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South-East Queensland Poised for Property Upturn

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South-East Queensland Poised for Property Upturn

The Queensland economy is now well into recovery stage after an inevitable slump following the mining boom.

In the third quarter of 2017, state final demand rose a significant 2.7 per cent year-on-year, which was the first time in three years this measure returned a positive result – the culmination of five consecutive quarters of positive growth.

Access Economics have also forecast the Queensland state final demand will average 3.8 per cent annual growth over the next four years, easily outstripping the average annual growth of 0.2 per cent in state final demand over the last five years.

Infrastructure boom set to takeover apartment construction

According to JLL, Queensland employment surged 4.1 per cent year-on-year to August 2017, easily surpassing Victoria and New South Wales (3.7% and 2.3% respectively) and the national figure of 2.8 per cent.

This is in spite of a clear slowdown in the construction of apartments in Brisbane that has been well underway for the better part of 18 months.

Building approvals for units in the greater Brisbane area were down 59.9 per cent for the year to August 2017 as it became harder for both developers and investors to obtain finance.

Interestingly, the pressure from APRA for banks to limit investor finance has actually benefited the Brisbane apartment market. It has inadvertently forced developers to create more appealing and better quality products – which is contributing to a change in buyer profile to more owner-occupiers and less investors and reducing the amount of “cookie cutter” apartments in the market.

Over the coming quarters, it is anticipated approval numbers will remain subdued. However, any negative employment effects felt from a reduction in construction will be offset by the burgeoning pipeline of infrastructure programs currently underway or soon to commence in Queensland.

Major Infrastructure Projects

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Cross River Rail

With the recent re-election of the Palaszczuk government, Brisbane’s $5.4 billion Cross River Rail will commence construction next year.

It will involve the construction of four new underground stations, significant upgrades to existing stations and Brisbane’s first southern CBD rail station at Albert Street.

Forecast to create 1,500 jobs annually, the Cross River Rail project is due for completion in 2024.

 

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Queens Wharf Redevelopment

The redevelopment of the $3 billion Queen’s Wharf precinct is one of the largest developments ever undertaken in Queensland. It covers 27.3 hectares, roughly one fifth of the CBD area.

At peak construction, Queens Wharf is projected to created 2,000 jobs with 8,000 jobs ongoing upon completion in 2024.

Queens Wharf will house over 50 restaurants, bars and cafes upon completion, with an additional 1,000 hotel beds and 2,000 apartments in the residential precinct.

Once fully operational, Queen’s Wharf is expected to bring an additional 1.39 million visitors and an increased tourism spend of $1.69 billion annually.

 

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Brisbane Showground regeneration

The redevelopment of the 22-hectare site is the largest brownfield development of its kind in Australia.

Due for completion in 2026, the $2.9 billion redevelopment of the Brisbane showgrounds will generate more than 2,000 jobs over the course of the development and add over $300 million annually to Queensland’s economy.

 

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Brisbane International Airport second runway

This is the largest aviation project currently underway in Australia, and one of the largest currently being undertaken globally.

Due for completion in 2020, the $1.35 billion second runway will create 2,700 construction jobs over seven years.

By 2035, Brisbane airport will handle 50 million passengers a year.

 

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Herston Quarter redevelopment

A world-class health and wellbeing precinct will become a new landmark in Brisbane’s northeast.

The $1.1 billion precinct is due for completion in 2027, creating 700 jobs in the construction phase.

Brisbane Metro

Due to commence in 2019, the $944 million Brisbane Metro project will feature two new high-capacity, high frequency metro lines connecting Brisbane’s southern suburbs and inner northern suburbs with the CBD.

Due for completion in 2022, Brisbane metro will create 7,000 construction jobs.

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Brisbane’s Property Outlook

Cyclical lows for inner city residential developments

As the cranes come down and the lights go on, we’ve officially hit the settlement stage of the inner-Brisbane apartment market.

The number of apartments being approved is now at cyclical lows and has been edging that way for quite some time.

Urbis reported the third quarter of 2017 saw only 672 apartments reach development approval status – a significantly lower number than those in the peak of the cycle which reached over 5,000 apartments per quarter in 2014 and 2015.

We’re also seeing cyclical lows for the number of pre-sales achieved each quarter, with the last four quarters averaging 348 in sales volumes.

These figures are a result of the stage of the cycle the market is in, reflecting the natural slowdown in completed stock that will likely carry through until 2020. And while small pockets of Brisbane have seen an oversupply in the last 18 months, prices have not been materially affected.

