Property market update: Brisbane, Part 1 September 2020

These factors provide a huge advantage for the Sunshine Capital over the southern east coast capitals. In fact, there has already been a huge spike in buyer interest from interstate, driven by affordability and the desire for a better lifestyle, according to the property expert.

“The pandemic has definitely caused a shift for a lot of people in the way they want to live, and it seems that South-East Queensland may be set to benefit,” she said.

Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella pointed to the acceleration in migration as a major contributing factor to growth, with an influx of movers from Sydney and Melbourne, as a result of the COVID-19 outbreak.

“Prior to the outbreak of the pandemic, Queensland was the number one destination for interstate relocations, particularly from major metropolitan areas such as Sydney and Melbourne,” according to Ms Mercorella.

“As this pandemic continues to affect us all, it’s introduced many of us to the possibility of a ‘new normal’ way of working – that is, remotely from home. And spending more time at home is seeing more people considering their options.” 

Recent data shows that interstate buyers are still purchasing properties sight unseen, and this demand is expected to surge in the coming year as the country seeks to recover from the effects of the pandemic.

The median house price in Brisbane increased by 0.7 per cent over the quarter, with house prices remaining stable at a 2.8 per cent annual growth – a satisfying outcome considering the city recorded negative growth across all three months for the quarter.

Further, the property market is currently well supported by monetary and fiscal policies, which is being slowly withdrawn in September.

While this is likely to create some downward pressure on property values as income and borrowing capacity is limited and sentiment levels drop, it’s not all doom and gloom as the federal government unveils tax cuts and spending measures, Ms Mercorella said.

“Brisbane’s affordability, low income-to-debt ratio, change in investor behaviour, rise in rental vacancies and historically low interest rates, which the Reserve Bank recently highlighted will likely remain for at least the next three years, along with the range of government grants currently available has seen first home buyers come out in force, allowing our capital city property market to continue to transact,” she said.

Property values

According to the latest Hedonic Home Value Index data by CoreLogic, dwelling values in Brisbane saw an overall median monthly price rise of 0.5 per cent over the month of September 2020. This now makes up for the total decline in dwelling values across greater Brisbane with the quarterly change at zero per cent.

Annually, the capital city saw a 3.8 per increase, which resulted in a total return of 7.8 per cent. At the moment median property value in Brisbane stands at $504,902.

Median house values for the greater Brisbane region increased by 0.4 per cent across the month, bringing the median value for a Brisbane house to $559,646. Meanwhile, median unit values increased by 0.7 per cent over the month, bringing the median unit price in Brisbane to $388,505.

Still, despite the relative affordability of Brisbane properties, Domain’s latest First Home Buyer Report revealed that aspiring home owners in the capital city, as well as those in Sydney, Melbourne, Hobart and Canberra, are likely to spend more time saving for a 20 per cent deposit as affordability pressures continue to mount.

While affordability pressures are less pronounced in Brisbane compared to other major capital city markets, first home buyers in the city still require an average of four years and six months to save for a deposit for a $450,000 house, up one month from last year.

The hit to housing affordability across the aforementioned capitals has coincided with annual price increases, slightly offset by downward pressures experienced off the back of the COVID-19 crisis.

Moving forward, Domain’s senior research analyst Dr Nicola Powell believed that affordability pressures are set to improve nationwide as FHBs reap the benefits of state and federal government incentives, including the First Home Loan Deposit Scheme and the $688 million HomeBuilder scheme.

“Weakening prices will eventually translate to improved affordability. Buying conditions have improved, first home buyers appear to be taking advantage of low interest rates, retreating investor activity, reduced foreign buyer interest, the extension of the federal government’s First Home Loan Deposit Scheme and other state-based incentives,” she said.

Rental market

Latest data from SQM Research showed that rents in the unit market in Brisbane saw price falls -1.6 per cent from 31 March to 30 September, a consequence of supply and demand-side factors.

Over the past few years, Brisbane has seen a huge increase in the supply of investment apartments with a significant number of new apartments being built.

Additionally, many short-term rentals such as Airbnb have recently transitioned to longer-term rentals due to restrictions on travel for a number of months due to COVID-19.

“Whilst the availability of these rentals has surged, there has also been a huge decline in the demand for these properties due to a number of factors,” Ms Jennison highlighted.

“International and state border closures have weakened apartment demand from short term travelers, as well as international students in Brisbane. Additionally, industry sectors such as hospitality, the arts and recreational services have been hit the hardest by job losses and reduced working hours. These types of workers are more likely to rent inner city apartments, which has also negatively impacted on the demand for these properties in Brisbane.”

