The Queensland economy is now well into recovery stage after an inevitable slump following the mining boom.
In the third quarter of 2017, state final demand rose a significant 2.7 per cent year-on-year, which was the first time in three years this measure returned a positive result – the culmination of five consecutive quarters of positive growth.
Access Economics have also forecast the Queensland state final demand will average 3.8 per cent annual growth over the next four years, easily outstripping the average annual growth of 0.2 per cent in state final demand over the last five years.
Infrastructure boom set to takeover apartment construction
According to JLL, Queensland employment surged 4.1 per cent year-on-year to August 2017, easily surpassing Victoria and New South Wales (3.7% and 2.3% respectively) and the national figure of 2.8 per cent.
This is in spite of a clear slowdown in the construction of apartments in Brisbane that has been well underway for the better part of 18 months.
Building approvals for units in the greater Brisbane area were down 59.9 per cent for the year to August 2017 as it became harder for both developers and investors to obtain finance.
Interestingly, the pressure from APRA for banks to limit investor finance has actually benefited the Brisbane apartment market. It has inadvertently forced developers to create more appealing and better quality products – which is contributing to a change in buyer profile to more owner-occupiers and less investors and reducing the amount of “cookie cutter” apartments in the market.
Over the coming quarters, it is anticipated approval numbers will remain subdued. However, any negative employment effects felt from a reduction in construction will be offset by the burgeoning pipeline of infrastructure programs currently underway or soon to commence in Queensland.
Major Infrastructure Projects
Cross River Rail
With the recent re-election of the Palaszczuk government, Brisbane’s $5.4 billion Cross River Rail will commence construction next year.
It will involve the construction of four new underground stations, significant upgrades to existing stations and Brisbane’s first southern CBD rail station at Albert Street.
Forecast to create 1,500 jobs annually, the Cross River Rail project is due for completion in 2024.
Queens Wharf Redevelopment
The redevelopment of the $3 billion Queen’s Wharf precinct is one of the largest developments ever undertaken in Queensland. It covers 27.3 hectares, roughly one fifth of the CBD area.
At peak construction, Queens Wharf is projected to created 2,000 jobs with 8,000 jobs ongoing upon completion in 2024.
Queens Wharf will house over 50 restaurants, bars and cafes upon completion, with an additional 1,000 hotel beds and 2,000 apartments in the residential precinct.
Once fully operational, Queen’s Wharf is expected to bring an additional 1.39 million visitors and an increased tourism spend of $1.69 billion annually.
Brisbane Showground regeneration
The redevelopment of the 22-hectare site is the largest brownfield development of its kind in Australia.
Due for completion in 2026, the $2.9 billion redevelopment of the Brisbane showgrounds will generate more than 2,000 jobs over the course of the development and add over $300 million annually to Queensland’s economy.
Brisbane International Airport second runway
This is the largest aviation project currently underway in Australia, and one of the largest currently being undertaken globally.
Due for completion in 2020, the $1.35 billion second runway will create 2,700 construction jobs over seven years.
By 2035, Brisbane airport will handle 50 million passengers a year.
Herston Quarter redevelopment
A world-class health and wellbeing precinct will become a new landmark in Brisbane’s northeast.
The $1.1 billion precinct is due for completion in 2027, creating 700 jobs in the construction phase.
Due to commence in 2019, the $944 million Brisbane Metro project will feature two new high-capacity, high frequency metro lines connecting Brisbane’s southern suburbs and inner northern suburbs with the CBD.
Due for completion in 2022, Brisbane metro will create 7,000 construction jobs.
Brisbane’s Property Outlook
Cyclical lows for inner city residential developments
As the cranes come down and the lights go on, we’ve officially hit the settlement stage of the inner-Brisbane apartment market.
The number of apartments being approved is now at cyclical lows and has been edging that way for quite some time.
Urbis reported the third quarter of 2017 saw only 672 apartments reach development approval status – a significantly lower number than those in the peak of the cycle which reached over 5,000 apartments per quarter in 2014 and 2015.
We’re also seeing cyclical lows for the number of pre-sales achieved each quarter, with the last four quarters averaging 348 in sales volumes.
These figures are a result of the stage of the cycle the market is in, reflecting the natural slowdown in completed stock that will likely carry through until 2020. And while small pockets of Brisbane have seen an oversupply in the last 18 months, prices have not been materially affected.
Significant growth for house prices
This chart from JLL’s third quarter Brisbane Apartment Market report shows Brisbane apartment prices were down only 0.2 per cent as at August 2017 year-on-year, while houses returned a robust 4.2 per cent positive growth story. Given this period spans the peak supply periods of the Brisbane apartment market (2016 and 2017) this is a reasonably solid result for apartments.
