There is a lot of talk on the news and around the dinner tables about the state of the current property market. How the most recent interest rate rises, future interest rate decisions, inflation, changing of government and the current world events will positively or negatively affect the price of real estate.
What we must remember is that the media is paid to attract viewers and short news bits talking about the sky falling in, sells.
Brisbane property prices increased by a staggering 32% in the last 12 months. Who would have thought that Covid would have had a positive impact on property prices.
There were many people & businesses who experienced significant pain during Covid, however there were many more that have more money in their pockets than they did prior to Covid. This is a result of the significant government spending packages implemented over the past 18 months, the inability for people to spend on overseas trips, going out to dinner, and generally enjoying life. This pattern of saving has led Australians’ saving rate to be at a 46-year high.
The increase in property prices over the past 12 months has been fed by both historically low interest rates and high deposit savings rates. Australians now have more equity in their homes and savings than ever before.
These savings are now also feeding inflation, along with the larger issues around supply chain constraints.
Despite all the negativity in the news on a daily basis, buyers continue to buy property and sellers who go to market are being rewarded with great sale prices.
The recent interest rate rises have been in discussion for months and on the cards since the beginning of the year. Many buyers and their finance brokers / banks had built these expected rate increases into their serviceability calculations and budgets. The question now is what will interest rates look like at the end of 2022 / beginning of 2023.
Recently Sold Properties
Last week we sold three properties under the hammer, at our weekly Thursday auctions. All three sold above reserve with an average of 8 bidders on each.
A three bedroom in Encore, 50 Ferry Rd, West End, has 62 groups of buyers through and sold for $1,200,000. A record for the building. The buyer Pankaj is upsizing from an apartment close by and the sellers were also upsizing to a new apartment being built, down the road. We are finding that many of our buyers are buying locally and see value in their local area. It may be for the lifestyle. Ability to walk, ride or scooter to work in the CBD in minutes. The great schooling options are always a draw card, with Brisbane State, West End State and private school options, all within the 4101 postcode. However, one thing that all buyers rate high on their reason for buying in West End and the 4101 is the culture & unique demographic that is the West End local community. It is like no were else in Brisbane. If you know, you know, as they say.
We also sold a two bedroom townhouse in the Gardens Complex for $850,000. The seller was upsizing to a house in West End and the Buyer purchasing and moving literally across the road, from where they currently rent. Many tenants are taking the opportunity to purchase instead of rent, as rents continue to rise and buying is sometimes cheaper or one par. With rents continuing to rise, we expect this to be a frequent decision for many tenants.
Increase in Numbers of Leased Property
Rents have increased significantly over the past 6 – 18 months. This has been an ongoing trend. The increase in rents is due to multiple factors. Many investment properties on the market are being sold to owner occupiers, meaning there are fewer properties around in the rental pool. The recent storm & weather events has resulted in many people having to relocate while their homes are being repaired or rebuilt. The number of new dwellings being built has reduced, as construction and development costs have increased. The number of rental properties is simply being outstripped by the demand by tenants.
There is a lot of talk about Brisbane “growing up”, with the Olympics, massive infrastructure spending including multiple bridges and cross river rail. Infrastructure is one thing, however the migration to Brisbane from down south is not due to Brisbane growing up in my opinion, it is the lower cost of living, the sunshine and relaxed lifestyle.
Investors are investing in Brisbane Properties
When you speak to many buyers relocating from Sydney or Melbourne one of the core reasons for moving north is the cost of living. Even with Brisbane’s most recent increase in property prices Brisbane is still a more affordable city to live in. Not to mention our traffic is nothing compared to Sydney or Melbourne.
We are also seeing investors returning to the market, as rents increase and real estate being seen as a more stable investment option. Many of these investors are also from Sydney & Melbourne as Brisbane property is seen as a better, more affordable opportunity to access the market and achieve a reasonable rental return. One bedroom apartment in West End, which can still be purchased for approximately $400,000 are returning around $500 p.w. Two bedroom apartments selling for $600,000 renting for $700 p.w and larger three bedroom apartments selling for $1,000,000 – $1,200,000 renting for $1,200 – $1,500 p.w.
Future of Property Market
I was speaking to a client today and she asked me to predict the future. What were my thoughts on the property market over the next 6 months? What I can tell you is no one has a crystal ball. Covid has taught us that all our assumptions are inaccurate. The property market and stock market were all up at all time highs during the pandemic.
What I can tell you is there are many reasons I do not believe the property market will drop in price significantly, it may come off its highs, however the 32% growth could not be sustained. The times when buyers could not buy and would miss out on their dream home, week after week was not sustainable.
The stabilising of the market was inevitable. We need to remember that Australians still have high saving rates, they have more equity in their homes than ever before. These buffers will assist with stabilising the market, despite the higher interest rates.
The increased interest rates will reduce the amount of money a buyer can borrow and this will be what constrains property price growth. Buyers will still buy, but they will have budgets more limited than 12 months ago.
There are always births, deaths, marriages, driving forces which mean sellers will sell. The market will just need to realign to a level in which buyers will buy and to a level in which sellers will sell. The sky is not falling in, we are just back to normal market conditions.
