If it’s going to hit the fan, Brisbane will be first.
Last week, I suggested that this was actually one of the quietest booms on record.
Part of the reason that we’re not hearing about it is the two-speed nature of the boom. So while some segments are pumping along, other segments are totally under the pump.
Take the high-rise apartment market. For a good 2 years now I’ve been warning about the growing over-supply in that segment – a call that has since been taken up by the major papers.
(Not that I’m saying they’re following my lead. The data can only slap you in the face for so long before you have to acknowledge it.)
But we’re quickly approaching crunch time.
And to be honest, when the high-rise crunch came, I was expecting we’d see it in Melbourne. Melbourne led Sydney into a major high-rise boom, and so I expected it would be the first city to feel the pain.
But it is actually looking like Brisbane might be the canary in the coal mine.
Brisbane hasn’t added the same volume of high-rise supply as Melbourne or Sydney, but only in terms of numbers.
In percentage terms (relative to the existing housing stock), and in terms of speed, it’s a good step or two ahead of the bigger capitals.
Take a look at the high-rise approvals chart.
That’s off the hook, right? In 2013 it just launched, effectively adding about 6 years of normal supply in just 18 months.
It’s wild.
But the odd thing about it is that it has occurred exactly at the same time as population growth in Queensland began slowing – helped along by a cooling mining boom.
In this chart here, you can see that population growth and dwelling construction decoupled exactly at around the same time as the construction boom took off.
This makes Brisbane vulnerable. Supply is still ramping up, even as fundamental demand is slowing.
But what’s supporting the market if the population isn’t there?
Foreign buyers.
Like Melbourne and Sydney, it was foreign buyers driving a good chunk of high-rise demand. Units were marketed straight off the plan directly to off-shore buyers.
So a lot of these projects only look viable so long as the foreign buyers are still in the game.
But we’re hearing more and more stories about Chinese buyers getting cold feet – or simply not getting the finance they need. Local banks are looking to contain their exposure to the sector, and Chinese authorities are clamping down on capital outflows: from the South China Morning Post:
Hundreds of suspected operators of underground banks have been arrested this year in a nationwide crackdown on the multibillion-yuan illegal cross-border money trade, China’s Ministry of Public Security said on Wednesday.
In all, 450 suspects from 192 illegal banks had been rounded up in relation to 200 billion yuan (HK$234 billion) in illicit transactions, the ministry’s newspaper, China Police Daily, reported.
The crackdown comes as the mainland faces strong capital outflow pressures, partly due to expectations of a weakening yuan. The country’s foreign exchange reserves have fallen by about US$450 billion in the last year despite signs of stabilisation in recent months.
So the high-rise sector is looking a lot less flush and liquid than people expected it would be – or it probably needs to be to avoid a wipe-out.
As a result, most property economists are expecting tough-times for the Brisbane apartment market, with forecasts ranging from gloomy to apocalyptic. From the AFR:
A senior Queensland academic says inner Brisbane apartment prices could fall as much as 25 per cent over the next 12 to 18 months as Asian buyers walk away from settlements.
Chris Eves, professor of property economics at the Queensland University of Technology, said overseas buyers who had purchased off-the-plan in the past six or seven months might not be able to settle final payments now that China has introduced measures to stem capital flow.
“Developers will have to put these apartments on the market and with the lack of demand they will have to discount their prices. Some developers will go out of business – this always happens in oversupply situations,” said Professor Eves who first warned of oversupply in March last year.
So there’s no question that there’s pain ahead.
The real question for me is how much collateral damage there is going to be.
As I said, we’ve got a two speed property market going on. Detached houses are marching to a totally different tune.
So while single-bedroom units tailored to overseas investors are in massive over-supply, detached family homes suited to actual residents remain in tight supply. A crash in one could have no bearing in the other.
The transmission though is going to be through the banks. If the banks get caught short by developers going under, and need to rein-in lending, those tighter credit conditions could affect the overall market (though to a much less dramatic degree).
We’ll have to wait and see. But the Brisbane bump is coming, and it will probably give us a good indication of what’s going to happen to the broader market. If there’s going to be carnage, Brisbane will be first.
Not that there’s much we can do about it at a policy level. The time to put the brakes on over-building was 18 months ago.
The sh!t’s already in the air. The only question now is whether it hits the fan or not.