On a citywide level for apartment price growth, even the so called “hotspots” have remained relatively buoyant, despite the “oversupply” story.
The table below shows the five strongest and weakest performing suburbs for median price growth for Brisbane houses and units for the 12 months to August 2017.
Supposed “problem suburbs” such as Newstead and Brisbane City have only seen a median price drop of 2 per cent each for the year and other challenging areas such as West End have achieved small positive returns in the 12 months to August 2017 (again, approximately 2%).
Brisbane housing values remain steady against soaring Sydney
The Brisbane housing market has not seen the same run up in prices as our east coast sister cities, Sydney and Melbourne. As a result, Brisbane should be insulated from any major price correction some economists are forecasting for these cities.
In fact, Brisbane’s housing is now valued at only 43 per cent of Sydney’s – which is at both historical and cyclical lows for the last two decades. The chart below shows the relationship between dwelling values in Brisbane as a percentage of Sydney’s and net interstate migration.
So what does this chart tell us?
- Over the last two decades, Queensland’s net interstate migration peaked at just under 40,000 people (2002). This coincided with Brisbane’s housing being at its lowest value in relation to Sydney’s (43%).
- In 2017, the ratio was at the same level as it was in 2002, as a result of Sydney’s recent bull market run up in prices.
- Queensland’s net interstate migration has been steadily increasing since 2014 and history suggests that the dwelling price difference to Sydney (and Melbourne) should lead to a surge in interstate migration in the coming years and a subsequent surge in dwelling values in Brisbane.
Indeed, according to the Macquarie Bank equity strategy team we can expect “another great wave of interstate migration into Queensland.”
Based on past patterns, approximately 130,000 people could be expected to make the migration north into Queensland over the next three years.
The average number of migrants over a three-year period is greater than the peak year in the above chart.
Migration on this scale would more than likely soak up any additional supply in the Brisbane apartment market, and could also drive up real estate prices.
Over the medium-term, the Brisbane property market is looking steady due to:
- Lower apartment supply and surging interstate migration.
- Political stability and a burgeoning pipeline of major infrastructure project.
JLL’s outlook for the Brisbane property market for the 12 months out from December 2017 can be seen below. While there is still some supply to work through the system, the outlook for unit prices in the next 12 months is steady, and they expect price appreciation in the housing market.
Gold Coast to see improving state employment and net migration
The Gold Coast property market boasts similar features to Brisbane – and is likely to see the same benefits as a result.
- Wide price differential compared with Sydney and Melbourne
- Improving state employment picture
- Increasingly stable state government
- Expected increase in net state migration.
Where the Gold Coast market differs is on the supply side of the equation – particularly since the global financial crisis.
Lenders exposed to the Gold Coast apartment market experienced losses at this time, and as a result lending on large developments all but dried up in the ensuing years.
Under normal circumstances, a chronic lack of supply would lead to a sharp upturn in prices – but in the case of the Gold Coast, there was an equal lack of confidence from buyers, particularly from interstate investors.
So, for the Gold Coast, prices are only really now getting back to pre-GFC levels for off-the-plan apartments in desirable beachside locations.
What can we see from this chart?
- The median apartment price for Gold Coast has practically flat-lined since around 2008.
- Historically, the median apartment price of Gold Coast and Sydney have converged after Sydney has had a run up in prices. This should give confidence to buyers of Gold Coast apartments in the short to medium term, given the gap is at the widest it has been in the last 20 years.
South-east Queensland’s property market seems to have weathered the worst of the economic storm and the oversupply of apartments in and around the Brisbane CBD.
The economic and demographic signs are now positive for both Brisbane and the Gold Coast:
- Strong employment growth
- Extremely strong outlook for the state economy (projections for State Final Demand)
- Huge pipeline of infrastructure yet to be complete
- Net interstate migration story.
If the latter plays out as expected, this should provide an enormous transfer of wealth from the southern states – and would have far reaching positive outcomes for the economy and property prices as a whole.
If the market can navigate 2018 safely, the ensuing years could potentially experience some of the strongest years of price growth for south-east Queensland property since the early 2000s.
Originally Published: brisbaneinvestor.com.au
Negative gearing changes will affect us all, mostly for the better
Don’t have a negatively geared investment property? You’re in good company.
Despite all the talk about negatively geared nurses and property baron police officers, 90 per cent of taxpayers do not use it.
But federal Labor’s policy will still affect you through changes in the housing market and the budget. Here’s what you should know.
