While the results for the September 2014 quarter did not eclipse those seen in June, there is no denying that the Inner Brisbane market has been getting hotter and hotter.
At present, Brisbane’s recipe for success comes from a mixture of ingredients; in particular the continual delivery of affordable product, a record low-interest rate environment, a diverse buyer profile (which includes interstate and international investors), and an improvement in local sentiment.
Currently, the Brisbane apartment market remains dominated by investors. With the Australian dollar continuing to soften, Australian property will represent an even stronger foreign investment alternative, meaning we will see start to see a further increase in foreign investment.
Place Advisory we are noting an increase in enquiry and demand for owner-occupier product on a daily basis, although this market continues to be overlooked by developers. We believe that this is our greatest opportunity. The next 12-18 months will be the catalyst for the biggest identifiable change for the Brisbane apartment market; the return of the owner occupier.
Demand For Larger Stock
Influenced by consumer demand, the results of the 2014 September quarter have indicated a swing towards larger stock in the development pipeline, and this will continue throughout 2015.
We have begun seeing a demand for larger, high quality apartment stock, as well as an increase in the volume of apartments transacting at the upper end of the price spectrum.
One bedroom configurations still dominate proposed units but this number has decreased slightly to reflect 45 per cent of the total inner city supply.
Consequently, the number of proposed two bedroom units has slightly increased to represent 40 per cent of future stock. However, we believe that as local buyers and owner-occupiers continue to reappear, 2015 will see the rise of the three-bedroom market in Brisbane again.
In terms of price, Brisbane has experienced very little change in our apartment prices, meaning the disparity between Brisbane and other East Coast capitals is the largest it has been since 2004 (an apartment in Brisbane is currently 25 per cent cheaper than Melbourne and 56 per cent cheaper than Sydney).
A lower relative price point will put upward pressure on apartment prices in Brisbane as design adjusts to demand, and we can expect to see the first of these green shoots of recovery next year.
Supply has led to rental yields softening slightly, returning to the long-term averages of 4-5 per cent as opposed to the 6 per cent yields we have been seeing over the past five years. We don’t, however, expect a blow-out in vacancy rates rather renters will shop around for cheaper rates.
Construction Price Rise
Credit: Brandt Companies[/caption]Construction prices are expected to begin to rise in 2015. This will inevitably create a price squeeze for some developers.
Land costs, capped residential sales and rising construction costs will see some projects put on hold. Additionally, the high cost of land close to the CBD will see developers move to areas further from the city, where there is less competition– taking advantage of the implementation of the new town plan and subsequently creating new ‘town centres’ in their own right.
Although prices for Inner City sites remain high, the prices for development sites in general are expected to plateau in 2015. The land value expected by vendors, in some cases will become unachievable to develop what the current market demands, given that only limited growth in prices are expected.
The Future of the Brisbane Apartment Market
Mowbray East Brisbane[/caption]Throughout 2014, the Brisbane residential market has been touted as the 2014 Australian Capital City to Watch. It’s been identified as the market with the greatest potential; the most affordable market; the up and coming location. This has led to a rapid evolution and change, over the past year in particular, but this is nothing compared to what we will see in the next 12-18 months.
As the year draws to a close, the Inner Brisbane market currently has over 35 large-scale residential buildings under construction, equating to approximately 3,850 apartments which are expected to be delivered to the market over the next two years.
Although these numbers seem substantial, according the SEQRP statistics, the delivery of these buildings will still leave the Brisbane market undersupplied.
According to data, we need slightly under double the amount of new infill apartments to be delivered, in order to satisfy our projected population growth. More projects, more apartments and more choice will mean more competition for developers, as buyers compare opportunities and seek out the best value for money.
Looking to the shorter term, the results of the September period have paved the way for what is expected to be another massive quarter of sales for the upcoming December period.
Up to 14 new projects, spanning 2200 apartments are expected to record unconditional sales for the first time during the three months ending December 2014.
We are predicting a continuation of these higher than average sales volumes as the Brisbane apartment market enters its next growth phase. For this reason, Place Advisory believes that the closing chapter of 2014 could be the largest quarter historically to date for the River City, with no signs to slow down in the New Year.
Article By Place Advisory Director, Lachlan Walker
About the Author:
Lachlan Walker is head of the Place Advisory division at Place Projects, Brisbane’s premier project marketing company. Lachlan is recognised as one of Queensland’s preeminent residential property market experts, specialising in South East Queensland residential property.
His role is to provide product specific advice to clients by gathering and applying internal and external market intelligence which is translated into meaningful market reports. He is widely published and is continually called upon to provide commentary on the residential market by various media and property journalists nationally.
Lachlan has extensive experience in property market research and has provided professional consultancy and advisory services to leading property clients including the likes of Leighton Properties, Lend Lease, Watpac, FKP, Brisbane Housing Company and Consolidated Properties.