HTW Report - August 2020
Before we tackle this month’s theme, let’s see what there is to report on market changes under COVID.
Here in Queensland – as at the time of writing at least – we remain relatively in control of the outbreak, although the coming days will be testing. The result is that a tiny bit more confidence has etched its way back into our market.
Anecdotal evidence suggested a considerable slowdown in activity throughout April and into early May with a reduction in both properties for sale (supply) and buyers (demand).
As the lockdown restrictions eased, and Government stimulus measures were announced, values have continued to hold as open homes and auctions operate with some sense of normalcy.
The recent announcement of the JobKeeper and JobSeeker extensions – albeit at reduced rates and under new guidelines – will likely provide confidence that the ‘September economic cliff’ has been avoided or, at least, put off for a while.
And now onto a look at the investor playbook which actually feeds in nicely from our COVID commentary.
As a general observation, investors have remained relatively inactive in our market, but that doesn’t mean South East Queensland isn’t offering excellent potential for those looking to build their portfolio of assets.
So why has it been slow? If you’re looking to point the finger, then ‘uncertainty’ is your culprit.
The pandemic has thrown up all sorts of question marks around continued employment, rental vacancy rates, landlords’ insurance, borrowing capacities… the list goes on. It’s no wonder that there’s been relatively few investor transactions.
That said, we have plenty going for us too in terms of investment potential, so for those seeking a good capital-city prospect, Brisbane must be on the shortlist.
On the national front, interest rates are at extraordinary lows. Those who can clear the lending-guideline hurdles are certainly enjoying very affordable finance.
The other more local advantage playing into Queensland’s hands is that, as a destination, we look pretty good at the moment. Not only have we stayed on top of infection numbers but Brisbane and its surrounds offer a comparatively lowdensity city lifestyle with enviable weather and great coastlines within easy drive. Combine this with reasonably affordable real estate and you can see the upside.
In truth, it does feel a little like 2003 could eventuate all over again. At that time, Brisbane was viewed as the nation’s ‘cool capital’ with tens of thousands of new residents moving from southern states to enjoy our booming jobs market and excellent lifestyle.
Obviously, that isn’t currently happening, but postpandemic it will be interesting to see what sort of people movement occurs, and whether it will drive price growth in Brisbane.
As already mentioned, investor activity is slow at present, but there are signs that buyers are beginning to take interest – anecdotally at least.
We are hearing of an increasing number of buyers getting their financial ducks in a row so that if an opportunity to purchase at a discount due to some COVID-lead weakening, they can pounce.
So, what property types are attracting investor interest at present?
Most sub-markets within the detached dwelling sectors have remained fairly stable. There is some demand from investors for entry-level properties, although these need to be reasonably presented and within desirable locations.
That said, detached housing has traditionally been an excellent choice for long-term capital gains, particularly in established suburbs that have ready access to the CBD.
If they have some renovation potential, all the better.
And while existing housing is a safe enough bet for investors, new house-and-land packages as well as vacant lots are enjoying rising popularity at present too – particularly from interstate investors. Government stimulus has played its part in getting things moving and developers are reporting a notable uptick in monthly vacant land sale rates across many residential estates. That said, some of the larger land subdivisions have started to see rebates/incentives creep back in to entice buyers – perhaps in an attempt to increase their market share.
Attached housing has been reasonably inactive of late.
The unit sector in particular has remained fairly flat, although a general softening in rental returns could see a weakening in the market values if demand for units falls further. Of note, many new units that were being pitched toward investors have now been ‘spec’d up’ to attract owner occupiers and downsizers.
Townhouses (i.e. the other attached housing type) are experiencing limited demand combined with limited supply. Like units, many new townhouses have been ‘spec’d up’ to appeal to owner occupiers and downsizers as well.
Probably of most interest to serious investors at present are residential properties where multiple income streams mitigate risks around vacancies. Things like duplexes, triplexes and flats buildings.
Despite predictions the rental market might ‘bottom out’ with out-of-work tenants unable to pay their rent, this isn’t how things played out. Demand for rentals has remained reasonably stable, so multi-income tenancies are doing well.
For example, dual-occupancy holdings are selling in the Logan area from the high-$400,000s to the mid-$500,000s and providing gross yields of around 6.5 per cent to 7.0 per cent.
One example is a dual occupancy in Bluegrass Ct, Hillcrest which went under contract on 24th June providing three-bed, two-bath/one-bath on 458 square metres. The sale reflected a yield of 6.83 per cent.
Another example of multi-tenancy is a block of flats in Redcliffe comprising one x three-bed, one x one-bed and two x two-bed flats on an 800 square metre lot with subdivision/development potential and holding income of $51,480 per year. The property sold for $738,800 to interstate investor. The agent reported he had six offers within one week from interstate purchasers.
How investment property prices continue to trend over the rest of 2020 is, of course, dependant on the way the nation’s economy and health continue to tackle the crisis. There is the potential for an upward swing in detached dwelling prices if we can avoid a 2nd or 3rd wave and the nation’s finances stay resilient.
What investors will continue to watch closely in Brisbane is risks around rental demand and pricing. A decline in rental return coupled with an increase in vacancy rates would not be good for landlords servicing a mortgage. For example, recent anecdotal evidence suggests rental listings within inner-city localities have increased circa 13 per cent over the past few months, which is the result of declining confidence and increased uncertainty and rising unemployment.
Despite this, it is not a bad time to consider investing in entry-level dwellings within the innerring suburbs as these traditionally perform well, even during tough times.
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