Will the Apartment Action Now Turn to Brisbane?


After some green shoots began to burst through in 2013, the upturn in off-the-plan sales of inner Brisbane apartments is expected to continue to strengthen over 2014 and 2015. Conditions are ripe for off-the-plan demand to accelerate and provide an opportunity for developers to make hay while the Queensland sun shines.

From a fundamental perspective, the Brisbane market offers the best capital city outlook with the residential market downturn since 2008 setting the scene for the recovery. The collapse in new dwelling supply in this period has seen a growing underlying deficiency of dwellings emerge, while weak prices have meant that affordability has improved.

Moreover, rising rents and recent cuts to interest rates have narrowed the gap between rental income and mortgage repayments, increasing the attractiveness of the market to residential investors. With yields in inner Brisbane also above that of the southern state capitals and a view that the Brisbane market has bottomed out, the impetus to enter the market will increase.

Demand from interstate investors is also likely to rise and supplement local investor demand as decreasing affordability in Sydney and Perth, or the prospect of oversupply in Melbourne, encourage buyers from these markets to look elsewhere.

In previous market upturns, interstate investors have accounted for up to 40 per cent of off-the-plan sales in inner Brisbane. Investors from New South Wales are likely to increasingly find the value proposition for apartments in Brisbane more attractive compared to prices of apartments in inner Sydney. Interstate demand will add to local and overseas buyers to underpin a pick-up in inner Brisbane apartment prices, which in turn will attract more investors.

As a result, the window for developers to sell their apartment projects into the market is likely to be open at least into 2014 and 2015. Developments currently being marketed are likely to achieve sufficient pre-sales to obtain finance to commence construction, while more developments will also be brought to market to take advantage of the strengthening off-the-plan demand.

It is estimated that more than 4,000 apartments in inner Brisbane were under construction in November 2013, with these projects scheduled to be completed through to 2015/16. On BIS Shrapnel’s analysis, there is enough pent up demand and future demand for these apartments to be occupied upon completion.


Chart I: New apartment completions, Inner Brisbane

Source: BIS Shrapnel


However, the next round of projects will determine the outcome for the inner Brisbane apartment market. It is estimated that more than 3,000 additional apartments are currently pre-selling or far enough down the planning pipeline to potentially be completed by 2016 if they achieve sufficient off-the-plan sales to commence. If all were to go ahead, new apartment completions could rise from 1,300 dwellings in 2012/13 to more than 2,000 apartments in each of 2013/14 and 2014/15 and exceed 3,000 dwellings in 2015/16.

Over the three years, this would take new apartment completions to an average of around 2,700 apartments per annum – higher than the previous peak of 2,250 apartments in 2005/06, and presenting a risk that excess supply pressures will emerge in the inner Brisbane market by 2015/16. Together with interest rate policy likely to be well into a tightening phase by this point, this would signal the peak of the market and the window for developers will begin to close.

This level of supply also means that landlords of newly completed apartments will have to be more competitive with rents to attract tenants, being unable to command a premium over existing stock. Correspondingly, owners of older apartments would have to discount to attract tenants from neighbouring suburbs, which in turn will impact on prices.

The potential for an excess supply to develop will depend on the number of additional apartment projects that achieve pre-sales hurdles and are commenced through the upturn, as well as the number of National Rental Affordability Scheme (NRAS) apartments that end up being made available to qualified tenants (as opposed to being offered to the general market), and apartments taken up by serviced apartment operators, thereby reducing the supply of regular rental apartments into the rental market.

Despite the anticipated strength in off-the-plan demand, price rises are expected to be below the double digit growth that we have seen in previous upturns given the growth that has taken rents and prices to their current levels since the start of the 2000s. The higher yields (median rents compared to median prices are now in excess of five per cent) in the market now are also expected to become a staple for investor owners as an offset to the more moderate price outlook compared to the past 15 years.

Angie Zigomanis is the Senior Manager of Residential Property at BIS Shrapnel. More detail can be found in BIS Shrapnel’s Inner Brisbane Apartments 2013 to 2020 report which can be found at


(Image: Soda Apartments, South Brisbane)

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