Brisbane to see widening of gap between units and houses

As Brisbane gears up to reap the rewards of tourism and migration from the Gold Coast Commonwealth Games in 2018, another trend is taking shape.

The price performance between houses and apartments is expected to diverge owing to an oversupply in unit construction, says a new research report.

Apartment approvals in Brisbane are well above their 10-year average, while approvals for new houses remain around normal levels, according to a report by investment consultancy Momentum Wealth, Property Market Spotlight: Brisbane. It suggests that investors should focus on inner-metro houses, with large land content and low supply for better returns.

While demand-side fundamentals are positive, including a growing labour market, population growth, a balanced economy and high housing affordability, the difference in the supply-side fundamentals is of concern. 

Momentum Wealth’s managing director Damien Collins says there will likely be “a greater divergence between the performance of houses and apartments, given these supply-side fundamentals”. 

In the city’s current growth cycle, which started in the middle of 2012, Brisbane house prices have risen 18.9%, while the median unit price has risen only 11.2%. The median house price (annual) was $497,000 while for units, it was $397,500, the report says. 

There have been mixed performances between houses and units over the past 12 months with houses up 4.8% over the year to June 2016 compared to 2.4% growth for units. 

Other measures, such as the Corelogic Hedonic Home Value Index October 2016 results, actually have unit values down 1.4%. When analysing either measure, it is clear that units are underperforming against houses in a sign that new supply is beginning to reduce growth. 

There are early signs that buyer demand is waning amid record-high levels of residential construction on the back of the 2014 Brisbane Planning Scheme being implemented. The total number of properties listed for sale increased 7.4% over the past 12 months and the number of deals has fallen for the past three quarters. The average time on market for houses and units is 55 days and 74 days respectively, an increase of seven days on the same time last year. Despite this, there remains very little change in discounting within the market, suggesting that owners are being realistic with their asking price. 

“The research report explains that as the pipeline of new apartment projects comes to market, it’s going to weigh on rental returns and capital growth for these types of assets, particularly in those areas with a high concentration of new stock.”

“However, the research report shows that the number of houses under construction is in line with the 10-year average, meaning this segment will not reach a state of oversupply at current rates, which will help to buoy prices.”

Top areas with high apartment approvals 

The suburbs with the highest concentration of apartments approved for construction include South Brisbane (2,084), Brisbane City (1,731), Newstead – Bowen Hills (1,493), West End (846) and Chermside (704). 

“Investors should avoid apartments in areas with high levels of new supply waiting in the pipeline because when it comes to market the new stock will weigh on capital growth of similar stock in the surrounding areas,” added Collins.

“While we don’t expect all of these new apartment projects to go ahead, there will still be a considerable amount of new apartment supply coming to market in Brisbane over the next few years.”

“In the Brisbane market, investors should instead focus on established houses, in inner-metropolitan areas with large land content and low supply.”