In part #1 of this story; Property Correspondent investigated some of the reasons why Brisbane is considered to be a hot property market right now. However, it would be foolish to paint such a glowing picture of Brisbane’s investment prospects without addressing the negatives.
And, there are a lot of them!
So what are the pitfalls and risks that property investors may face in Brisbane? And, after weighing the pro’s and con’s that the Brisbane residential investment market has to offer; what and where are the best opportunities?
1) Population growth and Mining-industry transition to other sectors have both disappointingly flat-lined
Unfortunately Brisbane has not yet had the population growth that was predicted for it; based on data back in 2010/11 that suggested we’d see for a bigger population growth. This is tied to the fact that whilst Brisbane is developing it’s non-mining-reliant industries (as above); their progress has been sluggish and targets have not yet been hit. This isn’t to say that this won’t change; the visibility is that it will; however it is taking time. As a result of the lack of jobs-growth; population-growth has also muted.
2) Oversupply of Off-the-plan (OTP) new unit builds in the inner CBD ring of the city.
Keep point #1 in mind as you read this point. This is the single biggest threat to Brisbane’s ‘hot’ status in property investment terms. With muted population and economic growth; it would be illogical for the city to approve the build of hundreds and hundreds of new residential apartments in this city, at least until population growth starts evidencing upwards. Well unfortunately that is not happening. Developers will always be keen to make profit; and Brisbane’s inner-city apartment building boom has been allowed, despite lack of evidence that there is rental and owner-occupier demand for so much stock.
Similaly to what will happen in pockets of Sydney (I.e. Alexandria/Green Square/Parramatta); and Melbourne (Docklands, CBD etc.) in coming years; Brisbane CBD will be faced with a glut of oversupply of apartments. Unless population growth dramatically picks up; high vacancy will result. If you were to spend say $500K on an OTP apartment in Brisbane CBD now; with a forecast rental return of say $500 per week, ‘now’; how disappointing would it be to find out that upon completion in 2017, your apartment can’t get more than say $375 – $400 per week in rent, due to such oversupply of units reducing the scarcity value of yours; and hence dragging rents that tenants are willing to pay, right down Suddenly, you’d be sitting with a not so ‘hot’ apartment that is highly negatively geared.
The last point on this is to question the quality of these builds and the developers. Super-high strata rates also add to the poor performance prediction (unfortunately, someone has to pay for the maintenance on all those splashy vertical gardens, lifts, and infinity pools… and that someone will be you as an owner, via ludicrously high strata rates).
3) Lack of ‘Scarcity’ value in most parts of the city.
Open a Google map of the wider Brisbane Metropolitan area (say 50-75KM) to get a good vantage point of all of the undeveloped land that surrounds it.
Unlike cities such as Sydney, Perth and to a lesser degree, Hobart; Brisbane is a city where it’s CBD is placed quite far inland, on a river with copious amounts of land in all directions readily available to develop. Whilst there are some national parks and mountains (I.e. Mount Coot-tha Forest / North-west National parks area) that will restrict land supply for housing; most of Brisbane’s metropolis seems to sprawl out endlessly in all directions.
In amongst this is swathes of undeveloped land that can be developed seemingly at any time. What this does is reduce the ‘scarcity’ of land availability in much of the outskirts of the metropolitan area. Couple this with a less desirable coastal living area (to the east. For the uninitiated; Brisbane’s coastline is not full of beautiful beaches, but mostly muddy mangrove areas with an unpleasant smell and lots of bugs!).
Taking Sydney by comparison; where the entire coastline of the suburbs from Palm Beach right through to Cronulla are highly desirable; and that all directions eventually hit national parks or mountains – I.e. natural barriers that help prevent urban sprawl – and Sydney’s observed scarcity value becomes much more apparent.
So you can see that point #1 observes an oversupply (I like to think of it as a coming ‘Tsunami’) of mass-apartment stock in the CBD (so, little future ‘scarcity’ value there), and in point #2 I mention the lack of scarcity value in the opposite areas – the far outskirts – as well! So where, if anywhere, are the scarcity-driven suburbs in ‘Hot’ Brisbane – if they exist?
The answer is the middle ring suburbs (I.e. 5-15KM radius from the CBD). These suburbs are high in demand due to their hillier, more restrictive zoning which means their risk of being turned from low-lying houses and small apartment/townhouse blocks into giant towers, is minimised. Couple this with great quality schools and school catchment zones; quality transport links (ease of access to Brisbane CBD and the Gold Coast thanks to Glider Buses, Good train infrastructure, and the Logan motorway access); and the middle ring is undoubtedly where Hot Brisbane is seeing most of its heat!
4) Restricted future ‘small development’ opportunities.
Unlike its southern neighbouring state’s capital, Sydney, Brisbane is a city of only a handful of ‘mega councils’. In fact, much of the inner and middle rings of the metropolitan city area is housed under one mega-council, Brisbane City Council (BCC).
What this means is that typically when a mega-council like BCC makes a residential planning ruling or law, it effects all suburbs within the entirety of the mega-council. One such example is the restriction of granny-flat leasing in the BCC greater area. Where neighbouring Logan City Council offers more flexibility; in BCC you are not allowed to lease out the ‘main house’ and the granny flat that sit on the same block, to separate tenants on separate leases (unlike in parts of NSW where this is possible).
What this means is that granny-flat additions in most of the inner-to-middle ring suburbs of Brisbane become less commercially attractive to property investors who are hoping to maximise their rental yields by having the two dwellings on their property; since sourcing a single-tenant-lease for both dwellings is harder to do.
These are just a handful of challenges that investors face in the Brisbane market. However, despite all of this, opportunity can be found in any market – hot or cold – and even at the ‘peaks’ of their property clocks; you just have to buy wisely; and with clear objectives.
Brisbane deserves to be called a hot market; in my humble opinion, simply because the evidence in favour of increasingly property values in the medium-term; outweigh the evidence of the detracting issues it faces. Again, I say this not in reference to the entire metropolitan area of Brisbane; but rather in reference to those pockets of opportunity where I believe investors can clearly ‘win’.