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Monday, 2 February 2015

Brisbane Apartments - Part Deux

Brisbane dwelling construction and new supply

Brisbane has a population growth tracking at about 20,000 persons per year. 

Although forecasts have been made that show this figure accelerating to 25,000, my chart packs suggest that this may be somewhat optimistic as net interstate migration now benefits Queensland less than has been the case before. 

In recent months my analysis of building approvals has shown a pick-up in house approvals in Brisbane.

More significantly there has been a significant increase in unit approvals in Brisbane, now tracking at more than 10,000 on a rolling annual basis, although the trend may now be softening.

The implication of this for property investors is that those buying generic off-the-plan apartment stock are almost guaranteed to achieve a sub-optimal result, since more such apartments are due to be built than the market demands.

There are a number of suburbs in particular within which developments are largely sold to offshore investors. I already took a look at the Brisbane CBD itself in a blog post here. Let's cover off a couple of other prime candidate suburbs below.

Part 1 - West End

A high proportion of the new apartment developments constructed and approved are in suburbs such as West End. 

I took my camera out and about  yesterday to show you the sort of developments in question.

Suburbs such as this are far from being poorly located being within walking distance of shops in West End itself, or even to the wide range of entertainment and shopping at the South Bank.

The problem is that with a couple of thousand new units, there will be more apartments than there is demand from the rental market.

Vacancy rates will rise and rents stagnate, or may even decline.

Typically such new developments see a high volume of apartments sold to foreign investors. 

This is not dissimilar to what we have been seeing in areas such as Mascot and Green Square in Sydney.

Formerly austere suburbs can see significant numbers of commercial or industrial sites being rezoned for apartments. 

Over the medium term as the suburb develops this new supply may be easily absorbed by a growing population which is keen to live in a convenient location and in properties with good security and relatively low maintenance.

However, new off-the-plan apartments do not come cheap in these locations, typically commanding a "newness premium" which will lead to stunted capital growth upon any resale in the years lying immediately ahead.

Part 2 - South Brisbane

Up the road in South Brisbane there are similar issues afoot, with cranes adorning the skyline.

Quite a few of them...

The Wrap

Investors should be wary about such new projects and in my opinion would likely be better served to seek out established units in smaller developments with owner-occupier (rather than only exclusively investor) appeal. 

Moreover, investors may be wise to look at suburbs which will not experience such a high volume of new supply - those which are fully built out and are unlikely to see approvals for such large developments. 

If investors can find something with an element of scarcity value - such as a view or a prime location - this too should help.