SOUTHEAST Queensland house prices are tipped to grow by up to 20 per cent in the next few years as Sydney and Melbourne’s once sizzling property markets continue to lose steam, according to veteran real estate agent John McGrath.
Speaking after the release of the group’s annual residential market report, Mr McGrath told The Courier-Mail the state was only just over halfway through the current property cycle and stood to benefit from the slowdown starting to grip the southern capitals.
“We’re very bullish in your part of the world,” Mr McGrath said.
“There’s no doubt in my mind there will continue to be growth in southeast Queensland.”
Property research firm CoreLogic, which releases its monthly home value index this week, has flagged a further fall in Sydney housing values, but a rise of 0.3 per cent in Brisbane home prices.
Mr McGrath said he expected between 10 and 20 per cent growth over the next two to three years in the Queensland’s southeast corner, led by Brisbane.
“There have been huge capital gains in Sydney and Melbourne and not only has it made it unaffordable … it’s certainly made people look for better value elsewhere in the country,” he said.
“I think southeast Queensland and Perth represent that value.”
The McGrath report found southeast Queensland’s affordability was attracting record levels of interstate migration as well as rising interest from investors and first home buyers, with its housing market continuing to produce solid results despite the economy remaining sluggish as it transitions away from mining.
“During the GFC, a lot of people thought it was sensible to wait, but now we’ve got a lot of people sitting in ordinary homes in Sydney and Melbourne worth $2 million to $2.5 million – many in their 60s and 70s – who are saying ‘what could we do next?’ and looking to southeast Queensland,” Mr McGrath said.
And he said it wasn’t just Baby Boomers and seachangers who were selling up and buying in Queensland with money to spare, but also young families.
Mr McGrath predicts suburbs with easy access to the CBD, the water and/or infrastructure to be the big winners over the next year.
In Brisbane, his top pick is the bayside suburb of Wynnum, 14km from the CBD.
It borders the more prestigious Manly and boasts the same seaside village atmosphere without the hefty price tag, which is attracting younger professionals as well as interstate and international buyers.
North Lakes in the Moreton Bay region is also expected to continue to experience strong growth, with significant residential and commercial developments in the pipeline.
“I think it’s going to continue to attract a lot of young families that can’t afford inner Brisbane,” Mr McGrath said.
On the Gold Coast, Coomera is tipped to benefit from new infrastructure including the $470 million Westfield Shopping Centre due to open in late 2018.
“There are a lot of great areas in between Brisbane and the Gold Coast and Coomera is a great example,” Mr McGrath said.
“I think it will continue to grow.”
On the Sunshine Coast, McGrath’s top picks are Peregian Springs and Caloundra.
The regional centre of Toowoomba is also tipped for strong growth over the next year thanks to its affordability and access to east coast cities via the new airport, according to the report.
Originally Published: www.sunshinecoastdaily.com.au
Sunny Skies for Brisbane Apartment Market: Opinion
It’s widely accepted within industry circles that we are through the worst of the headwinds that the Brisbane apartment market will experience.
The supply has all but dried up (certainly in the inner ring) and almost all key indicators affecting forward-looking pricing for the Brisbane apartment market are improving, albeit from a low base.
Broadly speaking, the key drivers of Brisbane apartment price growth:
– Population growth (strengthening)
– Job growth/economy (strengthening)
– Supply of new apartments (weakening dramatically)
– Quality of new apartments (improving)
– Relative affordability to Sydney and Melbourne (near all-time high)
– Interest rates (moving up but from a very low base and at a slow pace)
– Sentiment (improving)
A key driver of any property market is population growth (relative to dwelling supply).
Queensland has traditionally had stronger population growth than the rest of the country – 2.0 per cent v 1.4 per cent nationally over the last 35 years – but from 2013 onwards, Queensland experienced a dramatic drop in growth post the mining boom (down to 1.5% annually).
This has now started to turn around, driven largely by sky high property prices in the southern states and abetted by the increasingly strong economy and jobs market in Queensland.
Last year population growth was back above the national average (1.7 per cent v 1.6 per cent).
The chart below captures the relationship between dwelling values in Sydney compared to Brisbane and migration numbers.
For the first time in years QLD is back above the 20,000 mark for annualised net interstate migration (22k last year) and historically, when coupled with large dwelling price spreads between Brisbane and Sydney, we’ve seen a significant narrowing of that spread via price appreciation in Brisbane.
The Queensland economy struggled to transition after the mining boom ended in 2013 as evidenced by anaemic or negative growth in state final demand (SFD) in subsequent years.
