Investing in QLD is a game of winners and losers

We couldn’t help but notice that a lot investors and first home-buyers are flocking to the QLD market in their masses. It is especially popular with first home-buyers from interstate looking to get onto the property ladder, and first time investors chasing a more affordable purchase price than what you can get in Sydney, Melbourne and Perth.

Suburbanite director and a former valuer, Anna Porter has recently toured the country with Mark Bouris on a property investment road show, and she was asked about QLD investing more than any other location in the country.

It is incredible how many investment firms are recommending QLD to their clients at the moment. But when it comes to QLD investing, Porter says Buyer Beware!

There are some locations that are achieving strong growth rates, however there are some secondary locations that are in the negative.

Areas like Wynnum West, an established family area just to the south of Brisbane CBD has achieved 11.1% growth on average to August 2016, according to corelogic data. Similarly to the north a suburb called Zillmere has seen a similar growth rate of 11.7%.

Porter purchased a property for her own portfolio in Wynnum West only 6 months ago, and her business partner Jeff purchased one in Zillmere a few months earlier. There is a little competition in the Suburbanite office to see which one will be the better performer over the next few years. There may even be a few seafood lunches riding on it.

However, head slightly further out of the metropolitan area to suburbs like North Lakes which sits about 45 mins to the north of Brisbane and it has only seen a modest 3.8% growth for the same period. It is a modern housing estate that offers great value buying for home owners, but there is still consistent housing supply being pushed into the market and this slows growth. Couple that with the longer commute back to the CBD and this makes it a much softer growth area. Any buyer or investors needs to take a 5-10 year view on that market performing as the supply needs to be absorbed.

Even more alarmingly is to the south in suburbs such as Oxley and North Booval (near Ipswich) to the south and South West have seen a negative growth trend of -1.1% for the 12 months to August 2016, and Springfield Lakes seeing 0% growth. This shows a huge disparity from one location to the next, but all within 1 hour of the CBD. This is again attributed to the supply of new properties being put to the market outstripping the demand locally. According to Porter, the local demographic data reveals that over 50% of the market in these suburbs are made up of investors, and a high proportion of that are interstate investors. This creates a volatility in these markets, and is further evidence to the lack of local demand within these markets compared to supply.

 

 

The Brisbane unit market is seeing even greater downward pressure on values due to the oversupply. There are 50,000 new units coming to Brisbane in the next 2 years and the values are already actively retracting, says Porter. We are seeing vacancy periods in excess of 3 months for letting up in this sector as well. The market data doesn’t always reflect the high vacancy rates in this sector, or the retracting values as there is still a lot of interstate investors picking up new and off the plan properties at inflated prices with guaranteed rent backs for a period to mask the issues with vacancy.

With the abundance of new high priced stock transacting to intestate buyers that is skewing the stats and makes the data not reliable in the short term. Many of the developments have not yet settled and are still under construction, so the quantum of the fallout of the oversupply is yet to be fully felt on the ground. Porter adds that there are also a lot of investors that have purchased off the plan through their self managed super funds and given recent lending restrictions I the SMSF space there will be a proportion of those purchases that will not complete as the buyers will not be able to borrow the remaining funds to complete the purchase as they no longer meet the banks strict policies. Having spoken to some of the major lenders in the SMSF space Porter has said the sentiment from the credit departments is that they just won’t bend their rules on this, they can’t. So there won’t be any ‘sliding through’ just because they are already in a contract. For this reason we do not put our SMSF investors into off the plan purchases at Suburbanite, it is just too risky. If it were my own money, I would never buy and off the plan property in a self managed super fund, continues Porter, so why would I let my clients do it.

When the units start to settle and all of the SMSF purchases that are believed to be taken out of the supply chain come back on to the market it will be a blood bath for the unit property market in Brisbane. No investor wants to own a unit in that market with this hits the ground.

It is interesting though that most of the investment firms Porter comes across are recommending the secondary locations that are seeing negative growth, or Brisbane units and not the well preforming locations or stock. It has to beg the question, why are they offering these impaired investments when they could be getting their clients into the areas that are seeing 10%-12% growth.

We see that it is because they can pick up new house and land package or an off the plan unit for the investor easily and the developer will give the firm a big kickback, typically in the vicinity of $40,000-$50,000. Rarely is this disclosed to the investor.

Whereas the better performing locations that are established areas do not have new housing stock, and therefore these firms can-not get kickbacks. So they just wont offer it up to an investor as an option.

My best advice to any investor thinking of jumping onto the Brisbane bandwagon, is to buy where the locals want to live. That is within 20 minutes of the CBD and a free standing house. You will need to spend over $500,000 these days to get a quality property that is not in a flood zone, but that will be your best performer in terms of growth in the next 3-5 years. Just stay out of the flood zones or you could end up with a costly mistake on your hands.