Impact of COVID-19 on Brisbane Apartment market

Short term impacts of COVID-19

• Lock-down laws are impacting real estate sales.  Open houses are banned.  
• Many auctions have been cancelled.    Public and onsite auctions are banned.
• Apartment buildings have closed their facilities, such as pools and gyms.  Some apartments have elevator restrictions (e.g. no more than 2 people or 1 family in an elevator at the same time.)
• Some tenants are asking for rent relief, despite a government scheme to assist tenants: See Courier Mail
• Some tenants are not renewing leases or going month-to-month.
• Vacation rentals are sitting empty.
• One property manager has cancelled all leases (probably illegally) - This property manager rents from property owners and then rents out to short term guests.  The landlords' rent has gone to zero.
• Holiday and short term rental apartments are entering the long term rental market, at discount prices: Courier Mail
• Some real estate agent's are misleading the market, saying things are good. For example, "there are still buyers out there wanting to buy" (but not saying at low prices), "real estate will become highly sought-after as we move forward", "property is still the safest haven to have your money in", "there are still positive things happening for buyers and landlords".

Longer term impacts of COVID-19

One agent says:

"Like most industries, it is not hard to foresee a coming downturn in the property market.  The closure of businesses, loss of employment, reduced hours, rental defaults plus the myriad of other inter-linked factors will have negative flow on impacts."

In my opinion:

• Negative gearing will be seen for what it is -- making a loss.  In times of crisis, people understand the risk even more.  Going forward, investors will be less likely to take on the risk of negatively gearing investment properties.  So prices will fall.
• One bedroom apartments and apartments with no balconies will be less popular.  Owners and tenants will realise living in (and not leaving) such apartments for a long time is not enjoyable. The virus or similar will come back again.
• Large over-crowded apartment buildings with less elevator capacity will be less popular.  Some buildings have now implemented "two people only" rules for elevators.  Being in a large Meriton building, on level 50, with no balcony, and crowded elevators, with 12 small apartments per floor, does not look appealing.
• Apartments with balconies and views will be more appealing.
• Older people are likely to die.  This may create a surge of supply, especially in areas where older people live.
• There will be less foreign students, and so less renters for city apartments.
• There will be less foreign buyers.
• Australian beach resorts will become more popular, helping beach vacation rentals.  International and cruise vacations will become less popular.
• People are earning less, eating into savings (which were possible deposits), less likely to change jobs or move place of residence and be more risk adverse.  Prices (values) will decrease and stay flat for a while.
• Off the plan apartment sales will drop off.
• Renters will choose higher quality apartments over smaller apartments designed for foreign students.

Brisbane Apartment Supply - Undersupplied?

Brisbane is predicted to be the first east coast city to experience an undersupply of apartments, having turned down earlier.  According to experts, Brisbane requires approximately 23,000 additional dwellings per annum to accommodate its growth.

In 2019 construction commenced on 2,100 apartments—a decrease of 3,000 on the 5,100 commencements recorded in 2018 and was the lowest number of commencements since 2010.

Apartment completions in Brisbane have fallen by almost half over the following two years, and in 2020 are on track to record the lowest level of completions since 2013.

https://theurbandeveloper.com/articles/impending-supply-shortage-by-2022

One real estate agent's reaction:  The agent said the impending undersupply of apartments signals a likely ‘step up’ in market values for second hand units.  There is excellent value-for-money in the CBD with established apartments in great locations. New and ‘off the plan’ units are already selling for 15-20% more than existing stock.

Luxury Apartment Supply

"The number of three-bedroom luxury apartments to be built in prime suburbs over the next three years is rising in Brisbane" according to the AFR (13 Feb 2020, p 34).

Luxury three bedroom apartments will make up 21% of new apartments built by 2022 "amid growing demand from downsizers and retirees."

Bulimda, Ascot and Hawthorne are areas which will are predicted to get the lion's share of these apartments.

Maybe the demand for 1 bedroom and student accommodation is falling in Brisbane, particularly with the sluggish student demand due to coronavirus.  That makes sense, because small badly designed one bedrooms have a limited market appeal.

I have seen good one bedrooms sold off the plan a few years back now selling for $100,000 less than the off the plan price.  Some developers have unsold stock that they have held for over a year.

Lotus Tower

Chinese developer R&F Property has finished building Lotus Tower at Kangaroo Point in Brisbane.   It was built without any pre-sales.  Unusually, the sales campaign was launched when the building was complete, and it is reported about 30 apartments have been sold.

This is not a river front building.  There are not many facilities within walking distance.

The complex has street side townhouses and 188 apartments over 20 levels.

I have not been inside the complex yet.  R&F is the same developer who built Brisbane 1 Towers at South Brisbane.  This development has three towers (one primarily for short term and hotel rentals).  In my view, the apartments there are small and expensive, of average quality, and have mainly been sold to Chinese investors.  Many appear to be still available for sale.

The One Brisbane

There are many buildings in Brisbane that have "one" in their name.

One of these is The One Residences.  This complex is on the old Courts site and includes in this development the W Hotel and an office building.  It is located on George St in Brisbane, and is above a new shopping mall, Brisbane Quarter, that is mostly empty.  Some restaurants here have already closed down.  There appear to be mostly Asian style restaurants remaining.

Queens Wharf Residences Brisbane

The marketing campaign for Queen's Wharf Residences in Brisbane (part of The Star casino development) has launched, with off-the-plan sales starting soon.  See https://qwresidences.com.au/

This will be a 64 level residential tower.  It is not riverfront, but on George Street.

Before buying, it is worth looking at this Kindle Book:  Buying An Apartment Off The Plan in Queensland

Brisbane Apartments compared with other capital cities

In the AFR on 23 January 2020 (page 3), there is an article titled "Rebound Sends Property to Records".  However, reading carefully, this does not apply to Brisbane apartments.

The graph in the article, sourced from Domain, shows that Brisbane apartment prices have fallen over the past 3 years and are not at a record.  A Brisbane apartment costs the same today as in about 2013.

Moreover, Brisbane apartments are cheaper on average than Sydney, Melbourne, Canberra and Hobart.

Is there a structural problem in Brisbane?  What is holding back price growth in Brisbane?  Poor quality apartment developments?  Ineffective State and local government?  Lack of infrastructure in inner city areas?  No population growth?  Fewer tourists?

Is it that approximately 40% of the people working in Brisbane work for government or government owned corporations?