Brisbane Apartment Prices Up Slightly: RP Data CoreLogic report for May 2016

Brisbane apartment prices (to 31 May 2016):

May 2016 - up 1.3%

Quarter - up 0.8%

Year to Date - up 2.3%
Year on Year - up 2.4%  (Sydney is up 15%, Melbourne up 8%)
Median price based on settled sales of Brisbane apartments over the quarter - $385,000

Brisbane real estate agents say "sell now!"

I receive many newsletters and emails from real estate agents in Brisbane, especially those who specialise in Brisbane apartment resales.  All are advising that now is the time to sell, not the time to buy.  Some examples:

Position Property, Brad Munro:, Autumn 2016 newsletter

• "There is no denying that there are concerns over just how many apartments are being built across Brisbane."
• "The concern I have is that many of these developments are being sold anywhere from 80% to 100% to inventors.  Many of these buildings have 200-300 or more apartments -- there needs to be a lot of tenants to fill them all."
• "Rental prices will decrease which then affects the investment return for the investor.  Even now, with only a limited number of these developments being finished, the rental prices are down from what the investor was promised.  I believe there is more pain to come."
• "There are fewer buyers in the market."
• "I am really concerned as to what the next 3 years has in store."
• "I have no doubt that selling in the next 6 months is going to achieve a better result than waiting until next year."

Tessa Residential CBD Market Overview

• "We anticipate a stable and consistent market place in 2016..."
• Oversupply "is a reality throughout suburbs such as Newstead, Bowen Hills, South Brisbane and West End and as a result is having an impact on the rental market with rents across the City starting to soften."
• "We believe 2016 will represent the optimum time for sellers who are considering cashing in on the improved market, which has continued to grow since June 2013."

So sell now if you are thinking of selling in the next 3 years, but don't buy now -- wait till next year!

Brisbane apartment oversupply?

Will there be an oversupply of apartments in Brisbane?  In certain geographic areas, and for certain styles of apartments, I think that the answer will be yes.  Some clear reasons for oversupply include:

• extremely high level of construction of high rise apartments in some areas, many with a large number of small apartments
• low population growth
• apartments targeted at investors, not owner occupiers, so a more limited market segment of buyers and renters
• apartments being constructed in second and third tier areas.

However, I don't think that all the apartments currently "in progress" will actually be built.  This includes apartment projects that have good pre-sales and where "construction has started".  This is because:

• some developers are unable to obtain the level of finance needed to commence the project
• construction costs have increased dramatically, especially for union built projects, and so the project is no longer viable, even if the project is sold out
• simply because the site has been cleared, and some work has started, does not mean the that project is underway -- it may never be built.
• the number and percentage of presales in a development is often overstated by the developer in advertising and market surveys, and so the developer will not in fact be able to obtain finance at all.

So I think that the level of oversupply may be overstated.  There will still be oversupply, just not as bad as some people are predicting.

There are other risks in the high-rise apartment market:

• off-the-plan buyers may have trouble settling, because valuations may be lower than contract price, because banks are not lending to offshore buyers, and because banks are requiring a higher cash contribution.
• rents are likely to fall, which means that valuations will fall
• some projects are overpriced, and it is likely that after settlement sales prices will be less than  the contract price
• some constructions companies are in financial difficulties, and so are cutting corners -- the end product many be different, and lower quality, to what is expected by the buyer
• many buildings are being built close to other buildings, impacting light, view and ventilation
• foreign buyers may evaporate.

The question in my mind is whether this will impact the high quality buildings in good locations that have large apartments with good aspect?

HTW view on Brisbane apartment market

There has been a lot of talk about our inner city unit market with an oversupply situation that’s graduated from 'looming' to 'inevitable'. This sector is a huge concern. There are still heaps of projects that are yet to come online or are in the planning phase. They are also predominantly investor driven and this could be a recipe for a lot of heartache – particularly as a large percentage of buyers are interstate and international investors. Add to this the tighter restrictions on lending to foreign investors and you can see where it might all be heading. As we’ve been saying for some time – in terms of inner city units, the best per formers are, and will continue to be, those projects designed with owner-occupiers in mind.

If you’re wondering how tenant demand is tracking, we can con rm current data shows vacancy rates for houses at 2.5% and units at 3.2% (unit vacancy increased by 0.3% year-on-year). The combined  vacancy rate for all property types is 2.7%. The general rule is any result below 2% demonstrates an under supply of rentals, 2% to 3% seems balance, and over 3% represents oversupply. From the numbers above, it’s easy to recognise where the weak sector is in the market.

See June Month in Review