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Over the past year, Brisbane has become the “safe choice” for property investors looking to avoid the negative impacts of the declines in Sydney and Melbourne. Will the Queensland capital continue to offer good opportunities in 2020?
Brisbane has ended 2019 on a high as it finished the year with positive annual growth of a total 2.8 per cent, Streamline Property’s Melinda Jennison pointed out.
Most property analysts believe that Brisbane will see positive results in 2020 – even predicting that the capital city will see the greatest national gains in house prices, ultimately leading to a 20 per cent increase in median house price by 2022.
While house prices are expected to continue rising as a result of increasing migration rates and healthy levels of housing affordability, the value of apartments is likely to remain flat for a while.
Citing the Herron Todd White Residential December 2019 report, Ms Jennison highlighted: “Brisbane is at the start of its recovery in the housing market, while it has hit the bottom of the unit market.”
“Brisbane currently presents with excellent indications of sustained, long-term capital gains, particularly in the detached housing market,” she said.
Propertyology’s Simon Pressley said that median dwelling values over the next five years are likely to outgrow the previous five.
Mr Pressley advised investors to look at the medium-term fundamentals when considering property investment locations in the future, including new building approval, economic growth, job creation and population growth.
He also reminded investors not to be lured in by news of market recovery – instead, do due diligence and make decisions based on thorough research.
“The 2019 midyear momentum change in Australian property markets was triggered by the stimulus of three interest rate cuts. It’s a sugar fix of sorts, but it doesn’t change underlying fundamentals,” he said.
“History is proof that the best performers often aren’t among the capital cities, so anyone who invests in Australian real estate without analysing the fundamentals of all options is accepting the very high odds that they won’t do anywhere near as well as they could,” according to the property research.
In contrast, the “official best-performing markets” included Glenorchy with 40 per cent, Bass Coast with 37 per cent, Macedon Ranges with 35 per cent, Snowy Monaro with 34 per cent, Baw Baw with 30 per cent and Geelong with 29 per cent).
Prior to investing, Mr Pressley encouraged investors to set their financial goals for the year in order to determine the locations that would fit their wealth creation strategy and ultimately take advantage of the property market.
He said: “There’s never been a situation in our lifetime that borrower interest rates (investment expense) were so much lower than rental yields (investment income) like we have right now, and it seems increasingly likely that the RBA might cut again in February-March.”
“This means that, even with a very small deposit, the annual cost to hold an investment property is near zero, so whether you’re using cash or equity in existing property, do something proactive for your future and get in the game this year.”
Supply and demand
Over the year in Brisbane, Ms Jennison noted that high demand was consistently better for inner city suburbs compared with fringe suburbs.
Citing data from the Herron Todd White Residential December 2019 report, she noted how “cashed up interstate migrants” searching for high-quality lifestyle-oriented homes had played a role in this.
Desirable school zones have also contributed to price growth potential in the city, with Ms Jennison considering “higher demand in locations with good school catchments translating to premium prices”.
According to Ayre Real Estate’s Adrian Wilson, the market’s evolution over the past six months has resulted in buyers who have been holding out for the past six to 12 months (or longer) now eager to secure their next property.
These buyers are ready and equipped with knowledge from research, approved finances and risk mitigation strategies, he said.
“In part, this is to avoid having to compete against other buyers at the auction, but it also makes sense for buyers to submit strong offers once their due diligence is done. There’s no point waiting for a week or two for the auction if you are ready, willing and able and can proceed on an exchange,” he said.
Moving forward into the new year, Mr Wilson expects the stock levels in the apartment market to continue tightening as interest rates continue to be reduced.
Further, sales of properties prior to auction will continue to be popular, with inner city lifestyle locations, such as Circular Quay, Barangaroo andattracting the most interest from both home buyers and investors.
Investors looking for yield will be returning to the market in order to take advantage of record-low interest rates, and more buyers will be relocating between east coast cities, particularly Sydney, Melbourne and Brisbane.
South East Queensland, in particular, is embracing its lowest vacancy rates in over a decade, providing ample opportunity for investors looking to build on their property portfolios.
Coronis property management director Jodi Ford said: “With the increasing tenant migration from NSW and Victoria coming to enjoy our sunny lifestyle, there’s a strong performance in the market with the lowest vacancy rate of 1 to 1.5 per cent that we’ve experienced in the last 12 months across our offices.”
“Our state is becoming more attractive than ever, with Brisbane’s major developments like the new Moreton Bay University, Queen’s Wharf and Brisbane Airport’s new lane contributing to a 10 per cent increase in enquiries for rental properties from the beginning of the year.”
North Lakes is also seeing a strong competition over rental properties, which resulted in a boost in the rental price by $15 per week.
“As we’re seeing such phenomenal results across SEQ, it’s an excellent opportunity for investors to get their hands on a property here in Queensland.”
Moving forward into 2020, Mr Wilson expects rental rates to either remain steady or increase marginally across the board, with the number of available properties reducing due to supply issues constraining with more owner-occupiers buying.
In terms of apartments for sale, properties priced $3 million-plus will favour two-stage marketing campaigns, conducting an off-market period first, and if not sold, listing actively online for auction or private treaty.
Property risk management will become more significant across the Brisbane property market moving forward as droughts, bushfires and a month’s worth of rain in a matter of minutes affect the capital city and the rest of theState.
According to CoreLogic CEO Lisa Claes, a property’s hazard profile will become just as significant as its physical attributes.
“There will be greater demand from our customers for seamless delivery of relevant data relating to property risks in the same way they leverage property values, ownership and construction data,” she said.
As a result, she believes 2020 will see further changes in the real estate industry’s operating environment with the rise of desegmentation.
