It’s not looking good for the Queensland capital’s apartment market. According to CoreLogic, rental rates have begun to drop, with an annual change of -1.1%. This confirms the ongoing effects of increased unit construction.
Apartment investors, homeowners and landlords within the Brisbane CBD are cautious as the excess stock is expected to rise over the next couple of years, given the significant number of properties still awaiting construction.
“What this means for those who invested in this type of property is their unit will not be the desirable product they thought they had bought at the time,” explains Scott O’Neill, director of Rethink Investing.
“Some of these investors, who are yet to settle on these off-the-plan properties, will now find that there are tougher lending conditions applied to their units. Stricter lending conditions could mean investors may be required to put up to 30% collateral down to complete the settlement.
“This is obviously not a desirable outcome and numerous buyers will fail to complete the sale as a result of not being able to supply the additional cash required prior to settlement.”
The news continues to worsen, as the dip in unit prices is expected to be sustained until all the excess supply has been supplemented by demand – which could take a number of years.
High-rise vacancy rates soar
This oversupply of apartments is not just constraining value growth but also means that vacancy rates for units in the capital are shooting up.
“The Brisbane CBD has a vacancy rate of 4.7% as of August 2016. Hamilton has an 8% vacancy rate,” O’Neill says.
“When the majority of the construction and approved buildings appear online in one to two years, vacancy rates will exponentially rise. This means there are investors in these areas who are going to experience large vacant periods and are not going to see any rental growth on their properties for an extended period of time. As rental prices drop or stagnate, so does the property value to investors.”
Thus, despite the affordability of inner-city apartments at this time, O’Neill advises buyers to avoid this market for now.
Houses in demand
On the flip side, Brisbane’s house market has never looked better, with low interest rates, low vacancy rates (an average of 2%), low prices and high returns contributing to its considerable growth.
Brisbane properties remain remarkably affordable when compared to those in Sydney, prompting many investors from interstate to shop around.
“As long as the unemployment [rate] is low, salaries are high and yields are strong, there will be nationwide investor demand for freestanding houses in Brisbane,” O’Neill states. “This will ensure sales volumes remain high and that capital growth continues.”
Beyond the city, the Gold Coast is seeing growth in land values as a result of rezoning in the city’s coastal north, which is promoting high-density development. Buyers are drawn by the excellent location of this region, which is close to the Southport CBD and the Broadwater.
“Agents report that investors are buying these properties and land banking them for medium-term investment opportunity,” Herron Todd White states in its Month in Review report for September 2016.
“Investors are more active in the lower, more affordable end of the market where returns are between 5% and 6%.”
Contemporary estates in Hervey Bay are also selling well because of the government incentives offered to buyers through the Hervey Bay Affordable Housing Incentive.
“The market is currently in a position where you can get much more with a lot less money than you could four years ago. If you’re a first home buyer or have a deposit and ready to go, now is the cheapest time to buy in the past 11 years,” Herron Todd White concludes.
SUBURB TO WATCH
Birtinya: Waterfront suburb offers rosy growth prospects
As the main residential community of the Oceanside Kawana precinct, the suburb of Birtinya is a centrally located hub that’s looking to grow substantially and has been tapped as a market of interest for many investors.
The house market, in particular, saw reasonable growth over the past 12 months, and the average rental yield is high at 4.7%. The unit market has been stable as well. This is likely due to Birtinya’s position near the country’s largest health precinct, schools and the beach.
There are also parks, walkways and bike trails that take advantage of the suburb’s waterfront location. To add more value, a town centre and a major health hub, including hospitals and a health institute, are under development. This project is one of the biggest in the nation and is set to create over 10,000 jobs.
Buses and trains serve Birtinya residents going to the Sunshine Coast or even all the way to Brisbane.
