BRISBANE HOUSING MARKET 2018 STUDY
Executive Summary Brisbane s residential market, especially the detached houses segment has risen steadily over the last year due to the rise in population, falling unemployment and shift in demand from other markets like Sydney and Melbourne The housing market of Brisbane has witnessed capital appreciation of 4.1% in the last 12 months and 0.7% in Q4 17. Median property prices are lowest amongst the three biggest housing markets of Australia (Sydney, Melbourne and Brisbane) at $549 per sq. ft. The primary drivers for this steady and sustainable growth has been the following: Affordability Steady economic and demographic growth along with rising employment Balanced housing supply and demand levels Price and Transactions Timeline (Annual & Monthly) 125.0 120.0 115.0 110.0 105.0 2014 2015 2016 2017 House Price Index Sales 40000 30000 20000 10000 0 110 109 108 107 106 105 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 House Price Index Oct-17 Nov-17 Dec-17 Jan-18 The apartments segment, on the other hand is going through a downturn due to excessive new construction in last couple of years. Although recent numbers are indicative of a slowdown in activity but completion will still take time and might still put downward pressure on apartment prices. Annual Capital Appreciation Quarterly Capital Appreciation Median Property Price 4.1% 0.7% $549per sq. ft. Houses Greater Brisbane rental yields remain above that of Sydney and Melbourne. However vacancy rates are higher in Brisbane and remain a risk to investors. Overall, the market has held up well and can be seen as one of the best performing residential markets of Australia in the medium term. Annual Capital Appreciation Quarterly Capital Appreciation Median Property Price -6% -3% $196per sq. ft. Apartments
Housing Demand & Supply Demand has been on the decline in last 12 months and construction is slowing down Demand has been on the declining trend, especially for apartments as their prices have declined steeply in the last year coupled with the stricter lending criteria by banks. Though this has also hit the housing market, the impact has been low due to the steady performance of the market. However, improved population growth and declining unemployment should improve demand in the medium term. To the year ending August 2017, the volume of jobs in Queensland increased by 3.7%, above the 2.6% national average. With the employment market getting a boost, interstate migration has followed suit: an average of more than 3,000 people entered the state over for the six quarters leading up to August 2017. With Sydney and Melbourne still being unaffordable for many, demand is flowing from these cities to Brisbane. Queensland Population Growth 53,00,000 52,00,000 51,00,000 50,00,000 49,00,000 48,00,000 47,00,000 46,00,000 45,00,000 44,00,000 43,00,000 2013 2014 2015 2016 2017 2021 (Projected) Population Unemployment Rate Housing Market Size Annual Growth Transactions Q1 Q3 17 $14.14 Bn -5.2% 11483 6.6 6.4 6.2 6 5.8 5.6 5.4 5.2 5 4.8 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 On the supply side, apartments approvals have fallen by 59.9% over the year to September 2017, strongly indicating the slowing down of the pipeline. Massie apartment construction activity is happening in Inner Brisbane. Contrary to this, housing approvals have jumped 9.6% over the same time period with most housing development seen in the Outer suburbs.
