My thoughts on inner city Brisbane apartments | Michael Matusik

In recent weeks we have received several invitations to be involved in the ‘promotion’ of new off-plan inner Brisbane apartment projects.

The conversation starts with how much commission is available, with the starting figure often 6%, sometimes more.

This, to me, is a bellwether.

New apartment sales across inner Brisbane are about to get harder.

And they should, as for mine, this market is already saturated.  And despite everybody and their dog trying to put a sunny face on things, it looks pretty grim – investment wise – for some time to come.

Introduction

There have been a number of articles this year regarding an oversupply of apartments in Brisbane, especially new projects in areas close to the city; in particular in the West End – South Brisbane area.

We were one of the first to question what was going on.  Others also have been saying such, too.

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To date, a large number of apartment buildings have been completed recently, and there are many more on the way.

And as a general, yet accurate statement, most of the new apartments are being sold to foreign & interstate investors, and will be rented.

Some may also be locked up.

At present, higher than usual numbers of apartments are available for rent in Brisbane.

Local agents are reporting that it is taking a long time to rent apartments, and that rents are falling.  The RTA statistics & our own investigations concur.

For example, quality, yet older, riverfront apartments are typically, these days, without a tenant for four weeks; & finally have to rent out for less (usually 10%, but sometimes more). Some apartment owners are now offering four weeks of free rent.

For third-tier, older apartments (off the Brisbane River or without Brisbane CBD views), the rents have dropped substantially.

The situation is not likely to improve any time soon.

When the foreign investors come to sell, they will not be able to sell to other foreigners.Flags

This is currently not allowed under FIRB regulations.  So the pool of potential buyers will be much smaller.

This could cause significant price decreases for resales of apartments & particularly in larger projects.

Many apartments that are not being sold by developers paying large commissions are now taking longer to sell in Brisbane.

And despite what we read in the press, many new apartment projects – ironically, often those that to us, at least, represent better investment value – are taking an age to make sales.  It is even harder to sell a resale apartment.

Side bar

Project marketers (God bless them) have been promising the world in recent times & increasingly, two things are happening – very few EOI’s go to unconditional contract (in some cases, none) & many agencies lose interest quickly & chase the next hare on the horizon.

Few off-plan sales people seem prepared to do the hard yards when it comes to communicating with a potential buyer.

Most, in my experience, don’t even return a phone call, nor respond to an email inquiry.

Nor – as we wrote recently – do many seem to care enough about what is being used to support the project.

Experienced investors see right through the spruik.

Ah, but a quick sale today is better than repeat business down the track.  But I digress!

Quick case study – West End/South Brisbane area

The vacancy rate in this area – postcode 4101 – is approaching 4%.  It was 1% just three years ago.

Weekly apartment rents are flat, at best, in this area & for one-bedroom product have even started to fall.brisbane

Four  apartment projects have been recently completed in the West End – South Brisbane area, totalling 500 new apartments.

Another eight projects are under construction, totalling an additional 850 new apartments over the next 12 months.

A further 14 new projects are planned which, if built, will increase the new supply by another 1,950 apartments.

Even more new apartment projects are mooted; most of these have applications in Brisbane City Council.

Our analysis suggests an underlying annual demand for 350 new apartments across postcode 4101 over the next five to ten years.

Our estimate does factor in the latest local population, interstate & overseas migration forecasts & overseas student demand.

Inner City Apartment Oversupply

There is little doubt that the West End – South Brisbane market is already at – or at best, approaching – an apartment oversupply.  This situation is very likely to get worse over the next three to five years.apartment2

When you look at actual apartment resales, you find a 4.5% annual gross capital average gain over the last ten years in the area (we survey 25 select apartment projects in each major Brisbane inner city suburb in order to understand what’s going on), & over the past four  years there has been little to no resale apartment price growth in postcode 4101.

A final point worth making is that not that long ago, renters in this area were paying, on average, less than 20% of their income on rent.

Today, most pay over 30% of their income on rent.  Local tenants, based on the rents promoted by most new apartment projects in their sales brochures/websites, would have to give up between 35% & 40% of their income to live there.

Most sites, projects or local markets in general – again, for mine – are not that strong to warrant such a rental premium.

My thoughts

Apartment investors need to consider carefully what they are buying.  Our experience is that better investments are:

  • In smaller projects – less resales & more owner resident appeal
  • Close to, or better still, overlooking the Brisbane River
  • Unlikely to have their view blocked out by further development – something that is very hard to guarantee in postcode 4101, given the changes to the local government plan
  • In areas with a high level of established lifestyle amenity
  • With a high proportion of local (i.e. Brisbane) sales
  • Held for two full cycles (15+ years) before resale

Yet, despite these caveats, investors in new inner Brisbane apartments & especially those in the West End – South Brisbane area, need to appreciate that their initial rental expectations maybe not be met & that rents could fall between tenancies over the next three to even five years.

Many investors also may have to offer incentives to secure a tenant in the future.



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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'My thoughts on inner city Brisbane apartments | Michael Matusik' have 5 comments

  1. October 26, 2014 @ 12:28 pm Paul

    Hi
    I’ve just put an offer in on an old unit, in a block of 9, in Teneriffe Qld 4005. What do you think the impact of all the new units in the CBD will have in this area, and on older units in smaller blocks of units – also, without the pools etc? Its a close walk to the river and restaurants etc.

    Cheers
    Paul

    Reply

    • October 26, 2014 @ 7:59 pm Michael Yardney

      Paul
      I have a policy of not answering requests about particular properties or areas – especially if someone has bought or is just about to buy an investment property.

      It would be wrong to do so with our knowing your budget, how much you paid, your preferred property strategy, the address, the location within the block, etc etc.

      Otherwise a reply could be considered advice regarding your potential purchase and that could get us both into trouble, couldn’t it?

      Reply

      • October 27, 2014 @ 9:19 am Paul

        Hi
        I haven’t asked for investment advice per se, I’m asking whether the comments made about Post code 4101 in this article provided on your website also applies to postcode 4005, which I’d expect could be answered.

        Cheers
        Paul

        Reply

        • October 27, 2014 @ 11:32 am Michael Yardney

          Paul
          There is an over supply of inner city apartments in Brisbane – that is very different to inner “suburban” locations.
          Clearly postcodes very close to the CBD will have some spin off effects, but that means it’s important to own the right properties in that location.
          For what it is worth, my Brisbane team is currently sourcing a block of apartments for me as a long term invetment and I’m very comfortable putting my money in the better locations in the better inner Brisbane suburbs

          Reply

  2. October 17, 2015 @ 1:18 am Dazza

    Great article Michael – just curious but when we talk about an oversupply of units in the 4101 area, are there some types of dwellings (ie. three or more bedroom apartments) which might be less susceptible to waning market demand? The 4101 code is attractive for families with kids wishing to be within the State High catchment area and I would have thought that three or more room dwellings would still be in demand in this regard. Are we also seeing a potential oversupply of three or more bedroom units? Welcome any thoughts on this. Cheers.

    Reply


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