Calendar years 2013-2015 saw SFD print at 0.6 per cent, -3.4 per cent and -1.7 per cent respectively.
Last calendar year saw a strong rebound in this number to 2.9 per cent growth and the number is forecast to grow at a very healthy 3.4 per cent for both 2018 and 2019 according to Deloitte Access Economics.
This rebound in state final demand is attributable to a significant turnaround in business investment – the state has now seen seven consecutive quarters of positive growth in business investment following on from 11 quarters of negative growth immediately prior to that.
Queensland’s employment growth was the strongest in the country for calendar year 2017 at 4.6 per cent (or 109,000 jobs added). It has plateaued in recent months, but the state is still in the middle of a run of 20 consecutive months of positive employment growth at the time of writing.
Supply of new apartments
Notwithstanding the strong supply of new apartments experienced in 2016 and 2017 in Brisbane, the significant and ongoing tightening of the commercial credit markets since, has seen a dramatic reduction in the completion of apartments in Brisbane.
Banks are still feeling considerable pressure from APRA in respect to their commercial lending arms and while this continues, it’s difficult to see supply rebounding any time soon.
According to Urbis, apartment completions in the inner Brisbane market are set to decrease dramatically in 2018.
Where 2017 saw about 7500 apartment completions, 2018 should see only 5,500 complete with 2019 and 2020 completions dropping further still to 2,200 and 2,000 respectively.
Forward looking indicators – specifically, apartment approvals – indicate that trend is set to continue. The March quarter saw only 306 apartment approvals in inner Brisbane.
At the peak of the apartment approvals market (2014-15) there were, on occasion, 5,000 per quarter.
While approvals and starts aren’t 100 per cent correlated, the difference in those numbers is significant. It is also important to note that the broader housing market (apartments, houses and townhouses) is not over supplied.
As per JLL’s chart below, in only three of the last 16 years has supply exceeded underlying demand.
It is because of this – coupled with the lack of apartments being built and the outlook for strong population growth – that there is a very real chance of the market being undersupplied in 2020 and beyond.
Quality of new apartments
This is often overlooked, but the improvement in the quality of apartments produced will significantly underpin values in the long run.
While the quantity (supply) of new apartments is falling dramatically, the quality of those apartments being built is noticeably improving.
The reasons for this are twofold. Investors have started to demand a higher quality of product in the Brisbane market.
Spooked by years of reports of oversupply and worried about holding investment apartments that remain vacant upon completion, investors are now much more discerning about the type and style of apartment they choose to purchase.
Almost all developers I have spoken to indicated that investors purchasing apartments are almost as demanding as purchasers that intend to occupy their apartments. On the flip side, the overall level of demand for investment properties has been crimped by APRA-led regulations.
However, sales to investors are still crucial for most developers to be able to hit their presale targets to trigger funding.
Developers are therefore competing with one another in a much smaller pool of investors and need to ensure their product stacks up when compared with other similarly priced products in surrounding areas.
Relative affordability of apartments compared to Sydney
This is an oft quoted number but the importance of the change in both absolute and relative values of Brisbane apartments over time is crucial in determining the forward direction of prices.
The table above highlights the median apartment values of the eight major urban areas in Australia. As mentioned, it is important to note the absolute movement in values and the relative movement in values compared with Brisbane and the other east coast cities.
Brisbane’s median apartment value in 2018 is only 5 per cent higher than it was in 2008. Sydney’s and Melbourne’s are up 88 per cent and 53 per cent respectively, as a comparison.
As a result, Brisbane’s values compared to those two cities has fallen sharply. In 2008, Brisbane’s median apartment value was 90 per cent of Sydney’s and 98 per cent of Melbourne’s. Now, those numbers are just 50 per cent and 67 per cent respectively.
Given the extraordinary run up in prices in both Sydney and Melbourne in the last few years, I would not expect Brisbane to get back to those 2008 ratios (unless Sydney and Melbourne do some of the heavy lifting by coming off considerably). But there is certainly scope for some strong price appreciation for Brisbane in the medium term.
Historically those numbers have converged over a cycle (look at the Sydney/Brisbane ratios and the Melbourne/Brisbane ratios for January ’03 compared with January ’08, for instance) and I expect we’ll witness that convergence again play out to some degree in the next 3-5 years.
Interest Rates / APRA
The direction of mortgage rates from here is almost certainly up but given their starting point at once in a life time lows (a quick check at the time of writing reveals floating mortgage rates from the majors at sub 3.80% and 2 year fixed rates only a few basis points higher), I don’t think the level of interest rates is going to significantly crimp demand for housing finance in the foreseeable future.