Micro-Markets Price Performance and Industry Outlook While house prices might continue the steady growth, the apartment market might see further declining prices due to oversupply and the general increase in mortgage rates resulting in demand reduction Demand is expected to remain steady for housing, while further declines are expected in the apartment market until it comes to terms with recent completion numbers. The apartment prices might face more downward pressure as it is still uncertain whether the oversupply has peaked. Considering that happens and the quantum of price decline is big (similar to a market correction) that could bring the entire housing market down. In such a scenario buyers would shift their focus away from the housing market to the apartment market resulting in declining housing prices. In case the apartment prices remain flat, which is likely, the overall residential market would see steady growth over the next couple of years. 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Greater Brisbane Outer Brisbane Inner Brisbane Middle Brisbane Rental Yields 3 year capital appreciation 1 year capital appreciation Returns 5 Year Returns 3 Year 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% Y-O-Y Oct 17 Data 3 Year Returns Coming to the performance of key suburbs within the Greater Brisbane Area, the Inner and Middle rings have outperformed the Outer ring suburbs as the apartment completions take their toll on the market. Although returns are negative for last three years but staying invested for five years would yield positive returns with Brisbane expected to witness a 9% return on investment over five years. HOUSES DEMAND SUPPLY UNITS Inner Brisbane is the safe haven for investors with prices increasing at a steady rate of 4% in the last 12 months and by 4.4% annually over the last three years, followed by Middle Brisbane. PRICES
Top Locations for Investment The Inner suburbs offer safe investment option but to maximise returns one should look at the housing market of the Outer suburbs with maximum development The Inner ring suburbs offer safe investment options with average capital appreciation being ~4% and some of the suburbs experiencing rallying price growth (St Lucia at 20%, Paddington at 17%). These areas have had negligible development and form the prestigious locations of Brisbane. However, it is advisable that one should invest in new houses built in the Outer ring suburbs which are most affordable and have high potential of capital appreciation over the short to long term due to heightened development activities. Also, the Inner ring suburbs would see most of the new apartments construction and hence would also be profitable. The key areas would be: Houses North Lakes-Mango Hill (Ipswich) Ripley (Ipswich) Redbank Plains (Ipswich) Springfield Lakes Apartments Fortitude Valley (Inner Ring) South Brisbane (Inner Ring) Woolloongabba (Outer Ring) Indooroopilly (Inner ring) Top Locations with Maximum New Houses 620 600 580 560 540 520 500 480 Top Locations with Maximum New Apartments 800 600 400 200 0 North Lakes -Mango Hill Ripley Redbank Plains Springfield Lakes New Houses Average Price Fortitude Valley South Brisbane Woolloongabba Indooroopilly New Houses Average Price $3,00,000.00 $2,50,000.00 $2,00,000.00 $1,50,000.00 $1,00,000.00 $50,000.00 $0.00 $6,00,000.00 $4,00,000.00 $2,00,000.00 $0.00 Key Developments Queen s Wharf Brisbane is set to attract new visitors and investment as it reconnects the activity of Brisbane s defining parts of the city like the Botanic Gardens, the Queen Street Mall, the Cultural Precinct, South Bank, the Parliamentary Precinct and the Brisbane River. Brisbane Airport Australia is currently on the way to delivering the country s best runway system with the $3.8 billion New Parallel Runway Project (NPR) for Brisbane Airport. While the airport has about 100 other projects in the works for the next 10 years, this NPR is considered the biggest aviation project in Australia.
Investment Scores and Returns The Outer Brisbane suburbs offer the most affordable investment options and hence score high in terms of overall investment performance. Whereas from a returns perspective, Inner and Middle Brisbane fare better with their high end housing markets with maximum capital appreciation. From an investor point of view, assuming the pricing, rental yield and vacancy rate fluctuations remain at their last 5 years average value, rate of returns from investing in Brisbane s key micro-markets would be 6.4% for Outer Brisbane, 12.18% for Inner Brisbane and 8.8% for Middle Brisbane. Micro Market Positioning in Terms of Returns Investment Score 70 60 50 40 30 20 10 0 Outer Brisbane Middle Brisbane Greater Brisbane Inner Brisbane 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Size of bubble indicates median residential price Returns Market Rental Yields 3 year capital appreciation GDP Per 1 year capital appreciation Vacancy Capita (factored) Transaction Cost LTV Factored Cost of Capital Capital Gain Tax Capital Gain Tax (Factored) Rental Income Tax Rental Income Tax (Factored) PSF (USD) PSF Factored Returns 3 Year Returns 5 Year Investment Score Grea ter Brisbane 4.70% 4.50% 4.10% 2.90% 6.73% 7% 7% 4.28% 32.50% 3.25% 25.00% 2.50% 549 5.40% -0.15% 9.14% 47.75 Outer Bri sbane 4.70% 3.57% 2.90% 2.00% 6.73% 7% 7% 4.28% 32.50% 3.25% 25.00% 2.50% 300 3% -2.04% 6.44% 62.39 Inner Brisbane 4.70% 4.40% 4.00% 3.70% 6.73% 7% 7% 4.28% 32.50% 3.25% 25.00% 2.50% 474 4.74% -0.35% 12.18% 44.55 Middle Brisbane 4.70% 4.43% 3.50% 3.40% 6.73% 7% 7% 4.28% 32.50% 3.25% 25.00% 2.50% 383 3.83% -0.29% 8.80% 54.01
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