APARTMENT SALES TO STRENGTHEN

This growth is expected to be underpinned by low vacancy rates, low interest rates, attractive yields, a strengthening Brisbane residential market and the prospect for greater demand from interstate buyers.

In its Inner Brisbane Apartments 2013 to 2020 report, the industry analyst expects an historic peak in inner Brisbane apartment completions by 2016, which could lead to a subsequent period of subdued rents and prices.

Senior project manager and report author, Angie Zigomanis, says the narrow gap between rental income and mortgage repayments has made apartments attractive.

“Initial yields in many new apartment projects in Brisbane have been above five per cent for some time now,” says Zigomanis.

“However, with many expecting that the Brisbane market has now bottomed out and the risk of further price declines is dissipating, the impetus to enter the market has increased.”

Demand from interstate investors enticed by comparatively lower prices is also likely to supplement local investor demand.

“In previous market upturns, interstate investors have accounted for up to 40 per cent of off-the-plan sales in inner Brisbane,” says Zigomanis.

“In particular, buyers from New South Wales are likely to find the value proposition for apartments in Brisbane more attractive compared to prices of apartments in inner Sydney after the recent rises that have occurred there.”

BIS Shrapnel estimates that as of November 2013, over 4,000 apartments in inner Brisbane were under construction in projects scheduled to be completed through to 2015/16, with up to 3,000 more likely to also achieve pre-sales hurdles and proceed to completion.

Based on developments already under construction, new apartment completions are on track to rise from 1,300 dwellings in 2012/13 to more than 2,000 apartments in each of 2013/14 and 2014/15.

Depending on the strength of off-the-plan sales over 2014 and 2015, new apartment completions could exceed 3,000 dwellings in 2015/16, resulting in an average of around 2,700 apartment completions per annum over the three-year period – higher than the previous peak of 2,250 apartments in 2005/06.

“This level of completions is likely to result in excess supply pressures emerging in the inner Brisbane market by 2015/16,” says Zigomanis.

“Together with the likelihood of interest rate policy being well into a tightening phase by this point, this will signal the peak of the market and the window for developers will begin to close.”