Brisbane inner city units at risk of oversupply and falling values: HTW

Herron Todd White has advised that Brisbane should be seen as a long-term option for investors, according to their latest monthly report.

It noted Brisbane was "enjoying some great attention while avoiding a feeding frenzy, which is just the way we like it," the November review explained.

"We’d also like to believe investors are well informed buyers who keenly research their markets before making the big decision to purchase, but this is sadly not always true.

"Plenty of property is sold to unsuspecting non-locals charmed by the idea of depreciation benefits and easy cash, and this is rarely smart buying."

The review shows that the strongest activity from investors in the past year has been city-centric – suburbs close to the CBD such as Fortitude Valley, Newstead, New Farm, Teneriffe, Bowen Hills, and Hamilton have experienced the lion’s share of investor buyers in the north.

The review also shows that south of the river, investors have been keen on South Brisbane and West End where towers continue to grow across the suburbs.

"While these areas offer solid, blue-chip real estate with the location, location, location box ticked, different developments are attracting different buyer groups, and some may be in for bad news on future growth.

"Some projects appeal predominantly to locals, however others are selling to interstate and international buyers who may not be overly informed about what’s happening on the ground in our city.

"In addition many are sold prior to completion with marketing arms determining who gets to buy the product, rather than buyers choosing for themselves."

The report goes on to suggest that in Brisbane, many of the fundamentals for good investments were at work - ie being close to amenities, public transport and school catchments are major pluses, and café precincts or proximity to the city all work in particular when appealing to young professionals as tenants.

Herron Todd White say that in Brisbane, buyers are (or at least should be), looking at the quality and condition of the product, but this must be considered in tandem with position and proximity to nodes like universities, school catchments, public transport and other amenities, so rent can be maximised.

"There is of course also the important question of money.

"When talking about price points for investor stock the New Farm/Teneriffe/Newstead area will set you back around $800,000 to $1.1million, while a bit further out in Ascot, Hamilton and Clayfield, investors are spending around $500,000 to $800,000.

"If you’re looking at the inner- to mid-ring suburbs of Greenslopes and Annerley on the south side, expect to pay $550,000 to $650,000 for an entry level 3-bed, 1-bath home."

The report indicates that should you travel a little further out to Sunnybank and entry level property is around $500,000. For those wanting to dip their toe into the Brisbane market without making a major outlay, Marsden on the south side has product in the early $300,000s however there is a bit of stock at present and rents are relatively static

"For many buyers, successful serviceability of a loan is all about returns. Gross yields in Brisbane are generally 4.% to 5.5% across most holdings.

"When looking at the price for units on the south side, established units in Coorparoo and Greenslopes reflect figures from $350,000 and up for an entry level, 2-bed, 1-bath attached dwelling. Closer in and new one bedders in West End and South Brisbane are over $400,000, while two bedders are in the high $500,000s.

"As for market outlook, the sustainability of investor activity over the medium term depends on a number of variables such as interest rates, APRA regulations and the old chestnuts of demand and supply. Inner city units are at risk of oversupply and falling values may follow in the short term.

The in month reviews suggests the problem is compounded by Brisbane’s migration levels being at an all-time low.

"They haven’t increased relative to the amount of development being undertaken within the Brisbane region, so things could get tight for some markets.

"The APRA regulations are already impacting the market here – particularly with buyers who are already at their maximum LVR.

"If demand begins waning, the inner city unit market would be most affected and there’d be a flow on effect due to the substantial supply forecast for units.

"That said, Brisbane is generally a solid market for investors.

"Our tip is to buy as close to the CBD as possible and get value for money by looking seriously at second hand stock being sold locally, or homes where the land value is solid.

"It’s the best way to mitigate risk."