Property investors may turn to Brisbane in 2014

By Jean-Paul Pelosi

While Sydney and Melbourne’s property markets may struggle to sustain their phenomenal recent growth rates, Brisbane is being tipped to benefit from its ample room for capital growth and rental yield potential.

Brisbane’s property market is showing signs of growth early this year, which is good news for buyers seeking a relatively affordable investment.
RP Data’s research director Tim Lawless suggested this week that while the “investment fundamentals” are waning in markets such as Sydney and Melbourne, investors might turn to Brisbane because it’s much earlier in the growth cycle.

The stage that a property market is at in the growth cycle is influenced by the level of supply and demand. In Brisbane’s case, increasing demand could certainly see values climb above the current median of $462,000.

Throw in the city’s solid rental yields, which are hovering round the 5% mark and notably higher than averages in both Sydney and Melbourne, and there’s plenty of reasons for optimism.

Buyers drive activity

Scott McGeever, managing director of buyers’ agency Property Searchers, says it wasn’t clear whether last year’s flurry of buying activity in the city would continue into 2014 but after January, it’s apparent there are many buyers in the market.

“We are taking on a lot of investor clients wanting assistance, so certainly from an activity point of view, market demand is huge out there,” says McGeever.
“Things have swung around into a seller’s market now. So anything that’s decent, in terms of quality and that has lifted reasonably [in value], will pretty much sell for its asking price.”

McGeever says there’s potential for good capital growth and that rental returns, though likely to soften, will also be quite reasonable. He foresees returns of around 4.5%-5.5% on units and about 5% on houses.

“The closer you go into the city the higher demand and the more chance for there to be a lower supply,” McGeever says.
Some suburbs have been undervalued in his view but are now looking favourable for growth, including Paddington, Auchenflower and New Farm. All three are within three kilometres of the CBD.

Auchenflower, for example, is now starting to see rising values which will continue into next year and beyond as the market recovers, says McGeever.
Meanwhile, quality two bedroom apartments in New Farm can still be purchased for under $500,000 and rental and capital growth is positive as well.

Director at property agency Place Advisory, Lachlan Walker agrees that it’s Brisbane’s lag in the cycle that is adding to its appeal at this stage of the year. “At this point we’re seeing prices about 30-35% underneath the Sydney market, so that’s creating really strong affordability contingent,” says Walker. “On top of that, over the last three years we’ve had about 5% year-on-year rental growth and that’s created what we’re seeing today – really strong yields and good opportunities.” While Walker also sees yields tapering a little, increased numbers of buyers should help capital growth to rise. Gross rental yields are calculated by dividing annual rental income by a property’s overall value, though this doesn’t include expenses .Walker says a gross return on a Brisbane property, considering both rental yield and capital growth together, should be around 11-12%.He highlights Toowong, about five kilometres west of the CBD, as a suburb with good investment opportunity because it’s close to the university, where you’re always going to get renters.