Investor warning: Brisbane apartment prices expected to soften in 2015/2016
With signs of recovery being seen in 2013, BIS Shrapnel is forecasting further strengthening of the off the plan apartment market in Brisbane over 2014 and 2015 before a period of softening.
Low vacancy rates, low interest rates, attractive yields and a strengthening Brisbane residential market are set to push the off the plan market from strength to strength, the research house believes.
Interstate demand will also help fuel this industry, according to the Inner Brisbane Apartments 2013 to 2020 report.
Subdued rent and prices are then expected to be seen by 2016, as a historic peak is seen in the inner Brisbane apartment market, with the potential to ease supply strains.
Senior project manager and report author, Angie Zigomanis, said that the inner Brisbane apartments are increasingly attractive with yields in many of these projects around the 5% mark and above.
“However, with many expecting that the Brisbane market has now bottomed out and the risk of further price declines is dissipating, the impetus to enter the market has increased,” said Zigomanis.
The high prices in Sydney and prospect of oversupply in Melbourne may be pushing interstate buyers towards this market.
“In previous market upturns, interstate investors have accounted for up to 40% of off the plan sales in inner Brisbane,” he said.
“In particular, buyers from New South Wales are likely to find the value proposition for apartments in Brisbane more attractive compared to prices of apartments in inner Sydney after the recent rises that have occurred there.”
Currently, BIS Shrapnel estimates that as of November 2013, over 4,000 apartments in inner Brisbane were under construction in projects scheduled for 2015/2016 completion, with 3,000 expected to see pre-sales hurdles before proceeding to completion around this time.
New apartment completions are therefore looking to increase from 1,300 dwellings in 2012/2013 to more than 2,000 in 2013/2014 and 2014/2015. This could see the numbers exceeding 3,000 in 2015/2016.
“This level of completions is likely to result in excess supply pressures emerging in the inner Brisbane market by 2015/16,” said Zigomanis.
“Together with the likelihood of interest rate policy being well into a tightening phase by this point, this will signal the peak of the market and the window for developers will begin to close.”
The peak will then put pressure on older stock to soften prices and rents. The one factor left undetermined in calculating this length of the weaker period is the number of projects that see hurdles and that are also restricted to certain tenants, such as through the National Rental Affordability Scheme (NRAS).
Price growth up until the 2015/2016 peak is expected to be around 5% per annum.