Why the key investment fundamentals for Brisbane apartments remain

There have been a lot of negative media headlines recently relating to the apartment markets across various Australian cities. Whilst there are certainly headwinds to be aware of, it is respected property advisory firm Charter Keck Cramer’s view that many of these negative headlines are not reflective of the entire market nor is it what we are seeing in the statistics or hearing on the ground.

In this regard, readers are encouraged to look beyond some of these short-term issues and further into the market cycle as the key fundamentals for apartments remain. In fact, the statistics show that these have become even more prominent.

Brisbane is forecast to be the fastest growing city in Australia for the next two years, and this will underpin sustained housing demand. Additionally, key structural apartment market fundamentals have become more pronounced.

The metropolitan Brisbane apartment market is coming of age, with a growing segment of the purchaser market (including first home buyers, upsizers, downsizers and rightsizers) looking for quality owner-occupier apartments. Charter Keck Cramer observes that the proportion of renters and higher density dwellings in Brisbane is now at similar levels to that of many cities in the USA and UK which have much more mature and long-established apartment markets.

It is anticipated that the current Brisbane apartment supply shortage will become even more severe over the next two years. Increasing construction costs are most acute in Brisbane and have resulted in many projects becoming financially unfeasible.

This has the potential to cause rents to increase further given the existing shortage of supply of rental dwellings and ultimately translate into increased prices of new apartments across Brisbane.

Rising Interest Rates

Rising interest rates are a headwind for the property market and often place downward pressure on prices. There are however several reasons why the apartment market stands to benefit from an increase in interest rates.

Firstly, purchasers have had their purchasing capacity diminished, and should they wish to enter the housing market they will need to trade-off dwelling type for location to enter the housing market of their choice. Well-built owner-occupier quality apartments are the most affordable option to meet their needs.

Secondly, given the current shortage of rental accommodation, rate rises are likely to be able to be passed onto renters in the form of rental increases. This is likely to be attractive to investors as apartments are able to act as a hedge against rising rates (and also inflation).

Finally, local “mum and dad” investors will once again be able to rely on negative gearing in their property investment strategy and will likely view interest rate rises through this lens whilst they chase increasing rents and falling vacancies.

BRISBANE APARTMENT LAUNCHES AND COMMENCEMENTS

In FY 2022, there were a total of 1,000 apartments launched for sale to market. This was the lowest number of launches recorded over the past decade and was -93% lower than the peak of 14,300 apartments in FY 2015.

In FY 2022, construction commenced on 1,900 apartments. This is the lowest number of apartment commencements recorded over the past decade and represents a decrease of -86% from the peak of 13,300 apartments in FY 2016.

The average time taken to commence construction (from the date of launch) on new apartment projects in FY 2022 was 16 months. Commencement timeframes are the longest they have been in well over a decade. Prior to 2017, the average period from project launch to commencement in Brisbane was 6 months or less.

Apartment Completions

There were 1,900 apartments completed in metropolitan Brisbane during FY 2022. This is a -84% decrease from the peak year of supply (11,600 apartments in FY 2017) and is the lowest level of annual supply since FY 2011 (1,100 apartments).

Assuming all marketed stock proceeds to construction, around 3,500 apartments are anticipated to be completed in FY 2023 (with a catch up from FY 2022 caused by COVID-related delays) and 2,400 apartments in FY 2024.

Given the increase in construction costs and slow pre-sales rates, it is anticipated that these numbers may decrease over the next 2-3 years leading to a more pronounced shortage of apartments in Brisbane.

BRISBANE APARTMENT COMPLETIONS- HISTORIC AND POTENTIAL

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