From 31 March to 30 September, Brisbane house rents saw an increase of 0.2 per cent while unit rents saw a significant decrease of 1.6 per cent.

Despite this, InvestorKit’s head of research Arjun Paliwal highlighted five SA3 regions in Brisbane that are showing signs of growth, including Wynnum-Manly, The Hills District, Sandgate, Capalaba and Strathpine.

According to him, these regions are displaying trends of lowering stock at healthy or low levels. The lack of supply in the area is likely to help drive the price of rental yields in these properties.

“They are displaying far less properties that take more than 21 days to rent out. They are displaying tightening vacancy rates, and they all have below 3 per cent of building approvals in the pipeline,” Mr Paliwal said.

“It’s a balance between affordability and a lack of choice due to supply. They are all primarily house markets, so the vacancy rates are staying balanced because they aren’t full of units.” 

Still, he advised investors to be wary and avoid expecting the entire city to be growing as most of these regions are located in the middle-north, east, middle-south and north-west.

“Not everywhere is showing signs of rental growth. There’s still various other regions that are displaying increasing levels of stock supply and vacancy rates staying elevated. But these are the five regions that stand out,” he said.

Supply and demand

In terms of supply and demand, Ms Jennison said that Brisbane continues to see a ramp-up in the number of buyers in Brisbane as credit availability is expected to become more free-flowing, which is a result of record low interest rates and the recently announced plan to relax lending laws.

According to her, the middle ring suburbs in Brisbane are showing the highest level of demand over recent weeks, with a combination of first home buyers, investors and families competing for a very small number of properties available.

“The successful virus containment in Brisbane has meant that the real estate market has continued to operate as usual,” she said.

“We are seeing high volumes of buyers at open homes every Saturday and even mid-week inspections are busy in many suburbs around Brisbane. Multiple offers are still very common – even with properties not actually listed online. There is sufficient off-market demand from buyers, many through buyer’s agents, to cause some level of competition for off-market transactions also.”

The most recent Herron Todd White Residential Month in Review said: “If this level of demand keeps up, and indications are that it will, then we may well see spring and summer seasons that are more impressive than may have been expected just a few short months back.”

CoreLogic’s Auction Market Preview shows that for the week ending 27 September, there are 1,136 capital city homes scheduled for auction, up 24 per cent from the week prior.

While Sydney and Melbourne were the busiest locations for auctions, across the smaller auction markets, Brisbane was expected to hold the most auctions during the week (86), followed by Adelaide (71) and Canberra (63).

CoreLogic’s summary of last week’s results shows a final auction clearance rate of 67.6 per cent was collected across 915 capital city auctions, which is an increase from the week prior that saw a final clearance rate of 63 per cent was recorded across 816 auctions.

Both Brisbane and Perth saw just above half of the auctions held return a “sold” result.

The oversupply of units in Brisbane’s inner city could be presenting a “major” issue for investors as it shows no signs of abating and exhibits plenty of red flags for developers and lenders, according to RiskWise Property Research.

As the market continues to be impacted by increased vacancy rates and risk to cash flow, investors are warned of the supplies still in the pipeline across the capital city, which is currently at 5,431 units, an addition of 5.9 per cent of the current stock.

RiskWise Property Research’s CEO Doron Peleg said: “One of the key factors has been developers’ lack of foresight regarding unit oversupply as well as the impact of lending restrictions introduced from 2014. It seems there has been no methodological and structured risk-management approach, including identification, assessment and mitigating action plans to address those risks.”

“This takes us back to the feasibility stage, which includes the assessment of the projected fair market value and the likelihood of defaults and their potential consequences. Developers and lenders must find the right balance between taking risk and making profit.”

Moving forward, “COVID-19 has only served to increase the risk” as there are no fewer high-rise properties on the market but a smaller pool of interested investors, according to Mr Peleg.

2020 outlook

Contrary to the doom-and-gloom predication a few months ago, Westpac Bank’s economists are now expecting a serious boom in the coming years, with Brisbane tipped to perform the best out of all capital city markets around Australia.

According to them, Brisbane property could surge by up to 20 per cent between 2022 and 2023.

The Westpac report indicates that the recovery is likely to be supported by sustained low interest rates, ongoing support from regulators, substantially improved affordability, sustained fiscal support from both federal and state governments; and strengthening economic recovery.

However, Ms Jennison reminded investors that not all markets around Australia will recover in the same way or at the same speed as local drivers of supply and demand will continue to determine local performance.

