After a long period of flat growth, the fundamentals for Brisbane are arguably looking the best of any state or territory at present. From all indications, we are now past the bottom of the property cycle and we will almost certainly see solid growth for the next seven to nine years. The market is not without some risks though – but let’s go through the positives first.
Presently Brisbane has the largest dwelling stock deficiency of any state or territory. While this should translate into price growth in the medium to long term, the returns will not be distributed evenly. In the more densely populated parts of Brisbane, care must be taken to select property with a clear point of difference.
Source: BIS Oxford Economics
In addition, lending restrictions have been relaxed and the RBA announced an emergency $200b quantitative easing package in November 2020 to recapitalise the banks – with more provided if necessary. This is a first for Australia but has been in use in America since 1987. It has also been virtually the sole cause of every boom-and-bust cycle since then, as the excess money and low interest rate environment makes holding cash unattractive. It encourages investment through the twin threat of inflation (monetary debasement) and low interest rates. We can already see that that the excess capital is beginning to flow into the property market, with the sharp pick up in the value of housing loans.
Following a construction boom as the market peaked around 2018, supply has gradually dried up. Vacancy rates have fallen from a peak of around 4% down to 1.3%, indicating an undersupply in the rental market.
Unsurprisingly, this has resulted in the noticeable tightening of the rental market with weekly asking rents climbing by 13.8% in the 12 months to August 2021. We expect a continued squeeze in the rental market over the next few years. As a consequence, this will invariably translate into continued upward pressure on gross rents over the short to medium term.
Anyone investing in Brisbane within the last 12 years has likely been disappointed with the growth performance of their asset. Property prices have been flat in the 12 years to 2020 growing at an average 2.3% per annum. Units have increased at an average rate of 1% per annum over the same period.
However, if we zoom out and look at the long-term data, we can see that Brisbane property prices have performed very well over the last 30 years. At present, both house and unit prices are significantly below trend, meaning the tendency (moving forward) will be for prices to move up to meet the doted trendline and eventually overshoot.
Source: ABS, Blue Wealth Property
So, with all this great news, should we be jumping headfirst into the Brisbane market? The short answer is not yet. It’s usually a good idea to find out what’s happening on the ground before making an investment decision – if we compare the prices of new property and recently built examples, we can still see a big overhang from the 2018 construction boom. The price difference can be anywhere up to $120,000 for a brand-new apartment and one a couple of years old.
While we are almost certainly in beginning of the upswing for Brisbane property it is probably wise to wait for the price gap to close a little or we run into a real risk of valuation shortfalls. Time is still on our side in the Brisbane and this cycle is shaping up to be a good one.