How is Brisbane looking to you?
ron goddard says
hi jon..business as usual. the tide of affairs is going out and the pants have come down exposing you know what. the market dictates everything. you are right (again) about ground level resi. over here in the wild west we cannot put a finger on anything..its just a follow on from fed policy i think. the g.s.t. refunds are causing much angst here..you ‘eastern staters’ are looking like soviet ‘master blasters’..ripping our share of the g.s.t. the talk of recession has hit the airwaves again. lol we might even put up a wall at eucla to keep you hungry buggers out of our ‘precious’ state. i don’t know if qld will do the same, brisbane is a lot closer to sydney than we are. maybe the russians will take up the slack or the japanese..they are already up there in plague proportions. this scenario has been played out before. before you were born. surfers was really dismal in the late 50/60 s a complete failure..but guess what? things actually recovered. there is nothing new under the sun. somebody said years ago that he could plot the movements of the heavens but he could not understand the stupidity of man. wonderful logic. cheers, ron
Pik says
What about the properties sold near pimpama.One of the so called ‘investment company ‘ we went to see tried to sell us the property in pimpama .They said that $514 k proprty ( this includes their 2.2% share and $2500 registration fees) will be posively geared for upto $70 a week and rental guarentee of $500 pwr week for a year.As this area has around 2500 dwellings is yet to come to market i was wondering what will hape to rental market after year..the answer was i had to lower the rents and offer things such as ‘ tv’ to tenant to keep them renting..woooahhh
Thats called great investment ideas..landlorf begging fir tenants to rent
Brisbane what else you have to offer to Investors..lol
Tess says
Lucky I bought a detached house but still feeling the impact as tenants have newer units to choose from. The talk of coming QLD boom started at least 4, 5 years ago but it seems it crashed before the boom came true. So the property cycle clock doesn’t always work
Wayne McPhee says
Here we go again. The sky is falling in. All the above article is about population slowing and construction increasing but the great unknown in this cycle with the Chinese investor which will affect the supply greatly is actually how many of the properties will hit the rental market and how many will simply be left locked up. When large inner city unit developments start to settle and we see what comes to the rental market we can have a clearer picture. No one has yet forecast this factor that I have seen, because the investors intent is unknown and won’t be known until settlement occurs and the decision to rent or lock up is made. There will still be an oversupply in apartments in some locations but the extent and severity will be dictated by this unknown.
Kathy says
As someone who lives in Brisbane, in an area that was earmarked by Brisbane City Council for massive development a few years ago, I can definitely confirm that there is far too much stock with a staggering and growing amount of For Lease, For Rent and For Sale signs everywhere. The vacancy rates around here (Brisbane inner northern suburbs) are continually rising. These new developments are rarely well built and are likely to be the future slums of this area.
There are buildings that were completed more than a year ago that are still looking for tenants, and there is yet more and more stock coming onto the market as buildings are completed. This puts pressure on rental prices of course but more concerning is that desperate landlords may become less choosy about who to rent to and will just rent to anyone in order to get some sort of yield from their “investment”.
Not only is there a lot of stock, it’s predominantly the wrong type of stock with most of them investor grade one or two bedroom flats. There’s not a lot of 3 bedroom stock and forget anything bigger than that. None of them have sufficient car parking, so our streets have become de-facto car parks.
The sad thing is that gardens and outdoor entertainment areas or patios feature persistently in the most desired things people want when looking for a new home, (along with air conditioning, a proper garage or carport), but these are practically no existent in most of these high rise blocks of flats. A Qld government survey showed that people were willing to move further out to get things like a garden and a proper garage if they couldn’t find anything suitable closer to the city.
The other sad thing is that many houses in this area are now being sold with an approved DA attached to them already, so we risk losing yet more houses and gardens. With roughly half of household demographics consisting of families, it means once again there is less choice for those with children, particularly if there are more than two children. Even less for blended families who may have four or more children at any one time living at their house.
This will not end well.
Carly-Jay Metcalfe says
‘These new developments are rarely well built and are likely to be the future slums of the area’ – spot on, Kathy.
Indy says
To lead on from Pik. I moved up to the Gold Coast about 12 months ago leaving real estate in the eastern suburbs of Sydney. I kept on hearing about all these wonderful developments along the M1. All of those investment seminars that one gets sucked into about buying in bulk in areas where the spruiker is building. Have seen most of those estates along the M1 in the past 12 months and revisited some just recently. Lots and lot of for sale and rental signs up. Owners have had enough. Lots of those dual dwellings looking like crap aftyer only 12 months. Small blocks of land so close to the neighbour that you can hear them making out at night. No one has any control over what type of family turns up next door to you, its just rent it out at all cost. I see slums developing in these estates. After you pull out the soft furnishings from the display home, you are left with a ptetty ordinary house. I’m steering my clients to houses which are established on good blocks of land and able to ad value with an extra b/r +ensuite to get the extra rent. That’s where the money is.