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Significant growth for house prices

This chart from JLL’s third quarter Brisbane Apartment Market report shows Brisbane apartment prices were down only 0.2 per cent as at August 2017 year-on-year, while houses returned a robust 4.2 per cent positive growth story. Given this period spans the peak supply periods of the Brisbane apartment market (2016 and 2017) this is a reasonably solid result for apartments.

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On a citywide level for apartment price growth, even the so called “hotspots” have remained relatively buoyant, despite the “oversupply” story.

The table below shows the five strongest and weakest performing suburbs for median price growth for Brisbane houses and units for the 12 months to August 2017.

Supposed “problem suburbs” such as Newstead and Brisbane City have only seen a median price drop of 2 per cent each for the year and other challenging areas such as West End have achieved small positive returns in the 12 months to August 2017 (again, approximately 2%).

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Brisbane housing values remain steady against soaring Sydney

The Brisbane housing market has not seen the same run up in prices as our east coast sister cities, Sydney and Melbourne. As a result, Brisbane should be insulated from any major price correction some economists are forecasting for these cities.

In fact, Brisbane’s housing is now valued at only 43 per cent of Sydney’s – which is at both historical and cyclical lows for the last two decades. The chart below shows the relationship between dwelling values in Brisbane as a percentage of Sydney’s and net interstate migration.

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So what does this chart tell us?

  • Over the last two decades, Queensland’s net interstate migration peaked at just under 40,000 people (2002). This coincided with Brisbane’s housing being at its lowest value in relation to Sydney’s (43%).
  • In 2017, the ratio was at the same level as it was in 2002, as a result of Sydney’s recent bull market run up in prices.
  • Queensland’s net interstate migration has been steadily increasing since 2014 and history suggests that the dwelling price difference to Sydney (and Melbourne) should lead to a surge in interstate migration in the coming years and a subsequent surge in dwelling values in Brisbane.

Indeed, according to the Macquarie Bank equity strategy team we can expect “another great wave of interstate migration into Queensland.”

Based on past patterns, approximately 130,000 people could be expected to make the migration north into Queensland over the next three years.

The average number of migrants over a three-year period is greater than the peak year in the above chart.

Migration on this scale would more than likely soak up any additional supply in the Brisbane apartment market, and could also drive up real estate prices.

Over the medium-term, the Brisbane property market is looking steady due to:

  • Lower apartment supply and surging interstate migration.
  • Political stability and a burgeoning pipeline of major infrastructure project.

JLL’s outlook for the Brisbane property market for the 12 months out from December 2017 can be seen below. While there is still some supply to work through the system, the outlook for unit prices in the next 12 months is steady, and they expect price appreciation in the housing market.

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Gold Coast to see improving state employment and net migration

The Gold Coast property market boasts similar features to Brisbane – and is likely to see the same benefits as a result.

  • Wide price differential compared with Sydney and Melbourne
  • Improving state employment picture
  • Increasingly stable state government
  • Expected increase in net state migration.

Where the Gold Coast market differs is on the supply side of the equation – particularly since the global financial crisis.

Lenders exposed to the Gold Coast apartment market experienced losses at this time, and as a result lending on large developments all but dried up in the ensuing years.

Under normal circumstances, a chronic lack of supply would lead to a sharp upturn in prices – but in the case of the Gold Coast, there was an equal lack of confidence from buyers, particularly from interstate investors.

So, for the Gold Coast, prices are only really now getting back to pre-GFC levels for off-the-plan apartments in desirable beachside locations.

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Source: McGrath Projects

What can we see from this chart?

  • The median apartment price for Gold Coast has practically flat-lined since around 2008.
  • Historically, the median apartment price of Gold Coast and Sydney have converged after Sydney has had a run up in prices. This should give confidence to buyers of Gold Coast apartments in the short to medium term, given the gap is at the widest it has been in the last 20 years.

Looking ahead

South-east Queensland’s property market seems to have weathered the worst of the economic storm and the oversupply of apartments in and around the Brisbane CBD.

The economic and demographic signs are now positive for both Brisbane and the Gold Coast:

  • Strong employment growth
  • Extremely strong outlook for the state economy (projections for State Final Demand)
  • Huge pipeline of infrastructure yet to be complete
  • Net interstate migration story.

If the latter plays out as expected, this should provide an enormous transfer of wealth from the southern states – and would have far reaching positive outcomes for the economy and property prices as a whole.

If the market can navigate 2018 safely, the ensuing years could potentially experience some of the strongest years of price growth for south-east Queensland property since the early 2000s.

Originally Published: brisbaneinvestor.com.au

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Opinion

Expert insight: Should investors buy Brisbane properties today?

