Will Brisbane Boom? Or Won't It?

As the Sydney and Melbourne growth cycles start to moderate, the traditional search for ‘the next big thing’ has well and truly commenced. With the Perth and Darwin markets in decline, and Adelaide and Hobart sclerotic, Brisbane seems to be the winner by default – the Steven Bradbury of property markets if you like. Plenty of ink has been spilled on the subject, with many analysts predicting it as the best performer of Australia’s capital cities for 2016. Others are more pessimistic.

Of course, there’s no such thing as a pre-ordained future boom market in Australia. Indeed, a quick review of Australian property market performance over the last 5 years shows performance varying markedly between Australia’s capital cities. Perth and Darwin continued to surge on the back of the resources boom before heading into decline, Sydney and then Melbourne gathered momentum before entering a genuine boom phase over the last 2 years, while Brisbane went backwards due the 2011 floods, before recovering somewhat in 2014-15. So who is right and who is wrong about Brisbane? And what do we expect Brisbane’s property market to do?

The Current Situation
To have a good guess at what will happen in the Brisbane market, we need to have a solid understanding of what is currently happening. Just like the Australian property market is not a single, homogenous entity, nor is the Brisbane property market, and different things are happening in different parts of the market. Here are some broad observations I’ve made, based on property data, the analysis of observers and what I’ve witnessed on the ground:

  • There has been some noticeable growth in Brisbane in the last 3 years. Most of this growth has come in the more desirable inner city suburbs, and has been particularly concentrated in detached housing
  • Supply of houses and townhouses within 10km of the CBD is tight. This has led to price growth.
  • Supply of apartments in the inner city is much greater than detached houses. This is leading to very soft growth in this segment.
  • Supply is tightening in the middle-ring, which is starting to shift prices up and has kept rental yields high. In particular, we are seeing strong demand versus supply in Brisbane’s north between 10-18km from the CBD, across suburbs in the north-west, north and north-east
  • Supply and demand are largely balanced in the outer suburbs, leading to small price gains at best.
  • Vacancy rates are above 3% in many of the inner city unit and housing markets. On the other hand, vacancy rates are much tighter in the middle ring around Brisbane, as well as the bayside regions of Moreton Bay and Redland Bay.

What are the wider economic factors that have been causing this? Interest rates have been low, which has assisted in the recovery of the inner-Brisbane market from the lows of the 2011 floods. However, population growth and income growth have been subdued, while unemployment has remained steady. This has kept a lid on property growth, particularly in areas where incomes are lower and access to credit is harder. As a result, rental yields have increased and vacancy rates have tightened in the housing market below $500,000, but price growth has been modest.
 
The Future
What can we expect to happen in the Brisbane market in the short-term? Firstly, I don’t see a city-wide boom. Population growth, jobs growth and income growth would need to increase substantially for a property prices to really get moving. I do expect to see price growth in suburbs within the middle-ring, driven by owner-occupiers who find it as cheap to buy as rent, and by investors looking for a house in a capital city under $500,000. Cheaper detached houses (below $600,000) and townhouses within 12km of the CBD are scarce and should also continue to rise in value. Conversely, the unit market in the same area is oversupplied, both in properties on the market and properties for rent, so I’d suggest prices and rents could be headed south. The outer suburbs are producing good rental yields, but I don’t see too much price growth unless incomes start increasing.

Interstate and overseas investors are the wild-card in this equation. A significant influx of investors into particular markets may be enough to generate momentum of its own, leading to a short-term spike in prices. There is certainly evidence that investors are eyeing Brisbane, as Sydney and Melbourne become too expensive. On the other hand, restrictions on investment lending are starting to bite. So this will be an area to watch.

Aquila Property Investment's buying tips for the Brisbane market:

  • Detached housing in Brisbane’s middle ring suburbs  
  • Larger townhouses in small complexes within 12km of the CBD.
  • Stay away from apartments.

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