Previously separate market segments will join forces as listing portals become brokers, banks show the same interest in listings as real estate agents do, and insurers and lenders collaborate to apply a more forensic lens to the property risk profile.
Further, new technology such as artificial intelligence will lower traditional barriers to enter the market, while boosting competition, Ms Claes said.
“In spite of the many headwinds, 2020 presents opportunities for all industry players to deliver enhanced customer value over the coming year, and that’s an exciting prospect indeed,” she said.
Shifts in supply and demand, movements in the apartment market, foreign and interstate investment, population growth, technology, health and wellness will also play major roles in shaping the property market in 2020.
Foreign and interstate investment
Savills Australia and New Zealand’s CEO Paul Craig said that, aside from the downsizing trend, lower interest rates, loosening of banks’ lending requirements and continued foreign buyer interest will also play a big part in how the property industry will fare in 2020.
Australia will continue to attract foreign capital supported by a cheap Australian dollar, positive yield spreads to debt enabling positive funding from leverage and the lag effect of cap rate compression due to some skepticism of further runs in yield as the country witnesses a record yield lows/highs in valuation, he said.
Further, 2020 will see the commercial office sector continue to compress and the industrial sector continue to attract capital.
“We are concerned about the low growth in rents; however, the inbuilt rent bumps of 2-3 per cent will support overall,” he said.
“Retail is an interesting asset class and, perhaps with tough retail sales turnover, a forgotten asset class with opportunities… Retail is worth looking at, especially supported by population densification and rising or changing socioeconomic conditions of the surrounding demographic.”
More Australian investors have also got their eyes on interstate markets, with 45 per cent of investors looking to buy outside of the state that they live in over the next 12 months and 63 per cent of investors considering rentvesting whereby they rent in one location and invest in another, according to the 2019 PIPA Investor Sentiment Survey.
PIPA chairman Peter Koulizos said: “Borderless investing as a bona fide property investment strategy had blossomed over recent years. More and more investors are recognising that there are myriad investment opportunities around the country rather than being blindsided by what’s happening in their own backyards.”
“Australia has eight capital cities and dozens of major regional areas, which have property markets at different stages of the market cycle at the same time.
“Savvy investors always consider the locations that offer the best market fundamentals as well as prospects for capital growth over the medium to long term. They chose not to follow the masses, but to invest in locations before prices start to rise, such as in Sydney in 2012 and in Melbourne not long after.”
Population, technology, health and wellness
RobertsDay’s co-founder and director Mike Day said that drop in car ownership, smaller houses, walkability impacting property prices, residential blocks atop shopping centres and “mini Melbournes” in outer suburbs are some of the 2020 trends that could have a flow-on effect on the nation’s property market.
Where communities used to be built around vehicles, the new year will see them built around pedestrians, cyclists and “light” modes of public transport such as e-bikes, trams and buses. Millennials and baby boomers will drive the demand for these changes, according to Mr Day.
Other trends that are likely to impact the property market in 2020 are the growth of “mixed-use” developments and the emergence of “overlapping use” buildings; growth in sustainable and affordable mobility on demand in suburbs; increase in the supply and demand for townhouses; the rising significance of “Walk Score”; and a separation of roads, bicycle paths and pedestrian paths.
Ultimately, whatever takes place in the next 12 months, as the beginning of a new decade, will set a precedent for the next 10 years, according to Mr Day.
“As our population grows and innovative new technologies and ideas emerge, future generations will look back at the 2020s and point to it as a decade that reshaped our cities – especially our outer suburbs – more than any other decade in the last century.”
While there are certainly wealth creation opportunities across Australian markets moving forward, in some areas, investors might be better off holding onto their properties rather than rushing to sell, according to Property Club’s president Kevin Young.
Houses that sold for a profit are typically held for 10.0 years and units 8.8 years. In contrast, homes that sold at a loss were typically held their property for 5.8 years while units that sold at a loss were generally held for a similar period of 5.7 years.
Mr Young said: “Investors had a greater likelihood of reselling their properties at a loss compared to owner-occupiers, with 11.3 per cent of owner-occupied properties resold at a loss compared to 17.4 per cent of investment properties.”
“It is therefore critical that property owners who are considering exiting the property market and selling their properties do not do so in markets that are at the bottom of their property cycle or in recovery mode.”
As the Australian property market remains generally in a state of flux, CoreLogic advised investors to be smart about the decisions that they will make beginning this new year.
Over the quarter to July 2018, there have been dwelling value declines in Melbourne, Sydney, Perth and Darwin, while Hobart, Adelaide and Brisbane had increases. Yet regional areas – excluding Western Australia – have either had small declines or reasonable increases over the same period.
Nationally, the number of sales has declined 9.8 per cent year-on-year to July 2018.
At the same time, the annual change in rent values has slowed, sitting at only 1.6 per cent nationally in July 2018. Some areas are stronger than others: Sydney and Darwin rents have declined over the period, while Melbourne and particularly Hobart have maintained momentum to the end of July.
“If you’re an existing property investor or just looking to start your portfolio, it’s important to be realistic about the changing market to determine the best strategy for you,” CoreLogic noted.
CoreLogic’s top 10 tips to help one invest well are:
1. “Do your homework”
2. Consider the location
3. Determine whether you’re going to build
4. Understand future ROI opportunities
5. Weigh up the type of investment
6. Determine possible renovation work
7. Consider DIY work
8. Walk away if you have to
9. “Sweat the details”
10. Protect your investment
For those looking for a specific hotspot, Brisbane’s inner city suburb of Hawthorne emerged as the fastest growing suburb in the country’s north over 2019, moving up by 6.0 per cent for the year, according to CoreLogic’s Best of the Best report.
Bianca Dabu, Smart Property Investment, 27 January 2020