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03. An Overview Of The Brisbane Property Market

June 4, 2018

In this episode, we chat to Place Advisory Director Lachlan Walker. Lachlan and Damian discuss past Brisbane market trends and what they can tell us about the future of the Brisbane property market. If you are wondering what the Brisbane property market is doing, this is the episode for you!

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In this episode we cover:

  • Why research is important when it comes to reading the residential real estate market;
  • The $7 - 8 trillion dollar residential property market and why it is the single biggest asset class in Australia;
  • The difference between reading the share market and sharing the property market;
  • Why looking back can assist in providing transparency on the Brisbane property market;
  • The factors that go into assessing predictions for the future of the Brisbane property market;
  • The biggest property trends in Brisbane over the past 20 years;
  • The highs and lows in the Brisbane property market;
  • The different segments of the Brisbane property market and how each has performed;
  • What the biggest drivers are for the Brisbane residential property market, including popular, infrastructure and investment, employment, price and affordability.
  • The impact of interest rates on the Brisbane property market;
  • The impact of the 2011 floods on the Brisbane property market and how it has impacted the growth of the market;
  • The impact of perception on the property market;
  • The impact of the mining industry on the Brisbane property market and the highs and lows that have resulted from it.
  • The current state of the Brisbane property market, and the differences between the Brisbane market and the southern states;
  • The traditional Brisbane property market cycle;
  • The impact that southern population migration is having on the Brisbane property market;
  • The outlook for Brisbane housing in the next few years;
  • The current state of the off the plan apartment market in Brisbane;
  • The current state of the higher end property market;
  • Why past factors indicate that the Brisbane property market might be ready positive growth.
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Intro:

Welcome to the Brisbane Real Estate podcast, where each week we'll be answering all of your questions relating to the local property market with CEO of Place to Stay estate agents, Damian Hackett. Be the first to get market insights, trends and tips on everything you need to know when it comes to Brisbane real estate. To download a copy of our free Brisbane property report, head to eplace.com.au/podcast.

Damian Hackett:

Hello and welcome to Brisbane real estate podcast. I'm Damian Hackett. Today I'm lucky to be joined by Lachlan Walker, who's the director of research at Place Advisory.

Damian Hackett:

Hi, Lachlan.

Lachlan Walker:

Hi Damian, how are you?

Damian Hackett:

Fantastic. Listen, Lachlan, I know you've been involved in research Brisbane residential market there for over 18 years, so I'm sure you've seen a lot come and go in that period of time. It's interesting for me, because if you look about, why is research important, a lot of the people who we deal with, a principal place of residence, they're owner-occupiers and then there's obviously investors and developers as well. For a lot of those people, even though they're not thinking of trading their properties all the time, one of the questions I always get asked is, "What's happening with the property market?" and I guess, because it's such a big asset for them, they wanna keep a tab on what's happening and I guess my first question is, Lachy, is research important and why do you think that is?

Lachlan Walker:

Thanks Damo. I think that research is absolutely important, I think everything we do at investment decisions and whether we buy or sell something, at the end of the day it's driven by the information we know or can garner. The real estate market, as we recognize, residential real estate is Australia's biggest asset class, it's almost four times what the share market is in today's value.Damian Hackett: Roughly, what kind of value?

Lachlan Walker:

I suppose the total value of the residential real estate market today can range between seven and eight trillion dollars, depending on where the value was put at. But you look at the residential market versus the share market, you can value a share market, minute by minute, second by second, by going on there and seeing what people are trading them at. But residential real estate is a lot harder to trade. It takes a lot longer and you've got different, a really wide range of large assets there that people own.

Damian Hackett:

Sure. I guess, it's more opaque. You can go on your phone at any time and see what the value of your stock is on the ASX. But, with the property, it's, you're invested in it, it's hard to know how it's been tracking. You haven't got a graph like you can on your phone to see where you com bank shares are at.

Lachlan Walker:

Yeah, that's right.

Damian Hackett:

Type of thing.

Lachlan Walker:

And assets can widely range too, so, depending on trends and momentum and what people want, supply and demand.