Any movement on rates by the banks will be out of cycle (certainly in the near term as I don’t expect the RBA to move any time soon) and media pressure will keep those movements to a minimum.
In fact, given much lower transactional volumes expected in Sydney and Melbourne as a result of recent price depreciation, banks will need to compete strongly for customers to keep their loan books ticking over.
This may result in downward pressure on pricing, particularly for high quality borrowers with healthy deposits and strong serviceability metrics. Of any of the east coast cities, Brisbane should be best placed to weather the potential headwinds of rising interest rates give its median household income is marginally higher than Melbourne’s and 88 per cent of Sydney’s whereas the average mortgage size is significantly lower than these ratios by comparison.
While the dampening effect on demand for investor apartments because of APRA restrictions will – in theory – suppress price growth, it’s often overlooked that these restrictions also constrain supply of new apartments as developers struggle to achieve presales – a pre-requisite for any development in order to trigger senior debt finance and enable construction to begin. This, of course, has the opposite effect on price growth.
I’ve deliberately left this one until last as it is hugely important but hard to quantify, no less predict.
In a perfect world, sentiment and market fundamentals would be reasonably closely aligned. However, that’s often not the case and sentiment can often end up being a construct of the media with little if any concrete evidence behind the flow of information (Y2K bug anyone?).
In recent years, the mainstream media has taken great delight in bashing the Brisbane apartment market. Some of that criticism has been warranted as there were some sub-standard developments that were able to get out of the ground because of cheap and available credit – both for the developer and the end purchaser.
The oversupply of poor quality apartments that Brisbane has faced has been localised and is not indicative of a wider market problem.
Indeed, JLL concluded in their recent report about the Brisbane apartment market that “our analysis of the re-sales of apartments completed over the last 3 years clearly illustrates that it is this lower end stock that has borne the brunt of the market slow down”.
They went on to further add that “the discrepancy between performance of low and high quality stock is significant”.
I expect the sentiment around the Brisbane apartment market to improve markedly over the next 24 months because of a combination of the improving fundamentals outlined here coupled with a “disaster hungry” media focusing their attentions on the lagging property markets of Sydney and Melbourne.
How much flow on effect is felt by the Brisbane apartment market from the downturn in the southern states’ property markets – the contagion effect – is difficult to quantify, but the fundamentals of the Brisbane market are certainly all heading in the right direction.
Experts warn of ‘debt bomb’ as housing downturn worsens
That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.
According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.
If that happens, it would also cause an economic “catastrophe”.
Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.
“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.
“That’s higher than any other country in the Western world by a long way.
“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”
Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.
“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.
“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”
He said foreclosures had also risen by 600 per cent in the region.
“The mortgage stress is definitely being felt especially in this area,” he said.
60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.
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Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.
“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.
But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.
However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.
One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.
Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.
And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.
That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.
“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.
Love it or list it? Property gurus say Queenslanders are made for keeps
IT’S the dilemma facing homeowners this spring selling season: renovate or sell? We asked the experts and it seems Queenslanders are made for keeps.
ANDREW Winter and Neale Whitaker know all about the headaches of renovating.
As well helping hundreds of homeowners transform their rundown properties, the property guru has just spent 12 months giving his Gold Coast home a complete makeover, while the interiors expert is in the middle of refurbishing a cottage in country NSW.
The co-hosts of Love It Or List It Australia will battle for the hearts and heads of homeowners across the country in a new season of the show as they grapple with the dilemma of whether to renovate or sell.
And while the stars sit on opposite sides of the fence on the show — Mr Winter always wants the homeowners to sell, whereas Mr Whitaker wants them to keep the property and renovate — both agree the Queenslander is for keeps.
The sunshine state features heavily in the new season of Love It Or List Australia, which resumes on Foxtel on September 26.
In fact, about 50 per cent of the series stars homes in the suburbs of Toowong, Corinda, Daisy Hill and Boondall in Brisbane, and Ashmore on the Gold Coast.
Last financial year, Queenslanders spent $1.6 billion on home alterations and additions, according to the latest Australian Bureau of Statistics figures.
In Brisbane alone, residents forked out $872 million for renovations in 2017/18.
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Homeowners in Brisbane’s south splashed the most cash on upgrading their properties — spending a whopping $132.5 million, followed by Brisbane’s inner north, where homeowners spent more than $117 million.
The suburb where the most money was spent on renovating in the past financial year was Paddington-Milton, with residents there forking out more than $32 million.