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Expert insight Should investors buy Brisbane properties today

With the Sydney and Melbourne property markets declining, the stability of the Brisbane property market has been welcomed by investors with open arms. Will the Queensland capital ultimately emerge as the next investment hotspot?

While Brisbane has yet to witness a stellar growth in its property market, the capital city has remained stable in the past few months as other major capital cities suffer continuous decline in property values.

As a result, a considerable number of investors are starting to flock into the Queensland capital, hoping to take advantage of the affordable entry points and consequently benefit from the eventual rise of its property market in the near future.

How exactly will the Brisbane property market be performing in the next five years?

Streamline Property Buying’s Melinda Jennison said that, in general, she’s optimistic about the Brisbane property market moving forward.

“We’ve certainly had a lot of headwinds as have all property markets now that the royal commission and the federal election are behind us, even though we still have tight lending – that’s going to continue into the foreseeable future, I think. With the second half of the year coming up, one or two rate cuts may provide further stimulus into the market.”

“Brisbane itself had a 38 per cent reduction in building commencements just in the last 12 months. We had an oversupply in the apartment market but that has been absorbed by the accelerating population growth. Vacancy rates are now declining in some of the inner city locations,” the buyer’s agent highlighted.

With good population growth and a decline in housing supply, the Brisbane property market only needs employment and wage growth to complete the ‘perfect recipe for upward pressure on prices’, according to Ms Jennison.

Where to invest

As there is no ‘one size fits all’ strategy for investing in property, Ms Jennison highlights the importance of understanding the investor’s personal goals before ultimately jumping into a purchase.

What type of results do they want—rental yield, capital growth, or a balance of both? How can they get their considering their personal and financial capabilities and limitations?

Moreover, investors are encouraged to study the fundamentals that will drive growth into their assets over the long-term.

Ms Jennison said: “We love trains and sub-train line locations, but Brisbane is very widespread and we don’t simply buy in all train line locations.”

“There are blue chip suburbs and the fringe suburbs just on the outer areas of those blue chip locations – the train lines there, that’s where we’re certainly looking at right now… Where there’s price disparity between one suburb and the next, there are certainly opportunities for investors there.”

Apart from train stations, investors are also advised to look out for ongoing and upcoming infrastructure projects in the area, which could ultimately spur growth for investment properties.

In Moreton Bay, for instance, the new campus of the University of Sunshine Coast is expected to improve the housing market conditions across The Mill at Moreton Bay, the new destination with the university at its core, and, ultimately, the entire Moreton Bay region.

Stage one of the campus, which will be located adjacent to the Petrie railway station, is set to be completed in time for the first semester of 2020.

“We feel that Moreton Bay will gentrify quite quickly with young university students moving in, so we’ll see the types of accommodation gradually change over time to suit their preferences. There’s lots of opportunities within the area and the region as a whole because of this gentrification.”

Finally, rezoning may also spur growth in certain property markets across Brisbane in the near future.

Local councils often rezone land to assist in the planning for future growth. Rezoning, therefore, typically occurs around growth corridors or areas where the population and infrastructure spending has been rapidly increasing.

“A lot of the land has been rezoned and we’re certainly still finding great opportunities in that region for investors that are in the $500,000-price point. If we were to categorise investors in Brisbane based on price point alone, that would definitely be our preferred location right now.”

“Were not going Logan or Ipswich for the simple reason that property investment is all about supply and demand—the availability of future supply of land in the Moreton Bay region is a lot more limited than it is when you go west towards Ipswich or when you go south towards the Gold Coast,” Ms Jennison explained.

At the moment, Brisbane is ripe with off-market opportunities, which puts investors who engage property professionals at an advantage.

Property professionals with local knowledge of the markets could serve as the perfect guide and ‘insider’ as investors try to navigate the real estate landscape, especially in changing markets such as Brisbane. Thus, investors are strongly encouraged to engage field experts, where appropriate.

“We’re certainly getting a lot of off-market opportunities presented to us as we get an influx of interstate investor activity… There’s some great buying opportunities across Brisbane, and we’re achieving yields of upwards of 5 per cent right now.. Even up to 5.5 or 6 per cent per annum,” she concluded.

Source: brisbaneinvestor.com.au

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Opinion

How good an investment is south-east Queensland

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How good an investment is south-east Queensland

Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.

We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that are already well-positioned in the market.

A significant and growing population

South East Queensland (SEQ) stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred. This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.

A diversified economy poised for growth

Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing, and services. Over the past two decades, its economic growth has consistently exceeded the national average – and in our view this is likely to continue.

The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property.

Investment in infrastructure

A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment, and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.

Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors.  Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2,000 people during construction and an estimated 10,000 once operational.

The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts.

Outlook for commercial office property investment

These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million), with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.

Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression, demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 2017.

With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.

Source: brisbaneinvestor.com.au

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Opinion

Brisbane’s out-performing real estate markets: Hotspotting’s Terry Ryder

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Brisbane's out-performing real estate markets Hotspotting's Terry Ryder

Brisbane is like a car where the engine is revving but it can’t move forward because the handbrake is on. The city’s property market is poised for an up-cycle but, according to the generalised price data published in mainstream media, it’s not yet happening.

Brisbane is like a car where the engine is revving but it can’t move forward because the handbrake is on. The city’s property market is poised for an up-cycle but, according to the generalised price data published in mainstream media, it’s not yet happening.

The key point for investors, however, is that there are many Brisbane markets achieving above-average price growth.

There’s no doubt that Brisbane real estate has an underlying strength and it continues to show gradual improvement in its market. It remains poised to deliver on the potential shown by advances in the economy, population trends (lots of Sydney refugees are escaping to affordable South-East Queensland) and infrastructure spending. 

The price data for the Greater Brisbane Area is noteworthy, because it shows that the generalised figures published in mainstream media are highly misleading. The latest figures from sources like SQM Research, Domain and CoreLogic have Brisbane houses showing little or no growth in the past year, but Hotspotting’s suburb-by-suburb analysis shows there are many out-performers.

We analysed 269 suburban markets, looking at the latest price figures showing quarterly and annual growth rates: 83 of them have recorded annual price growth above 5% (including 20 suburbs with double-digit growth) and another 100 have recorded growth below 5%; 47 have dropped by less than 5% and 39 have dropped more than 5%.

This means seven out of 10 suburban markets have median prices higher than a year ago – very different to the trend in Sydney which is dominating media coverage and causing careless analysts and writers to morph that into a national downturn.

Many of the Brisbane suburbs where the median house price has lifted more than 10% are higher-end markets, including Bardon (up 11% to $1,005,000), Hendra (up 13% to 1,100,000), Graceville (up 13% to $950,000), Kenmore Hills (up 10.5% to $900,000), Norman Park (up 10% to $950,000) and Paddington (up 11% to $1,165,000).

But the highest annual growth in median house prices has been recorded for Sandgate houses (up 19% to $755,000).

A key trend is that 27 or the 39 markets with prices down more than 5% are unit markets: median prices have dropped for apartments in Bowen Hills (20%), Bulimba (15%), East Brisbane (15%), Woodridge (10%), Greenslopes (11%), Hamilton (11%) and Woody Point (18%). 

This reflects the cold reality that the Brisbane unit market has been oversupplied for the past few years – and not just in the inner-city areas.

The Moreton Bay Region LGA has been the busiest market in Greater Brisbane for some time – and my latest survey of sales activity shows that the number of suburbs with rising demand has risen from 7 (six months ago) to 12 – making it one of the leading municipalities in the nation for growth markets.

Growth locations include Bray Park (median $435,000), where quarterly sales have been 37, 57, 62 and 65 in the past 12 months; Murrumba Downs ($540,000) where the sales pattern has been 50, 60, 58 and 68; and Everton Hills ($595,000), where sales have been 26, 39, 39 and 45. 

A number of Moreton Bay suburbs recorded good median price growth in the past 12 months, including Beachmere (up 10%), Sandstone Point (8%), Upper Caboolture (7.5%), Strathpine (10%), Burpengary East (up 9%) and numerous others which grew 5-6%.

The Brisbane-north precinct (the northern suburbs of the sprawling Brisbane City Council area) is now level with the Moreton Bay Region on growth markets (those where demand, as measured by sales volumes, is rising). 

With Moreton Bay Region and Brisbane-north the strongest market, it means the Brisbane market is strongest north of the Brisbane River (with more than half the rising suburbs in the Greater Brisbane area being in these two northside precincts).

A number of Brisbane-north suburbs recorded have good annual price growth, headed by Gordon Park (9%), Hendra (13%), Sandgate (19%), Newmarket (8%) and Nudgee (10%) – while many others have grown 5-6-7%.

These numbers, once again, show how misleading the generalised data is – and that investors need to dig a little deeper to find the growth markets. Brisbane – boosted by the affordability and rental yield comparisons with the biggest cities – has a lot more forward momentum than the media reports suggest.

Once the handbrake comes off (with the big banks starting to compete for business again and the Federal Election soon to be history), Brisbane will become a more obviously upwardly-mobile market.  

Source: brisbaneinvestor.com.au

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