Here’s a Brisbane residential property market update from a professional buyer. It hasn’t been hyped up by media and it isn't being selectively written by an optimistic sales agent. And nor does it involve data that seems contrary to what you are actually seeing for yourself. The update is based purely on what we are seeing and our feel for the near future. None of the comments within this article are to be taken as investment advice, rather, it is just the rambling musings of a property guy that found a few spare minutes to ponder.
Markets Within Markets
People regularly ask me, ‘so how are you finding the market?’, to which my reply is almost always ‘which one?’. There are markets within markets. Right now we typically hear about a buoyant market here in Brisbane. It is, in sectors, but not across the board. Change your question to ‘how’s the unit rental market at the moment?’ and my response is likely to be ‘very ordinary’. So please keep this in mind as I make the following observations.
Rental Market
The rental market on the whole is sluggish at best, which shouldn’t surprise. Record low interest rates has meant more people are looking to buy instead of rent. This is coupled with a lot of transactions of investment property, both new and existing, and these properties are occupied by tenants. Low and behold, the old supply and demand equation has resulted in higher vacancy factors, at least that is what we are both hearing and seeing. And whilst it is being seen generally speaking across the board, there are even markets within markets here. Some areas (Nundah for example) have very high levels of vacant 2 bed 2 bath units – a combination of new projects recently coming on board, those new projects being largely purchased by investors, and 2 bed 2 bath units being the most common unit type. Whilst these units are struggling to rent and prices have even come back, we aren’t experiencing the same levels of vacancy in 1 bed and studio units. These are at a lower price point, naturally, and there seems to be demand for them. We are unsure why, perhaps it has something to do with confidence levels around employment, with renters looking for value now more than ever.
A few tips if you own rental property: look to lock tenants in on long leases. Consider incentives such as a free BBQ (after all, they are inexpensive these days) rather than dropping the rent by $30pw. Look at your inclusions – we are hearing about electricity in particular being an important inclusion for some tenants. Set yourself apart – maybe consider a fully furnished option? Employ a pro-active property manager, one that will discuss alternatives and strategies with you.
Home Buyer Market
This is a bit more of a difficult one for us to comment on as we focus mostly on buying investment stock, but we have definitely seen a spike in prices in inner to middle suburbs for family homes. It seems houses in popular suburbs in quiet streets and within walking distance of transport and amenities never go out of style! We haven’t seen the same level of interest in outer suburbs that don’t have the same level of amenities, but then again, we don’t buy too many properties in those areas.
Unit and Townhouse Market
This is an interesting one. People tend to lump units and townhouses together. Bad move. We have definitely seen units become stagnant in price – most new stock selling now is not much more than new stock was 12 months ago. Of course it does depend on location. There are a few suburbs (Chermside, Nundah, Lutwyche, Portside (Hamilton), Cannon Hill and Mount Gravatt/Upper Mount Gravatt) that has seen a rapid increase in supply and limited growth. Other locations that haven’t had this sudden increase in supply are probably fairing better.
Townhouses, on the other hand, definitely appear to have had considerable growth. Even in our own feasibilities we are now applying townhouses values that are a good 10% higher than we were 12 months ago. Hence the reason units and townhouses should not be lumped together.
The reason for this is again supply and demand. An increased focus from council on Medium Density development around transport nodes has resulted in a lot more unit block proposals, and until 30th June 2014, a developer could typically achieve more units on the small sites than they can now. These unit blocks are just starting to be built and/or completed now. Prior to 30th June, our numbers rarely stacked up for townhouses but that has since reversed. There aren’t nearly as many large townhouse developments as there are unit developments, so even though there has been a shift in focus on the small sites back to townhouses, there is no sign (at present time) of growth slowing with these.
A few tips if you are looking to buy units/townhouses: See through the hype. Some suburbs appear buoyant because of the level of activity and the changing face of the area, but this level of activity is also often creating rapid increase in supply. Perhaps focus on suburbs that aren’t having a dramatic increase in new dwellings but offer similar attributes and proximity to transport, or that have been popular over an extended period of time. If it is growth you are after, townhouses is probably a better option than units, but again there are markets within markets. We generally recommend buying second hand and in a small complex as opposed to brand new in a large complex. If you are buying a unit or townhouse for investment, refer to the section above regarding the rental market.
Development Site Market
This is where we spend most of our time, and it is hot! Is this a good thing? Yes, just don’t get caught out. We have seen and are seeing a lot of development sites sell for far more than our numbers suggest they are worth. Those that paid too much 12 months ago have luckily been vindicated by a continued market, but that won’t always be the case. We see it as being a very risky activity buying a development site if the numbers aren’t working today, using today’s values. Paying too much is only justifiable, in our opinion, if it stacks up in another way (for example you can still get the median rent return out of it for the product and suburb). Paying too much just to secure a site only works out if the market continues to grow, which it may and you’ll look like a genius, but you don’t know if it will. Keeping in mind of course, that a development can take 1.5 to 2yrs from start to completion. You may have bought in a hot market, you may have started construction in a hot market, but it is far more difficult to predict if you will be finished in a hot market.
There also appears to be a strong market for approved sites. We believe these are being purchased by builders and developers wanting construction to commence now while they know what the market is doing. There is some sense in that.
Some tips if you are looking to buy a development site: This is the hottest market right now so it is a hard one to buy in. You need to run with numbers that work today, do not apply escalation rates to end values and try and source sites off market or with limited marketing to try and beat the competition. We are finding that most small development sites that hit the main real estate portals sell for big and unjustified dollars.
So where to from here?
The housing market in Brisbane overall is pretty strong and we believe will continue to be so for the remainder of 2015 and 2016. Development sites, in particular are going great guns, but houses and townhouses in good locations with access to transport appear to be doing pretty well too. In terms of growth, the only market we don’t like are new units. The rental market is slow but there are things you can do to minimise the damage to yourself, and the silver lining is when the growth market eventually slows down, we typically see the rental market begin to improve.
These comments are our own thoughts only and should not be taken as investment advice.
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Investigate Property are buyers agents of Investment Property in the Brisbane and SEQ area. Our aim is to buy well, reduce risk through research, and to buy property with a ‘twist’. More about membership on our membership page.
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