Damian Hackett:

And even that number that you were talking about before, seven or eight trillion dollars. That's an estimate of the value of the total residential property in Australia and I know, compared to even the stock market, I think that's 1.4 or 1.5 trillion. And even superannuation is 2 point something trillion. So it is, by far, the single biggest asset class in Australia. So, the importance of it and people trying to get an understanding of-

Lachlan Walker:

Visibility.

Damian Hackett:

Where it's been tracking, and even more importantly, where it's likely to go. So, people can, I guess, even though they might be living in the property and it's not primarily there as an investment, but because it is, with a lot of people, their biggest single investment, they want to know a bit of projection. So, if I'm thinking of selling my house in the next two years, should I sell now, should I sell in two years time? If we can try and, I guess from you guys from a research perspective, give people an understanding of where they've been and what's likely to happen as an estimate, it gives a bit of confidence in making decisions.

Lachlan Walker:

Yeah, we like to look back on the past to try and predict what's going to happen in the future to try and provide some transparency across the marketplace. If there are investors out there looking when is the right time to purchase, when is the right time to sell, and from the development industry, which we do a lot with, is working with those guys to try and produce product who our buyers are looking to purchase, something that is in demand and we're short in supply of.

Damian Hackett:

Sure. I guess it's understanding where the demand is, as you said, versus supply. So, it's a combination, we're looking at what's available, where all the approvals are at, who's lodged approvals for what type of building, are they two beds, three beds, one beds, what's the price point, to identify gaps in the market.

Lachlan Walker:

Price, rent. And at the end of the day trying to provide something different to each market place. Someone who's developing in Bulimba is going to be looking at something completely different to someone who's developing in Albion. So, it's trying to meet those markets and supply the right product.

Damian Hackett:

Okay. So, I guess, over that 18 years that you've been looking at the Brisbane residential real estate market, what are the biggest trends that have stood out for you?

Brisbane's definitely gone through a very wide range of ups and downs. Through those, those early 2000's where the market was on fire, we saw huge amounts of sales which then drove ... we obviously saw the high end apartment market really lift through there and the housing market continued to strengthen through to the GFC. Then, we saw the opposite effect with a complete market tightening and probably a reset of values within the Brisbane marketplace. Through to 2011/12, we saw another little kick around there but then the floods put a dampener on the marketplace.

Damian Hackett:

Back in 2011.

Lachlan Walker:

Back in 2011. So, probably values reset post-GFC and then we've seen the housing market the last few years in particular go from strength to strength, the high end market continues to improve and undoubtedly the Brisbane apartment market has probably lagged and that's been driven probably highly because of the oversupply we saw and the huge amounts of development in that investment stock which drove the Brisbane apartment sale for a number of years.

Damian Hackett:

Maybe that's something we can deal with separately in a second, but I guess the question that I'm sure that people would like to know are what are the biggest drivers, both ways up and down, of the Brisbane property or residential property market?

Lachlan Walker:

I think there's a number of factors there that drive the marketplace. Population growth is a big one, population is the demand for real estate. You know, you've got infrastructure investment in large infrastructure spends which again provides massive employment opportunities and employment's the other big driver. And then, at the end of the day, price and affordability. If people can buy and sell and see value, then you get that underlying demand.

Damian Hackett:

Sure. And one thing I've always noticed as well is interest rates in the player partner. When interest rates are low, there seems to be a lot more turnover and when they start to tighten and raise up a bit, you all of a sudden see people starting to back off a bit more. Is that correlated in the research?

Lachlan Walker:

Yeah, I think it's probably harder to tell in recent times with the wider economy in the state it's been, but people are definitely probably paying, or got the ability to buy more or pay more than what they could if the interest rates were higher.

Damian Hackett:

That's right. And I guess there's always that x-factor as well, which is, I guess in any market, it's that confidence. It's when things start to move, it comes maybe like a snowball, a momentum, and if I think back over that period of 18 years, one thing that stood out for me was probably post-GFC, in 2008/2009, things really dropped off in the property market. Prices, as you say, got reset. Then we saw momentum start to build through the end of 2009/2010. Then, when the floods hit at the beginning of 2011, that I guess uncertainty and, because it was such a big impact on Brisbane, for that 8 or 9 months of 2011, it felt like the Brisbane property market fell off a cliff. And again, it's that x-factor of where's the confidence gone that would seem to really impact that market for that period of time, where other parts of Australia were continuing to improve. Brisbane, I can only collate it to the flood incident that happened that really seemed to knock people's confidence and people I guess froze.

