outstripped supply,” says Pamela Bennett, president of the Real Estate Institute of Australia (Qld). “We’re talking Moranbah, Gladstone and Mackay.”

With performance extremes on either side, the Brisbane market simply sat in the middle, recovering from the floods of 2011 and experiencing a correctional phase.

“Brisbane has recorded one of the largest corrections of any capital city,” says Tim Lawless, RP Data’s national research director. “Dwelling values dropped by 12.2% after an early peak in November 2009 through to May 2012. Values rose 1.8% since May and were 0.2% lower for the first nine months of 2012.”

One of the positives to come out of the sharp drop is that rental yields are now substantially higher than the combined capitals average, according to RP Data. The typical Brisbane house is now providing a gross yield of 4.6%, while units are returning 5.6%.

Outlook for property prices

As Brisbane’s property market appears to have found its bottom, the debate between economists is now focused upon when, not if, values will begin to pick up.

“Brisbane prices won’t be falling, but in real terms they will,” says John Edwards, Residex CEO. “We are expecting growth of 2% in 2014, 1.8% in 2015 and 2.6% in 2016. After this [we believe] it will ramp up to about 7%.”

Andrew Wilson, senior economist at Australian Property Monitors, agrees that the recovery will take longer than first anticipated.

“I expected Brisbane to perform better this year than it has, coming from a low base,” Wilson says. “I thought given its affordability, in that it has the lowest median house price of most of the capitals, you would start to see growth coming through. That hasn’t happened, so at best I think we’ll see a slow recovery in 2013.”

However, Angie Zigomanis, senior manager, BIS Shrapnel is more bullish on Brisbane’s near to medium term prospects.

“Values will rise in Brisbane to mid-single digit growth,” he says. This means the median house price is set to initially increase by a forecast 5% over the year to June 2013 to $450,000.

This upbeat forecast is underpinned by the rapidly growing economy and expanding housing stock shortage. As sentiment picks up, property prices are expected to rise by a total of 19% over three years or 8.3% in real terms.

Supply and demand situation

1. Population set to grow solidly

Brisbane’s population surged 25% between 2001 and 2011 according to the latest figures from the ABS. However, the number of interstate migrants fell below 10,000 in 2010 for the first time in 26 years amid worsening affordability.

This downtrend is likely to be reversed however with BIS Shrapnel expecting a rebound to 12,000 inflow in the next 12 months as the economy strengthens. Over the next three years, it’s expecting the number of interstate migrants to more than double to 24,800 per annum, further fuelling housing demand.

2. Housing shortage set to worsen

The supply issue that led to the redirection of those government incentives to new properties has been brewing for some time and threatens to become even tighter in the coming years. A slowing of construction since 2009 has left the state with a dwelling deficiency of 14,900, according to the ABS. This is the third largest in the country, behind New South Wales and Western Australia, but some are forecasting this to worsen. BIS Shrapnel is predicting the deficiency to grow to 29,900 in June 2013, 45,400 in June 2014 and finally, to 58,700 in 2015, when it will become the most undersupplied market in Australia. The growing dwelling deficiency is likely to put considerable upwards pressure on prices in the coming years.