“The outlook for the Brisbane housing market is subject to a combination of headwinds and tailwinds over the next few months,” Ms Jennison highlighted.

“The headwinds will appear as the fiscal support winds back. There may be an increase in the number of property owners that need to sell as mortgage repayment holidays end and the benefits of JobKeeper and JobSeeker fade out. We have not seen any evidence to date of distressed selling in Brisbane, and based on the current level of buyer demand, it is likely that any increase in new listings will be rapidly absorbed by the market.

“Of course, we will also see low rates of migration to South-East Queensland until the borders open for everyone. Additionally the labour market outlook looks weak and wages growth is likely to be minimal. These factors may have some impact on demand in the months ahead.” 

On the other hand, in terms of tailwinds, low mortgage rates (with the potential for rates to fall further), low listing volumes, government incentives and improving consumer sentiment could very well outweigh the negative economic shock brought about by the pandemic.

With the federal budget announcements to stimulate the economy further, anything aimed at supporting jobs and improving consumption will be of benefit, according to Ms Jennison.

Hotspots

According to the 2020 PIPA Annual Investor Sentiment Survey, 44 per cent of investors are looking to purchase in the next six to 12 months, with most of them likely to move to other locations than where they currently reside or have property at post-pandemic.

PIPA chairman Peter Koulizos said that interstate investing in particular had been growing in popularity over recent years as investors became more educated about the strategy.

Further, COVID-19 has made many people reconsider their lifestyles, with nearly one-fifth of investors indicating they are contemplating a move.

“The survey found for those investors considering relocating, the main reasons for doing so were improved lifestyle factors (78 per cent), working from home in the future (46 per cent) and housing affordability (40 per cent),” he said.

“And it seems that regional locations are set to benefit from plenty of new residents, with investors indicating their top locations to migrate to are regional NSW (21 per cent), regional Queensland (18 per cent), Brisbane (16 per cent) and regional Victoria (14 per cent).”

For those who aim to manufacture equity by building their own home, Ms Jennison advised: “You firstly need to find near-city locations where it’s easy to demolish an existing home and create a clean slate. But the suburb must also have a wide price disparity between new and existing homes, gentrification, strong family-buyer demand and desirable attributes such as views.”

Her top six suburb picks for home construction include:

1. Wavell Heights

According to Ms Jennison, Wavell Heights has a huge price disparity where the difference from the entry price to the exit price is significant because the end product is so highly desired by the local buyer demographic.

Further, it stands as the first suburb north of the CBD with limited numbers of character-protected homes, which means most older dwellings can be knocked down.

“It’s also an elevated suburb and some streets allow for city views. We are seeing rapid gentrification here with old homes transformed into brand-new large family homes. This continues to bolster value at the upper price point,” she said.

2. Seven Hills

Located five kilometres from the CBD, Seven Hills is the first suburb on the south-east not dominated by demolition-protected character residential. The entry price for an old house in this area is around $750,000.

“This pocket is family-friendly and is a small suburb that is only 1.8 square kilometre, so supply is limited, which helps keep end values high. Its elevated, hilly topography provides opportunities for city views. Price disparity is also significant, making it easier to create instant equity from a new build,” Ms Jennison said.

3. Tarragindi

Tarragindi has been witness to plenty of new-build gentrification, and it’s close to the new metro infrastructure that is coming to Brisbane, which ultimately drives up price disparity, according to the property expert.

The city views, good access to desirable schools and the median buy-in price of $650,000 for older homes make the suburb ideal for families looking to benefit from new builds.

4. Alderley

“In Alderley, you’ll find an array of different-sized blocks, solid retail facilities and great public transport options. Most properties aren’t demolition-protected, so having access to a large pocket of real estate just seven kilometres from the CBD to build your family home is a no-brainer,” Ms Jennison said.

5. Corinda

Demand for Corinda feeds off the highly desirable suburbs of Chelmer, Graceville and Sherwood, which are areas with predominantly character-protected homes that boast huge price disparity between existing and new homes.

In fact, 600-square metre blocks are achieving prices of around $650,000, while the median value of homes in this suburb currently sits at $850,000.

“Corinda’s elevated streets – some with city views – are the start of its new-build appeal. Corinda has very little character-home protection so you can create an excellent homesite for building a dream home,” she said.

6. Gordon Park

Finally, Gordon Park boasts proximity to infrastructure and services, as well as a parkland lifestyle that attracts family buyers and ultimately bolsters the value of newly built homes relative to older stock.

“Gordon Park enjoys easy access to retail and lifestyle hubs such as the Lutwyche shopping district and Kedron Brook Road,” Ms Jennison said.

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