As Queensland heads into recovery, its capital is quickly proving itself worthy of notice.
What doesn’t kill you makes you stronger; this saying rings very true for Queensland, which is coming out stronger after battling a slew of economic and environmental challenges in recent years. The long period of underperformance started with the global financial crisis in 2008 and culminated in severe floods about two years ago, but a recovery was finally predicted for the state last year. Following this prediction, the spotlight has naturally turned to Queensland’s capital, Brisbane, which is expected to lead the recovery.
Brisbane has always played second (or third) fiddle to Australia’s perennial headline-hoggers, Sydney and Melbourne. But this looks set to change. The QBE Australian Housing Outlook 2014 predicted that Australia’s third largest city will outperform all other capital cities over the next three years, possibly reaching a high of 17% in median house price growth.
It’s still early into the three-year timeline given by the QBE, so reality has yet to prove as rosy. Recovery is sure but uneven, with price growth healthier in the inner and middle suburbs than in the outer ones. Some industry insiders believe that growth is likely to remain in the single digits, a more moderate figure than that given by the QBE.
Moderate growth is not at all bad news, however. Unlike the property markets in Sydney and Melbourne, which many believe are headed for a bubble or are already in one, Brisbane’s comparatively cooler market means that there is no danger of a meltdown and prices remain affordable. Average property price in the city hovers around AUD 500,000 while Melbourne is getting close to AUD 800,000 and Sydney has exceeded the million dollar mark. The mining investment boom is coming to an end, which indicates that foreign investment and migration into Queensland and its many mining communities are slowing down. This slowdown, however, is likely to be countered by a trend of property investors moving out of Sydney and Melbourne in favour of Brisbane due to the city’s affordability.
An immediate effect of this affordability is strong yields. Rental yields in the capital of Queensland are about 6%, compared to the 4% or 5% seen in Sydney and Melbourne. “As investments, Brisbane’s properties are very attractive due to higher-than-normal rental yields and lower entry prices – at least 40% cheaper than Sydney and 20% cheaper than Melbourne. The city has greater growth possibilities,” explains Jeremy Gilmore, regional director of the Australia-based property marketing agency, 360 Property Group.
This affordability is further boosted by the current low interest rates. “It is now the cheapest it has ever been to borrow,” says Gilmore. “The lowered cash rate (implemented by the Reserve Bank of Australia (RBA) early this year) has certainly had a positive effect on the property market. Returns are stronger for property across Australia due to the lower borrowing costs, generating higher yields for investors. The devaluation of the Australian dollar has also encouraged strong interest from Asian buyers.”
According to a recent report by Knight Frank, the next wave of Chinese capital flowing into the Australian property market is likely to target new destinations like Brisbane, Gold Coast, Adelaide, Perth and the suburbs of Sydney and Melbourne. This prediction is backed by a report titled Demystifying Chinese Investment in Australia jointly published by KPMG Australia and the University of Sydney’s China Studies Centre.
The essay writes that: “Chinese high-net-worth investors and developers are looking to new destinations offering discounts on prime property such as Miami in the US. In Australia, Brisbane, Gold Coast, Adelaide and the regional suburbs of New South Wales and Victoria will start to gain more traction… The quality of life, weather, clean air and world class education institutions all act as a magnet for Chinese developers and migrants alike.”
Property investors interested in Brisbane would do well to act now in order to ride the predicted upswing. While Sydney is currently leading with a price growth of about 10% and Melbourne is a close second at 6.2%, both markets are peaking and are expected to slow down in 2016 to 5% and 3.5% respectively. Price growth in Brisbane is expected to hit 3% by the end of this year and unlike in Sydney and Melbourne, will probably continue to go up in 2016, possibly hitting 5%.
One dark spot in this rosy picture is the oversupply in the apartment sector. Several construction projects are currently underway, and once completed, will release a large surplus of apartment units into the market. This spells a stagnating of unit prices – bad news for those who already own apartments, but good news for those intending to buy. One consolation is that the oversupply in apartments is very much localised within 3km of Brisbane’s CBD, and is not indicative of the market as a whole.
Ironically, this is also where Brisbane’s market has the most potential. Proximity to the CBD and waterway will always remain an infallible pull factor. Neighbourhoods such as Fortitude Valley and South Brisbane are looking very promising partly due to the government’s development plans. Infrastructure spending in these areas will boost their already great amenities to make them even more liveable.
Other suburbs showing good potential include Oxley, Carina and Hawthorne. Oxley is located just 11km from the CBD and well-connected by the Ipswich Motorway and local train station. The neighbourhood is also home to two golf courses and the Canossa Private Hospital. Carina, located 7km from the CBD, is reaping the benefits of a new transport system and has a good supply of houses on large blocks of land. Last but not least, Hawthorne, just 3km from the CBD, is an underrated and undervalued area that deserves more attention.
As Australia’s third largest city and the one with the strongest population growth currently, Brisbane is abound with possibilities. Its strong recovery indicates that the city is on track to becoming Australia’s economic powerhouse and hottest property market.