The Sunshine State is shining - strong demand for detached houses and outstanding demand for lifestyle areas projected to deliver 6-10 per cent capital growth in 2021 for the southeast QLD market.
The QLD housing market, and particularly houses in the popular areas of Brisbane, the Sunshine Coast, and the Gold Coast, held up well during COVID-19, with the coastal areas enjoying strong demand due to the increased ability to work from home.
The QLD Government has contained the virus very effectively.
This, along with the increased ability to work remotely and ultra-low interest rates, boosted demand for houses in the Sunshine State.
During recent months, houses in the broader south-east QLD area enjoy materially improved demand with improved consumer sentiment.
However, rental properties in high supply areas remain high risk.
In QLD houses are substantially preferred properties over units.
Investors who buy rental apartments in high supply areas are still taking a high risk with both equity and cashflow risk materially increasing.
For owner-occupiers with interest-only loans, ultra-low interest rates make it typically cheaper to buy than to rent from a cashflow perspective in all of Brisbane, the Gold Coast, and the Sunshine Coast.
These combined with strong internal migration to south-east QLD and the proposed changes to responsible lending obligations measures have resulted in a materially increased demand for detached houses.
Areas attracting these lifestyle buyers include the Gold Coast and the Sunshine Coast.
Beachside suburbs especially are outperforming the market.
Houses and units, particularly rental apartments in inner Brisbane and other highsupply areas, have a completely different risk profile.
The inherent risks of these two dwelling types that represent different buyer cohorts, are now being realised, with rental apartments carrying materially higher risk than houses.
Houses in south-east QLD and surrounding areas now enjoy very strong demand, particularly in the Sunshine Coast, the Gold Coast, and the popular areas in Brisbane.
Houses are projected to deliver 6-10 per cent capital growth in 2021.
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In addition, it is highly likely that investor activity will increase significantly as houses are a preferred investment alternative and generally carry materially lower level of risk than rental apartments.
However, it should also be noted that there are a variety of markets in QLD, with the mining towns experience lower demand and present a higher risk due to a very large proportion of investors with negative equity and insufficient growth drivers.
In recent years, units, overall, across QLD carry a higher level of risk than houses.
This is partly due to oversupply in some areas and as they are unsuitable for families and owner-occupiers.
In particular, units in inner-city Brisbane have the highest level of risk with many properties in the pipeline and increased default rates for those bought off-the-plan.
In addition, in QLD houses are traditionally considered the more popular dwelling option with the demand for units relatively low by comparison.
As mentioned in our previous reports, some areas with oversupply have been labelled 'danger zones' and have low sales volume.
Further, some of these areas present a major financing barrier with a high deposit required.
COVID-19 has further increased the risk particularly in inner Brisbane.
Moreover, off-the-plan units carry an extreme level of risk.
In the foreseeable future, rental apartments in high supply areas carry a high level of risk.
There have been large increases in rental listings and also large drops in rent in some areas, such as inner-city Brisbane, increasing the serviceability risk, particularly for highly leveraged inventors relying on rental income and taxation planning to service their mortgage payments.
Mortgage arrears in high-supply areas should be closely monitored.
It should be noted, however, that family-suitable properties in beachside suburbs carry a lower level of risk and often enjoy good demand from downsizers and, consequently, are subject to only modest price reductions.