Is Brisbane the next property hotspot? Loyal investors and owner occupiers are certainly hoping so. After almost 8 years of flat property prices and subdued development activity, it now appears the tide might be turning for Brisbane. And if the experience in Sydney is anything to go by it could be in a very BIG WAY?
Following the Global Financial Crisis (GFC) and two years of floods, the property market in Brisbane is now starting to show some signs of life, with the median house price in Brisbane now just etching above its 2007 highs.
So what could make Brisbane the next real estate hotspot?
The combination of supply constraints, population and economic growth, exposure to Asia and better affordability metrics compared to Melbourne and Sydney all provide long term tailwinds for property price appreciation over the long term in Brisbane.
Take a look..
-Economy and Population
Brisbane is Australia’s third largest city and is the economic hub of Queensland, accounting for approximately 46% of the Queensland economy and is home to 2.24 million of the state’s 4.5 million people. Queensland has maintained a strong growth track record over the past 10 years with Gross State Product (GSP) growing by 4.2% per annum, compared to Australia-wide GDP growth of 3.1% (ABS—State Accounts, 2013). This growth has come from a combination of increased coal exports, investment in LNG constructions, and a population growth rate that has exceeded the rest of Australia for the last 10 years, averaging 2.31% p.a. compared to 1.45% for Australia over the same period (ABS, 2013).
Despite a recent fall in mining investment, the shift from an investment phase to export phase of the mining cycle is underway and is predicted to last for decades. Additionally, the ramp up of LNG production over the next two years will boost exports and economic growth in the years ahead.
– Employment and Demographics
The global expansion of the resources industries play a major role in employment opportunities. It is estimated that for every direct mining job created, a further 19 jobs in support services are created across greater Brisbane.
Queensland, with 2.6% of its population employed in the mining sector, is less exposed to volatility from the cyclical nature of the mining industry than Western Australia, which has 6.2% of its population directly employed by the mining industry (ABS, 2014).
The city of Brisbane is also now establishing itself as a city, not riding on a mining boom, but as a major business hub within Australia and globally. As of 2008 it was classified as a “Global City” (GaWC, 2013) and it will be hosting the 2014 G20 summit in November, helping it make a name for itself on the global stage. It is already known for its strong business and cultural links with Asia and is geographically positioned to take advantage of Asian growth and tourism.
– Infrastructure Spending
As part of a multi-billion dollar infrastructure capacity investment, Brisbane Airport is constructing a second runway as part of its expansion to meet the growth in flights as the annual number of passengers is expected to double by 2035. As a gateway to the state, this expansion is essential to respond to the expected population growth and underpins the future commercial prosperity for the community.
The Australian Government is investing $6.7 billion over 10 years upgrading the Bruce Highway running from Brisbane up to Cairns. It is also contributing $1 billion to the Gateway Motorway North project which will improve freight movements and reduce congestion delays to and from the Bruce Highway and the industrial/commercial precincts in Northern Brisbane and to the Port of Brisbane.
Property Market Overview
– Supply and Demand Analysis
Brisbane’s economy and housing prices had a relatively larger setback during the GFC than other areas of the country due to its exposure to the resources industry and a hot property market pre-GFC. Prices did bounce back quickly following the decline, however, the Queensland floods in 2011 and 12 caused another setback in investor confidence. With parts of the inner CBD flooding and temporary shocks to coal exports as railway lines were closed, the Brisbane Housing Price Index growth again fell into negative territory. But housing prices are now just starting to recover, suggesting that further upside price potential could be ahead as the trend appears to be turning.
Figure 1 – Brisbane House Price Index 2004/5—2012/13
(Source: Australian Bureau of Statistics)
The chart of supply and demand for housing in Brisbane paints a very similar picture to the national supply and demand. Since 1999 the underlying demand has been outstripping the completion of housing which is resulting in a shift in the housing market balance to a steadily rising shortage. This again provides long term support to current prices and future upside price potential. Currently, Queensland is second only to NSW in housing undersupply.
Figure 2 – Historical and forecasted housing completions and shortages in Brisbane residential housing
(Source: National Housing Supply Council)
– Rental Yields
Although there has been some recent turbulence in Brisbane housing prices, as recent shocks have taken their toll on the market, Brisbane is now in a prime position to see solid and sustainable growth in the near term. As the Melbourne and Sydney property markets run hot, their rental yields in houses and units are falling to the lowest in the nation, with housing yields now at 3.7% in Melbourne (RP Data, 2014).
Figure 3 – House and Unit gross rental yields for Australian capital cities
Brisbane on the other hand currently has the second highest unit rental yields behind Darwin, and third highest housing rental yields. This is further complemented by low residential vacancy rates which have been hovering at just over 2% for the past decade as showing in the graph below.
Figure 4 – Brisbane residential vacancy rates (2009-2014)
(Source: SQM Research)
In addition to all this, the weakening Australian dollar could provide a real boost to Queensland more broadly overtime, with Brisbane well placed to benefit from increased tourism into Queensland on the back of more Australian’s preferring to holiday in Australia as overseas travel becomes more expensive, and international travelers finding Australia a much cheaper destination than in recent times. Future currency weakness should also help to attract investor money over the medium term as Australia’s international competitiveness and property markets become cheaper and more appealing for foreign investors.
If you have been considering making your first investment in real estate or adding to your existing property portfolio, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email [email protected] .
While Melbourne and Sydney are great places to live, perhaps there are better places to invest.
The information contained in this report is General in nature and has been prepared without taking into account your objectives, financial situation and needs.