Labor’s negative gearing policy will prevent investors from writing off the losses from their property investments against the tax they pay on their wages. This will affect investors buying properties where the rent isn’t enough to cover the cost of operating the property, including any interest payments on the investment loan.
Doesn’t sound like a good investment? Exactly right: negatively gearing a property only makes sense as an investment strategy if you expect that the house will rise significantly in value so you’ll make a decent capital gain when you sell.
The negatively geared investor gets a good deal on tax – they write off their losses in full as they occur but they are only taxed on 50 per cent of their gains when they sell.
Labor’s policy makes the tax deal a little less sweet – losses can only be written off against other investment income, including the proceeds from the property when it is sold. And investors will pay tax on 75 per cent of their gains, at their marginal tax rate.
Future property speculators are unlikely to be popping the champagne corks for Labor’s plan. But other Australians should know that there are a lot of potential upsides from winding back these concessions.
Limiting negative gearing and reducing the capital gains tax discount will substantially boost the budget bottom line. The independent Parliamentary Budget Office estimates Labor’s policy will raise about $32.1 billion over a decade.
Ultimately, the winners from the change are the 89 per cent of nurses, 87 per cent of teachers and all the other hard-working taxpayers who don’t negatively gear. Winding back tax concessions that do not have a strong economic justification means the government can reduce other taxes, provide more services or improve the budget bottom line.
Labor’s plan will reduce house prices, a little. By reducing investor tax breaks, it will reduce investor demand for existing houses.
Assuming the value of the $6.6 trillion property market falls by the entire value of the future stream of tax benefits, there would be price falls in the range of 1 per cent to 2 per cent. Any reduction in competition from investors is a win for first home buyers.
Existing home-owners may be less pleased, especially in light of recent price falls in Sydney and Melbourne. But if they bought their house more than a couple of years ago, chances are they are still comfortably ahead.
And renters need not fear Labor’s policy. Fewer investors does mean fewer rental properties, but those properties don’t disappear – home buyers move in, and so there are also fewer renters.
Negative gearing would affect rents only if it reduced new housing supply. Any effects will be small: around 90 per cent of investment lending is for existing housing, and Labor’s policy leaves in place negative gearing tax write-offs for new homes.
All Australians will benefit from greater stability in the housing market from the proposed change. The existing tax breaks magnify volatility. Negative gearing is most attractive as a tax minimisation strategy when asset prices are rising strongly. So in boom times it feeds investor demand for housing. The opposite is true when prices are stable or falling.
The Reserve Bank, the Productivity Commission and the Murray financial system inquiry have all raised concerns about the effects of the current tax arrangements on financial stability.
Negative gearing would affect rents only if it reduced new housing supply.
And for those worried about equity? Negative gearing and capital gains are both skewed towards the better off. Almost 70 per cent of capital gains accrue to those with taxable incomes of more than $130,000, putting them in the top 10 per cent of income earners.
For negative gearing, 38 per cent of the tax benefits flow to this group. But people who negatively gear have lower taxable incomes because they are negatively gearing. If we look at people’s taxable incomes before rental deductions, the top 10 per cent of income earners receive almost 50 per cent of the tax benefit from negative gearing.
So you shouldn’t be surprised to learn that the share of anaesthetists negatively gearing is almost triple that for nurses, and the average tax benefits they receive are around 11 times higher.
Treasurer Josh Frydenberg says aspirational voters should fear Labor’s proposed changes to negative gearing and the capital gains tax.
But for those of us who aspire to a better budget bottom line, a more stable housing market and better opportunities for first home buyers, the policies have plenty to find favour.
Revealed: The top 10 suburbs to buy a bargain home and reap long-term capital growth returns – but experts warn there’s a catch
The top 10 suburbs for buying a bargain home have been revealed.
The top two on the list were Norlane and Lovely Banks, two northern suburbs in Geelong, Victoria, while the remaining eight all come from Queensland.
Hollywell in the Gold Coast was named as the best Queensland suburb for an affordable home with long-term capital gain, according to property researcher RiskWise.
The Gold Coast suburb, located 70km south of Brisbane’s CBD, is close to shopping centres, good schools and the beach.
Experts have warned buyers not to confuse a ‘bargain’ property with a ‘cheap’ one.
The coastal suburb also has many older properties which will have plenty of potential after renovation, according to realestate.com.au.
It has a median house price of $786,614, according to property data researcher CoreLogic.
Mount Ommaney, Sinnamon Park and Gordon Park in Brisbane also make the list, followed by Gaven on the Gold Coast and Doonan in the Sunshine Coast.
Mount Ommaney, an outer suburb located 14 kilometres south-west of Brisbane’s CBD, has a median house price of $852,729.