Lachlan Walker:

Yeah, that flood was definitely an x-factor. I don't think anyone saw that coming. Yeah, 2011, as you said Damo, the market was starting to strengthen and we started to see some real interest in Brisbane again and then the floods hit in 2011 and then people, sort of 12 months later started to recover and then we got another small flood in 2013 which probably put another little dampener on us and Sydney and Melbourne just continued to kick and-

Damian Hackett:

And it's funny because if you actually look at it logically, the number of houses it actually impacted in Brisbane versus the total size of the market wasn't huge, but that confidence affected the whole Brisbane market, which was quite interesting.

Lachlan Walker:

Yeah. That, as you said, was a very small number of homes which got affected, but it was international news so it definitely put the brakes on and as I said, I think Sydney and Melbourne definitely capitalized on the back of it and continued to run.

Damian Hackett:

I think you touched on, you said before, definitely employment is a big factor in the demand side of the process, which is more demand the more pressure on prices, prices go up, and Queensland, and I guess even moreso Western Australia, have been two states really are impacted hugely by the mining industry and I think through those years of growth you spoke about previously the mining industry was really booming. And that probably, even the mining industry kept going for a little while post-GFC and it probably, definitely in the high end, maintained some of the higher prices that were paid in Brisbane. No doubt, over the last few years, that's dropped off significantly but I saw some research coming out recently where the mining activity in Queensland is up by a factor of between 25-30% over the last 12 months which I guess, for me, probably bodes well for the future, I'd expect.

Lachlan Walker:

We hope to see that mining industry is definitely one of the biggest employing entities in Queensland. That an probably the real estate development industry itself. I think we are starting to see some growth again in Brisbane which is nice. It's always led by those blue chip suburbs that people want to be in and when they can't afford to get into those markets, the ripple effect begins to occur. So, we're definitely starting to see some growth in the housing market in Brisbane at the moment and that could be on the back of a bit of confidence.

Damian Hackett:

I guess, if you look at, and we spoke about it briefly, what's happened to the market in Brisbane over the last few years, Sydney and Melbourne have gone ahead in leaps and bounds and a lot of people report that it's quite unsustainable, the amount of growth ,and everyone was worrying about it, the affordability issue really raised its head, the politicians were getting involved, but the Brisbane market's kind of just bobbed along nicely. Single digit growth over that period of time. What has been the different in your mind between Brisbane and Sydney and Melbourne? And, I guess the second part of it, is what do you think is going to happen in the next couple of years in Brisbane?

Lachlan Walker:

Nothing.

Damian Hackett:

Crystal ball time.

Lachlan Walker:

Within every cycle, Brisbane seems to do this, will have huge amounts of growth in very short periods of time and then will sit very stable for 10, 15 years before we see another big kick. Markets during that period time, we look back to 2010, 2011, Sydney and Melbourne and Brisbane had very comparable median prices. Sydney has obviously gone leaps and bound and had exponential growth over the next seven years, so today's it sits at more than 100% of the median price of Brisbane and-

Damian Hackett:

That gap's probably the biggest it's been ever, or-

Lachlan Walker:

It's the biggest ever it's been.

Damian Hackett:

Is that right? Wow!

Lachlan Walker:

Yeah, it's tremendous. And Melbourne today probably sits anywhere between 20, 30 and 40% higher than Brisbane, so-

Damian Hackett:

So, I guess, if [crosstalk 00:13:31] employment opens up, particularly in that mining sector and people have the thought of, "Do we cash in out of Sydney and Melbourne and move to Brisbane and maybe put some money in the bank?". And buy a similar property up here for, if you're saying, half the price say of Sydney, it probably may put pressure on Brisbane property prices.

Lachlan Walker:

Yeah, we're starting to see that population migration occurring in Queensland. It bottomed in 2015 in terms of our population growth and, since then, it has been improving and, in the most recent 12 month period, the majority of interstate migration has been coming out of New South Wales and if you look at and drill down into those facts it's definitely out of the Sydney marketplace, so-

Damian Hackett:

So, I guess, in summary, what you're saying there is by some indicators at the moment and barring some huge international event or blow-up in the financial markets-

Lachlan Walker:

Black slime.