New Farm was next, with homeowners spending $24 million on renovations, followed by Ashgrove at $22 million and Bardon at almost $21 million.
Mr Winter said the Queenslander style home leant itself to being loved, rather than listed.
“It’s only recently Queensland, and Brisbane, has taken notice of its old homes,” Mr Winter said.
“The interesting thing is that the Queenslander home is probably one of the most popular forms of architecture I’ve ever come across in Australia.
“I’m not saying everyone wants to own them, because of maintenance, but these days there are so many options.”
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Mr Winter said it was hard to go wrong investing in a property that had history.
“There’s nothing like an original Queenslander, so if you happen to have an original one, then you’ve got something that is likely to be really sought-after in a couple of decades,” he said.
“Sydney and Melbourne’s old houses are taken seriously — really, really seriously.”
Mr Whitaker agrees.
“Queenslanders are up there as one of my favourite homes,” he said.
“I love the architectural style — I find it so elegant and full of character and personality.”
Mr Whitaker said he loved the traditional look of the Queenslander home from the outside, with a modern interior.
“They do lend themselves well to be opened out and modernised,” he said.
“The layout of the Queenslander allows you to do that.”
But he warned about the dangers of overcapitalising when it comes to renovating.
“Really have a look at what you’ve got before you start spending big,” Mr Whitaker said.
“We’ve got the renovation bug in Australia, which is great, but at the same time, it can get you in financial trouble.”
David Chapman and Charlotte Hyndman have just bought their first home in the inner Brisbane suburb of Newmarket.
They fell in love with the 1930s, three-bedroom character home, even though it could do with a makeover.
“It’s a little rough on the outside, but on the inside there’s some really good spots in there somewhere,” Mr Chapman said.
“You can’t not fall in love with a home like this.
“It just has some old-world charm to it.”
The couple plans to spend the next three to five years renovating the property with a budget of about $50,000.
“There is just so much work to be done to it, but it’s all achievable — the bones of it are amazing,” Mr Chapman said.
“We’ve already made 10 visits to Bunnings within three weeks of buying it.”
ANDREW WINTER’S TIPS FOR RENOVATING IN QLD:
*Preserve the old, rather than build new
“We’ve always presumed you need to flatten it and put a slab down — that’s not the case anymore.”
*Don’t put the bedrooms upstairs in a raised, two-level Queenslander
“It’s a big mistake to raise and put the bedrooms upstairs because you’re hiding all the character of the original home in the bedrooms.
“You need to put the living areas in the original part of the home, otherwise it’s a bit of a waste.”
*Remember that even the most dreary home can be resurrected
“You can install roof lights into rooms, get rid of sliding windows, and put in louvres to inject more light.
“And don’t be scared of internal brickwork — you can whitewash it to perfection.”
NEALE WHITAKER’S TIPS FOR RENOVATING IN QLD:
*Consider whether you’re renovating for resale or for yourself
“If you’re renovating for resale, of course you want to maximise the size and potential of the space.
“The best thing you can do is keep it as neutral as possible. Allow your buyer to dream.”
*Use the climate
“You have the most wonderful climate in Queensland, so maximise the light and indoor/ outdoor flow as much as possible.”
“It’s easy to go over budget. Look seriously at what comparable properties are going for, and what are you likely to achieve, and be realistic.
“If you’re planning to sell, don’t rush out and put in a brand new kitchen or bathroom because you think you have to. Think about a spring clean before a whole scale renovation.”
QUEENSLAND’S RENOVATION HOT SPOTS
Brisbane East: $53.6m
– Capalaba $14.2m
– Wynnum-Manly $26m
Brisbane North: $88.6m
– Bald Hills/Everton Park $10m
– Kedron/Gordon Park $15.5m
– Wavell Heights $11.6m
Brisbane South: $132.5m
– Camp Hill $11.5m
– Holland Park $10.7m
– Coorparoo $12.8m
– Greenslopes $11.4m
Brisbane West: $87.5m
– Chelmer/Graceville $11.4m
– Indooroopilly $10.6m
Brisbane Inner: $51.2m
– New Farm $24.6m
Brisbane Inner East: $47.5m
– Hawthorne $10.8m
Brisbane Inner North: $117.7m
– Ascot $13m
– Clayfield $19.1m
– Hamilton $12m
– Wooloowin-Lutwyche $11m
Brisbane Inner West: $104.5m
– Ashgrove $22.1m
– Auchenflower $12.4m
– Bardon $20.9m
– Paddington-Milton $32.1m
Clifton Beach, Cairns: $17m
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