INSIDE BRISBANE'S PROPERTY GROWTH

Property price growth is a function of supply and demand. Our role is to identify the regions where a demand heavy imbalance will likely be most acute. Property commentators (John McGrath) and global property analytics firms (BIS Oxford Economics) have reached the same consensus- the South-East Queensland (SEQ) property market is well positioned for growth in 2018.

Property Demand in Brisbane

1. Population Growth

Demand for property results from population growth, product scarcity or a combination of the two. For SEQ in 2018 and beyond, population growth is projected to well outpace the national average. Between 2016 and 2041, the region will add close to 2 million people – an increase of 1.8% per annum. Interstate migration is also on its way up, spurred by affordability and job creation. In June 2017, Queensland recorded the highest rate of interstate migration in a decade, adding over 5,000 people.

The question then is, what regions will likely experience the most growth? The figure below charts the population growth in the LGA’s of Brisbane, the Gold Coast, Ipswich and Moreton Bay between 2016 and 2041. The star out-performer is Ipswich where the population is forecast to increase by 160%. A significant driver of this growth is Greater Springfield – the largest master-planned region in Australia. On completion, the region will be home to 120,000 people – more than the population of Darwin, and create over 50,000 jobs. Total investment in the next two decades is more than $80 billion.

Source: ShapingSEQ – South East Queensland Regional Plan 2017

Click here for an in-depth analysis on the Brisbane property market.

2. Employment Growth

Job creation is a necessary prerequisite to job creation. In the 12 months to November 2017 – Queensland added 113,000 jobs – more than any other state. While the resurgence in mining was the biggest driver of that growth, improvements where seen in a broad range of sectors. November 2017 marked the 13th consecutive month of strong jobs growth in Queensland.

The figure below charts employment and population growth in the LGA’s of Brisbane, the Gold Coast, Ipswich and Moreton Bay between 2016 and 2041.

Source: ShapingSEQ – South East Queensland Regional Plan 2017

Employment growth in Brisbane is forecast to outpace population growth, leading to a reduction in the unemployment rate. Surrounding LGAs are likely to continue to rely on Brisbane for job opportunities to cover the deficit between population growth and local job creation.

Supply in Brisbane

Apartment approvals in Brisbane have been declining since March 2015, with quarterly approvals declining 75% between March 2015 and March 2017. The result is that property settlements in the inner city will decline by 90% between 2017 and 2019. Apartment approvals have declined for three key reasons:

1. Construction costs have increased: Developers are finding that projects that were feasible 18 months ago no longer are. This has resulted in an increasing proportion of approvals being cancelled or deferred to a time where construction costs return to their long-term averages. Of the current approvals in place, more than 40% are projected to be cancelled or deferred.

2. Funding costs have increased: The interest developers pay on their construction loans is typically a few percentage points higher than the market home loan rate. In the last 18 months, interest rates on construction loans have increased significantly, making project delivery in many cases not feasible. Regulators have also placed restrictions on the proportion of a project that can be sold to foreign investors. In addition, lenders are requiring that more of a project be sold off-the-plan before funding approval. Taken together, sales are harder to achieve and cost more.

3. Foreign Investment: In the 2017/2018 Budget, the Federal Government restricted sales to foreign individuals to 50% of the total number of dwellings in a project.

Over the next few years, the property market will experience a perfect storm of increasing demand and diminishing supply, resulting in positive price pressure for Brisbane’s property market in 2018 and beyond.