Damian Hackett:

The black slime. The outlook for Brisbane housing, or residential, in the next few years, should be maybe stronger than the last period of time.

Lachlan Walker:

I think we're in a really good space. We've got a great opportunity now to, people are staying so there's tremendous value in the Brisbane marketplace, so we're going to start seeing some more competition out there and, with that interstate migration and if employment opportunities continue to rise, we're likely to see some growth, which is finally going to be great. It's got to happen at some point, so-

Damian Hackett:

And, I know it's very irresponsible of people to talk about the Brisbane market as a single vehicle because there's so many different sections of that market, the high end part, the inner ring, the outer ring, apartments, investment apartments, rocker apartments, high end apartments. And we touched briefly on the apartments before. So, the Brisbane apartment market is something that's been written about over the past number of years and probably more recently in a bit of a negative way. What's your summary of what's happened in the Brisbane apartment market over the last few years and what's likely to happen in the short term?

Lachlan Walker:

We've just gone through the highest level of sales volume ever recorded in the off-the-plan apartment market in Brisbane. We're getting upwards of four thousand sales a year occur, which is four times the normal marketplace, or what we see as a normal marketplace.

Damian Hackett:

Wow, that huge.

Lachlan Walker:

It's huge. So, we saw huge amounts of development occurring across Brisbane and, on the back of that-

Damian Hackett:

Who was buying those properties? Was it mainly investors, or-

Lachlan Walker:

Predominantly investors and that's probably been part of the issue as that everyone focused on the investment marketplace and left the real local owner-occupier purchasers behind. So, through that, we obviously saw the change in rules around FURB lending, we saw changes in the rules around FURB purchasers being able to bring their money in, we saw stamp duty changes and a few of those as a fact obviously put the handbrakes on and they put the handbrakes on Brisbane in a big way. But, on the back of that, we've seen the evolution of that apartment market into the owner-occupier space and that is what is leading us at the moment. So, I don't [crosstalk 00:17:03]-

Damian Hackett:

And obviously it's a really strong growth-

Lachlan Walker:

Issues there.

Damian Hackett:

Again, as we said, as the housing market seems to be gaining a bit of pace. Think of the high end, it seems to be doing quite well, the 4, 5, 6 to 10 million dollar property price point. A lot of those people are taking that next lifestyle step and moving into bigger owner-occupier apartments. And in the last probably six months, we've really seen a bit of an increase in the values, particularly of those, because there hasn't been a lot of that product built over the last 10 years post-GFC. So, even some of the prices now that are being hit that I've seen in apartments in places like New Farm etc on the river, back to where they were pre-GFC, and obviously developers have picked up on that and they're now saying deliver product that's selling really well off the plan and there's a couple of other developments that were one per floor owner-occupier in the inner city that were sold off the plan over a year ago. They haven't even been completed yet and we're seeing growth in prices, so there's obviously if you look at the Brisbane market, and apartment market, that owner-occupier seems to be performing quite well at the moment, regardless of what's happened with that investment product that was supplied incredibly well.

Lachlan Walker:

Yeah, that's deffo the sort of a line out there. That higher end, as you said, it's driven by supply and demand and we haven't seen any, apart from the last 12 months, we've only just started to see new owner-occupiers stop being delivered to Brisbane since the GFC. So, last time we saw that was around that 2006, 2007 mark.

Damian Hackett:

So, I guess what you're saying, in summary, is it looks like the fact is [inaudible 00:18:42] it could be Brisbane's turn as a capital city on the Eastern Seaboard, following on from Sydney and Melbourne.

Lachlan Walker:

I think we're due. Yeah, our rental market is stable again. There hasn't been the big falls off the cliffs in terms of rental returns, the vacancy rate is again stable, between that 3-4% range. Overall, the indicators are pretty good for Brisbane at the moment.

Damian Hackett:

Fantastic. Well, Lachy, as always, it's been a pleasure catching up. You're a man of immense knowledge and experience in this market. So, thanks very much for taking the time to chat with me.

Lachlan Walker:

Thanks for having me, Damo.

Speaker 1:

To download a copy of our free Brisbane property report, head to eplace.com.au/podcast.