Sinnamon Park, also located south-west of the Brisbane CBD, has a slightly lower median house price of $747,272.
RiskWise’s list ends with Gordon Park, Stafford Heights and Twin Waters in Queensland.
All the suburbs listed had a median house price of $300,000 to $870,000, with Norlane having the lowest price at $370,931 and Doonan with the highest at $871,189.
RiskWise chief executive Doron Peleg warns the public that a ‘bargain’ house does not necessarily mean buying a ‘cheap’ one.
RiskWise listed down suburbs where capital growth was expected to increase steadily over the years.
‘It’s more about knowing where to buy for long-term capital gain,’ Mr Peleg said.
‘Sure, there are a lot of well-priced houses out there, but if they are not expected to grow in value down the track, then they really aren’t the best buy.
‘These (Queensland) suburbs, which all enjoyed capital growth of 13 per cent of the past 12 months, are expected to continue to do well as they have a number of things going for them.
‘For starters, they are relatively affordable and all within 100km of Brisbane which means, provided there is a good public transport and road infrastructure, commuting to work is not too much of an issue’.
Property Experts Reveal Surprising Areas Investors Are Snapping Up
We all know Sydney’s property market has taken hit after hit recently — but there are other lesser-known areas that are experiencing a sudden property boom.
That’s according to Australian real estate experts, who claim that while investors may have deserted Sydney and Melbourne, their attention has turned to other regions across the country.
According to Daniel Walsh of investment buyer’s agency Your Property Your Wealth, investment activity has now firmly shifted to Queensland.
“Net migration has now overtaken Melbourne due to the affordability that Brisbane has to offer,” he explained.
“We’re also seeing rising demand particularly in the housing sector in southeast Queensland where yields are high and jobs are increasing due to the amount of government expenditure around infrastructure which is attracting families to the Sunshine State.
“With Brisbane’s population growth at 1.6 per cent and surrounding areas like Moreton Bay at 2.2 per cent, the Sunshine Coast at 2.7 per cent and Ipswich at 3.7 per cent, we are forecasting that Brisbane will be the standout performer over the next three to five years.”
Realestate.com.au chief economist Nerida Conisbee agreed, saying Sydney investors especially had started to turn their attention north.
“Interest is strong in the Gold Coast across the board although there’s more action on the south side in places like Tugun and Burleigh Heads,” she said, adding there was also a notable trend towards Tasmania, Adelaide and pockets of NSW.
“In Tasmania, most activity is definitely taking place in Hobart, but it has shifted — a lot of the action was in the inner city, but it’s now happening in the middle and outer ring suburbs, as well as in Launceston.
“Tweed Heads and Byron Bay (in NSW) have also had strong price growth at the moment,” she said, adding that in Sydney, trendy inner-city suburbs like Paddington, the premium end of town and areas like Winston Hills in the city’s west were defying the downward trend.
Ms Conisbee said long-neglected Adelaide was also finally booming after recently hitting the highest median house price ever recorded, largely driven by jobs and economic growth off the back of defence contracts, the announcement of the new Australian Space Agency and other investment in the area.
“Inner Adelaide, beachside and the Adelaide Hills tend to have the most activity but there’s also quite a lot of rental demand in low-cost suburbs so we’re expecting to see a bit more investment there in those really cheap suburbs over the next 12 months,” she said.
“There you can get houses for $250,000 so for an investor, it’s a relatively low cost in terms of outlay and the area is seeing really strong rental demand which means you’re more than likely to get tenants, so for investors it’s a really attractive area.”
Mr Walsh said Sydney still remained a solid investment option in the long term — but stressed it was just not the right time to buy in the city due to its market cycle as well as lending constraints.
“While property prices in Sydney have softened by about 9 per cent this year, they are still high, which means it’s not an affordable option for many investors,” he said, noting the city’s high buy-in prices coupled with relatively low rents made the yields quite unattractive.
“At this point in time, the high costs of entry as well as holding costs make it a location that should be avoided — but not forever,” he said.
“The thing is, Sydney is still Sydney, which means that it will always be in demand.
“Its population is forecast to grow by some three million people in the decades ahead, plus it remains our nation’s economic engine room.”
He said the entire NSW economy remained “robust” with unemployment falling to 4.4 per cent last year, with Sydney’s major infrastructure program also proving there was “much to be positive about” in Sydney.
“Sydney homeowners and investors who bought a number of years ago are still well ahead because they chose the optimal time to buy and they remain focused on the future,” he said, adding the optimal time to re-enter the market probably wouldn’t be for at least another year or two.
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