Separating fact from fiction in the Brisbane rental market

All of a sudden, everyone is an expert on Brisbane. Property news feeds are filled with article after article on opinions and so-called facts on what’s happening in this city. Before you decide that this is another one of those articles, let me tell you it’s not.

I’ll be clear, I’m not one of our research gurus, nor do I claim to be. So, when I was asked to share my perspective on Brisbane and the property market, I was determined to share just the truths from my area of the business. No B.S! That means debunking some of the so-called facts that are being shared.

For me to do this I needed to call on some of my smarter and more knowledgeable friends in the field whose jobs require them to keep their finger on the pulse of this beautiful city.

The first time I visited Brisbane was a few months after I started at Blue Wealth. I flew up from Melbourne to meet Roy and Tony. The agenda was similar every time we visited Brisbane. We would meet at Brisbane airport, we would pick up the hire car and then hit the road—hurriedly squeezing in everything we needed to do in the 30 or so hours we were going to be there. Driving from project to project, meeting to meeting, listening to the repetitive jokes that Tony constantly made about Melbourne’s traffic and crappy weather, the boys would eagerly point out the incredible projects in which our clients had invested their hard-earned money.

Before long, I became familiar with the suburbs. Fortitude Valley, West End, Woolloongabba, Greenslopes, Newstead, Chermside to name a few… and one of my favourites, Toowong—which I apparently pronounce wrong. I also formed close working relationships with a lot of the local agents. Staying in constant contact.

Like most of our investors, I fell in love with Brisbane. I loved that it reminded me of a smaller version of Melbourne but with better weather (don’t tell Tony I said that). I loved the planning and infrastructure that was coming to Brisbane. I could certainly see how Brisbane was on its way to becoming a sought-after city to live in and certainly on track to give Melbourne and Sydney a run for its money.

Back in those days (2018) there was a lot of discussion around the supply of new housing. Apartment towers were being erected across the city. A surge of building approvals from a few years earlier were making their way through the construction pipeline. Now, if you read my previous article about what an oversupply of property can do to rentals, you would know that it does one thing and it does it well… softens the rental market.

During 2018 and into 2019, rental returns were average. Tenants had an abundance of choice and the vacancy rate, although trending downward, was bouncing around 2.5-3%. Luckily for our clients, vacancy protection was in place which helped substantially. For the standard investor with inferior product, prolonged vacancies led to them taking a considerable financial hit.

Then 2020 happened. At the beginning of the year, experts were tipping South-East Queensland to lead the country in its long-anticipated price performance. But then landlords encountered a new set of challenges. The moratorium and rental relief grants were introduced, and tenants began dictating rental reductions, causing landlords to take more hits. According to one of my friends in the field, George Lakidis from Avalon Group, Brisbane’s rents fell as much as 9% in some suburbs. In West End where George manages the Vida building on Buchanan St, rental properties saw an average adjustment of $15 a week to rental prices.

Brisbane, like most cities, was dealing with a market flooded with short term holiday letting and a temperamental state leader whose answer to everything was to lock out all other states (I promise, I won’t get political). But compared to most states, Queensland’s recovery fared well.

Toward the end of last year and certainly continuing on this year, Brisbane’s rental market is recovering. It’s now experiencing the lowest vacancy rate since 2012. In fact, the rental market is booming. According to Hayley Fisher from Newstead Realty, most of the properties that involuntarily reduced rents during COVID have increased back to pre-COVID rates.

It’s easy to assume that the so-called ‘rental boom’ is clearly due to the increase in interstate migration due to COVID, right? After all, isn’t that what every media outlet is reporting? I wasn’t convinced and neither was Gavin Chau, one of our Senior Research Analysts who collaborated with me on this article.

I sat down with Gavin: poking and prodding his big brain. There was a lot to look at, so let’s get started…

Who is moving to Brisbane and why? 

Over the last year, Queensland had a net inflow of around 25,000 people. Most of the people moving to Queensland are coming from the southern states with a net gain of 7,200 people in the September 2020 quarter. There were 22,300 arrivals from interstate and 15,100 departures. In net terms, Queensland gained the most people from New South Wales (4,000), then Victoria (2,400), the Northern Territory (350), (Adelaide 290), Australian Capital Territory (150) and Tasmania (100).

Why is more nebulous. The bulk of the arrivals to Queensland are people aged 25 to 44 which would suggest that employment opportunities are a key driver, although I believe lifestyle and cheaper property prices would likely be a major consideration also. This is certainly the case among my peers who have moved away from Sydney. Their primary consideration is to get away from the perennially high property prices and traffic. They can lower their mortgage stress and rent out or sell their Sydney property, the schools and universities there are equal to the southern states and so are the health services and infrastructure–the climate is much better than Victoria too!

Is this temporary or have people finally figured out that Brisbane has a lot to offer? 

This is part of a long-term trend. Queensland has pretty much always been less congested with a lower cost of living than Sydney or Melbourne.

Is job security a factor?

Job security is always a factor – it’s unlikely that many people will move anywhere these days unless they’ve secured a job first.

What will happen when we go back to normal life? 

There isn’t anything in the data to suggest that the current interstate migration figures are driven by COVID-19. It seems like this is just a media narrative. Even a cursory examination of the data would make it clear that the net internal migration flows to Queensland are part of a long-term trend. The graph below shows that net population increases from internal migration have been part of its landscape for at least 40 years.

Given that we know building approvals have steadily declined since the peak back in 15/16, what effect will this have on not only the rental market but the wider property market? 

Brisbane is forecasted to have an undersupply extending to at least 2024.This should push both rents and property prices up. We’ve already seen the effect of this in the data, particularly in the detached housing market which has seen close to an 8% rise in gross rental prices. We expect this to flow onto the unit market as well. Property prices have also had a 4.8% growth over the quarter which is a great result.

When will apartment prices increase?

In areas that are not densely populated with a lot of apartments, the prices have already begun to move. I expect there to be a solid pickup in apartment prices from 2022 to around 2026-27. The Australian property market tends to have a 15 to 18-year cycle peak to peak or trough to trough. And the Brisbane property market last peaked around 2008.

Brisbane also has some of the best rental yields and the lowest vacancy rates in any state or territory in the country. Also, the $200b quantitative program is likely to lift property prices around the country. Money supply has been increasing at around 15.5% per annum since late-last year and the resultant drop in interest rates from the bond purchase program has meant that the twin threat of monetary debasement and low interest rates is effectively forcing people into investments. We expect this coming property boom to be a big one.

So, where to from here?

In conclusion, the performance of Brisbane over recent years demonstrates the value of holding property long term. When it’s the best time to buy, it’s usually the worst time to sell, which means you have to be patient. Waiting out the market cycle means you’ll experience periods of rental decline, as well as upturn and stagnations. The same applies to the sales market. My advice to landlords is to ensure you are incrementally increasing your rent during times of upturn (if permitted in your contract), rather than holding off for a big chunky increase in the future. This is a shock to the system to your tenant and could lead to them having to move elsewhere.

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