Brisbane's apartment settlement fears not credible: Lachlan Walker

Brisbane's apartment settlement fears not credible: Lachlan Walker
Brisbane's apartment settlement fears not credible: Lachlan Walker

Claims that thousands of Brisbane apartments are at risk of not settling over the next 24 months due to tighter lending conditions and the large number of units involved are being rejected by researchers, according to Lachlan Walker, director of Place Advisory and Place Projects. 

The claim did not give consider decisions by the major banks to pull out of development funding throughout inner Brisbane, says Diana Howes, director of Resolution Research, according to his recent writeup in www.therealestateconversation.com.au.

Furthermore, claims that banks are no longer lending to overseas buyers as a blanket statement are also generalised claims, with banks willing to lend, however at a higher 60 per cent LVR.

Howes does not anticipate settlement valuations falling short of the contract prices for off-the-plan units.

“We reject the notion that the market is currently on the cusp of a major valuation risk phase – with developers still reporting valuations at, or close to contract values,” she said.

“With negligible price growth across the off-the-plan market over recent years, apartments currently under-construction should, in theory, be valued in line with their recently completed counterparts.

“Although we have seen an estimated 15 per cent rise in construction costs over the past three months, which has translated into lifts in off-the-plan values, many of these apartments are yet to even start construction and given the pull back in development finance, a large proportion are unlikely to. This further strengthens our argument that thousands of apartments within inner Brisbane are NOT at valuation risk.”

Howes said investor sentiment in the Brisbane market remained solid and there was no evidence of a trend towards speculative investment; in fact quite the contrary.

Resolution Research's research examined the mind and mood of the investor market and revealed the following key opinions and attitudes:

* Buyers have an average hold strategy of 5 years

* Buyers are risk averse and shop the market to ensure they are securing a solid value proposition

* Speculative (short-term) investments are felt to be more likely to have upside in the share market as opposed to the property market

An analysis of resales across six major high density developments over an 18-year period (1997 through to 2015) in Fortitude Valley and Brisbane’s CBD reveals an average annual rate of capital appreciation of 6% across the market. This is a healthy rate of appreciation and clearly highlights a long-term hold strategy for inner Brisbane apartment developments yields high returns, it says. 

Importantly, although resales do fluctuate over both the medium (five-year) and long terms, average annual median price growth has been recorded. It is equally important to note that across these timeframes owners of these apartments have been through the GFC and two periods of speculation of market oversupply (in 2003 and again in 2007).

In essence, a conservative approach to purchasing in inner Brisbane, on average, results in an appreciation in values. This study shows that ownership spanning across the GFC and speculative times of oversupply in 2003 and again in 2007 have failed to have a negative impact on market values over a longer term hold period.

The claim by CoreLogic RP Data  that 81,696 apartments would be delivered into Brisbane’s market over the next two years was unfounded. This figure assumes that 100 per cent of all stock will be funded which is not the case in an environment where three of the big four banks state that they are no longer funding apartment developments within inner Brisbane.

"Brisbane’s apartment market is heavily influenced by lending conditions and we expect to see the future supply environment contract considerably," it said.

Inner Brisbane’s current pipeline of new apartments was 20,456 including those yet to be approved.

If we use inner Brisbane as the benchmark, which is where the overwhelming majority of stock is to be developed, we currently have 3,886 apartments which are now deferred.

 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Brisbane Apartments

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