Start Sounding the Alarm!

Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities are also building more than they need, says BIS Shrapnel.

The forecaster, which started warning about an apartment overhang in Melbourne a year ago, is now also ramping up warnings about Brisbane and Adelaide. 

Brisbane's voracious appetite for apartment construction has resulted in a stock surplus that dates back at least to 2006, but that glut is about to triple from 5000 from last financial year to 15,000 by next year, BIS Shrapnel says.

See AFR

Brisbane off the plan apartment prices expected to soften in 2015/2016

In an article in Property Observer, BIS Shrapnel is forecasting further strengthening of the off the plan apartment market in Brisbane over 2014 and 2015 before a period of softening.

"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.

Price growth up until the 2015/2016 peak is expected to be around 5% per annum.

Oversupply of Brisbane Apartments Coming?

BIS predicts an oversupply of apartments in Brisbane beyond 2014.  See article.  There was a similar story in the AFR on Monday, 11 February.   In my view, BIS' predictions often don't come true.  In March 2008, BIS predicted that the Brisbane market would perform the best.  Wrong.  In August 2008, BIS said there would not be a big decline in prices of Brisbane real estate.  Wrong.  So why should their most recent prediction be any better?  How can BIS accurately predict demand for apartments in Brisbane in 2015?  See also this prior post.

Prices to Recover in Brisbane?

According to BIS Shrapnel, Brisbane will have housing price growth of 3.9% in FY 2013, 7.8% in FY 2014, and 6.2% in FY 2015.

This is a very bullish prediction.  It is interesting to look back on past BIS Shrapnel predictions to see how accurate they are.  See e.g.:  Report from two years ago, that predicted 5.3% growth for July 2011 to June 2012 for Brisbane -- way out!

Below is an extract from the current report.

Brisbane Property Rebound Unlikely Until January

"January may mark a turnaround in Brisbane's flagging property market, but there is no sign of conditions improving before then, according to leading economic forecaster BIS Shrapnel.

The forecast reflects a sluggish start to the spring property season, as households are wary of taking on more debt and potential home buyers hold out for interest rate cuts."

Source: Brisbane Times

BIS prediction

Mr Mellor said home buyers should not expect a big decline in prices by the end of the year. "There may be a fall in prices before the end of the year, but it won't be more than 1 or 2 per cent," he said.

He added that it was a good time for buyers looking to upgrade to a bigger home.

"With a 10 per cent increase in the amount of people looking to rent, a figure that is expected to increase, it is a great time for investors." The financial markets are factoring in an interest rate cut, possibly as early as next month, but even without it, Mr Mellor predicted an upturn, so long as rates did not rise again.

"Common sense will win out in the end," he said. "Buyers will realise that all the fundamentals that make it a good time to buy are there."

See http://www.theaustralian.news.com.au/story/0,25197,24158947-25658,00.html