brad bell

executive summary

On balance and by way of executive summary, we predict that the Brisbane property sector will

continue to hold strong throughout 2017. However, there are some interesting trends emerging after the tumultuous 2016 which could

be telling for the Brisbane property market.

Next year, we believe the trends to look at are: Overall economic growth levels, interest rates, lending policy, apartment completion levels, productivity in the building sector, social trends for work and living, rentvesting and property

guess-timate apps.

brad bell

brad bell

01

overalleconomicgrowth

Resist the temptation to catastrophise

The first quarter of the 2016/17 financial year (Jun-Sep 2016) showed that the economy had shrunk, albeit marginally, for the first time since March 2011. The last negative quarter prior to that was December 2008 – the advent of the GFC.

Combined with the fact that annual growth in the economy was less than anticipated - coming in at 1.8% instead of the projected 2.2% growth. These statistics have provided artillery for the doomsday pundits and some media groups to roll out 2017 projections with a very ‘end-is-nigh’ flavour.

But lets put it all in perspective; 2016 was nothing if it not dramatic and left many nations, organisations and individuals feeling as though The Rapture had left us all behind. With the continued threat of global terrorism, Brexit, Turnbull and Trump – it is remarkable, extraordinary in fact, that with the volatility, uncertainty and insecurity of that climate our economy managed to grow.

The good news is that we have no major upheaval planned for 2017 – and despite the challenges of a minority government, we may be poised to take advantage of some increased stability among some of our most important export and investment partners globally.

So, resist the temptation to catastrophise some of the isolated figures released at the end of 2016 and frame our economy more as the little engine that could.

brad bell

02

interestrates

Banks may continue to go their own way

The first Tuesday of each month sees the Reserve Bank of Australia sit down with tea and Tim Tams to discuss what measures they can take to speed up or slow down the economy with the official interest rate.

Official interest rates have been extraordinarily low since 2013 and while this has been an important factor in bolsteringdomestic markets, including the residential property market, the reality is – the dream must come to an end at some point.

We are inclined to agree with the thought process that the RBA is losing its teeth.

Banks and mortgage companies lend money – not the RBA, and at the end of the day hold responsibility to their shareholders who need to see profit. An official cash rate of 1.5% is very cheap money and it is not tempting to lend when returns are so low. While we are enjoying low rates on our mortgages, the reality is that no one has a 1.5% mortgage with The Reserve Bank.

The banks and mortgage companies, who lend money for profit, have been north of the official cash rate for some time and the banks have increased their divergence to the will of the RBA.

So, while we all wait to see what the RBA does each month, the moral of this story is that we need to be looking at the divergence of the financial institutions and where rates are sitting in your actual home loan or financial product. Rather than taking the RBA’s official rate as gospel, we need to see it more as a leading factor for banks to gauge what they are going to do – as they are compelled by a commercial reality.

brad bell

03

stricterlendingcontrols

Don’t burst your bubble

If you have seen the movie “The Big Short” and are worried about a property bubble, looming recession or a radical decrease in equity inyour own home. It is important to remember that unlike the US example that spearheaded the collapse of the global economy, the Australian banking sector is a more regulated and robust animal than the US system.

We have already seen banks and lenders implement macroprudential measures that restrict lending and limit risk in finance which, perhaps counter-intuitively, is actually good for home owners.

Lending controls ultimately protect property values by helping to prevent the short selling of property that happens in distressed financial situations.

What is meant by macroprudential measures?

This is a word we may be hearing more and more as lenders shy away from riskier loans in order to protect themselves, and in turn our economy from the effects of mortgage default. It is a strategy to limit the systemic risk involved in financing during periods of economic vulnerability.

brad bell

04

apartmentcompletionrates

The Apartment Glut is real - Brisbane less exposed than Southern Capitals

We have heard a lot about the apartment glut and of all the facts and figures around this one, the Rider Levett Bucknall Bi-annual Crane Count Survey is arguably the most compelling. The survey counted 528 cranes working in the Eastern Australian Capitals compared to 419 cranes across major North American cities, such as New York, Boston, San Francisco, Los Angeles, and Toronto.

Unlike the sprawl of development in Sydney and Melbourne, Brisbane’s development is concentrated around the inner-ring of the CBD. Units don’t suffer from a value problem – they suffer from a demand problem. Brisbane’s construction pattern leaves the market less vulnerable than the southern capitals as the ‘over-development’ phenomenon is more easily met with demand in the inner-city, buffering the impact of the glut to some extent.

The location of the Brisbane builds may lure interstate investors who can achieve a lot more by way of location, size, and quality of apartment in the all important bang-for-buck metric. While this may continue to create downward pressure on rents among homogenous inner city developments, the good news is that the capital investment of those properties is less exposed than relative properties down south.

Morgan Stanley predicts that the apartment completion peak may not be reached until mid 2018, and so we can expect continued foreign investment interest in these new properties; This may keep new property prices buoyant and it wont be until we start to see turnover and re-sale figures for these developments to learn the extent, if any, of foreign investment’s synthetic bolstering of new building stock.

brad bell

05

constructionwatchdog

Greater regulation in the building sector to increase compliance and productivity

The Cole Royal Commission in 2013 highlighted a total of 212 recommendations for Government to address the state of ‘lawlessness’ in the construction and building sectors. The recommendations also highlighted some gaping holes in the productivity of the sector, which given the growth, could account for thousands of hours and millions of dollars wasted.

Leaving the politics aside, the establishment of the Australian Building Construction Commission has the significant task of increasing productivity which should lower construction costs. This may go some way to addressing housing affordability, through compliance measures and tough penalties. Before we get too excited though, there is likely to be a significant lag before any positive effects from this legislation cascade down to home owners – but it makes for a new and interesting spectator sport for those interested in property.

brad bell

06

changingwork &lifestyles

Technology changing how we live and work

Social research from the McCrindle group supports the view that the way in which technology is changing how we work, and is in turn affecting how and where we want to live and work.

The reality is that the ‘normal’ work day and the CBD commute is becoming less and less ‘normal’. Opening up more social and lifestyle considerations in the value for money considerations that affect a property’s desirability.

The redevelopment of major shopping centres such as Garden City and Carindale in Brisbane’s inner south, as well as, the designation of the urban corridor through Upper Mount Gravatt has encouraged not only commercial development but also the establishment of a satellite commercial zone.

The lifestyle equation for a lot of people have taken them out of the inner city fuelling demand for the schools and recreation options that exist in the next concentric zone.

Anything under 20km to the CBD still represents enough centrality for commuting, but opens up a more casual approach to living with the predominant hipster sub-culture also sprawling outwards creating cultural, art and fashion hubs outside the central zone. Think Mount Gravatt Marketta as a regular Saturday nigh carolling of street food vans and live music, with free parking.

brad bell

07

rentingurbancool

Rentvesting is the new Australian Dream

Rentvesting is how Millennials are attempting to solve their consumption-driven and brand-defined lifestyles within the complex issues of housing affordability. The phenomenon involves purchasing an investment property in a less desirable but more affordable area while renting accommodation in a trendy more urban area.

The practice is supporting rental accommodation, which has understandably softened significantly with the low cash rate. The lifestyle decision may be impacted by an increase in rates, as the disposable income is absorbed by rate hikes and the sheen of the urban lifestyle decreases along with disposable income.

As trendy Millennials themselves age and their priorities shift in turn towards those of young families, the lifestyle offerings of the middle belt of Brisbane will become more and more appealing. Think about the potential private school fee saving where property falls within a Government funded school of excellence, such as Mansfield State High. For a family of three children, the school fee saving could be somewhere in the vicinity of $750,000. This adds a lot of value to homes that fall within the ‘right’ catchment.

brad bell

08

propertypricingapps

Helicopters and microscopes

If you are looking to research your home’s value now or at any time during 2017 there are a plethora of bank and property data guestimate apps that will give you a price range. The price range is helicoptered over an entire suburb and weighted over an entire city.

The reality is that these helicopter guestimates fail to appreciate that in the Brisbane market, property values can differ street by street, block by block, high side to low side and these are important variables that escape automation.

Every detail, every feature of your home and its location represents a positive or negative dollar value to potential home owners and tenants seeking property in an area. It is also important to recognise that the weight of each of these values shifts over time in line with some of the social and economic trends discussed in this paper.

As agents at the coal face, wearing down shoe leather in the marketplace where your home sits, speaking with buyers and tenants in that market, we know that the automated property price ranges are unhelpful and frequently off-base. brad bell are pleased to offer in-depth comprehensive market analysis at no cost or obligation to Brisbane property owners. See bradbell.com.au if you would like an individual report for your property.