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Tales of Different Australian Capital Cities

Apartment data raises questions
Matthew Cranston
454 words
12 Mar 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.
Apartment vacancy in inner Brisbane has shot up by more than 40 per cent in the last quarter according to the latest REIQ numbers, raising questions about the true fundamentals behind the city's apartment boom.

Overall vacancy rose to 3.2 per cent in the December quarter, up from 2.3 per cent, while the inner city leapt to 4.1 per cent from 2.4 per cent. The data is the most consistent in the industry.

REIQ chief executive Anton Kardash said results of the next quarter would be crucial for determining the longer-term health of the apartment market.

"Because we had very tight vacancy rates you saw investors coming back into the market. Now we are seeing the legacy of that, with more apartments being constructed, and that has added to the pool," Mr Kardash said.

After peaking in December 2012, rents for 1- and 3-bedroom apartments in the last year have contracted by 4 per cent and 2.3 per cent respectively – a fall recorded only once since the Rental Tenancy Authority data series began in 1994, according to valuers LandMark White.

There has been no growth in 2-bedroom rents since they peaked in September 2012."We expect some rents to be under pressure, which will be a source of tension for some investors who think they are going to get a great return," Mr Kardash said.

LandMark White has also raised questions about the fundamentals of the apartment market in Brisbane city.

"This is a surprisingly high result in vacancy," senior research analyst Ally McDade said.

"While seasonal implications such as the end of the university year typically reduce tenant demand during this final quarter, the material increase in vacancy cannot be overlooked."

Ms McDade said increased supply and softening migration were probable causes for the spike in vacancy.

"It is expected that the surge of new developments in Brisbane's inner suburbs, coupled with the predominant level of investor-owned stock, may have led to a slight oversupply of rental stock and hence a reduction in demand and softening rental growth."

She said that in the year ending June 2013, overall population growth in Queensland was down 2.2 per cent, caused primarily by a significant ­reduction in interstate migration, which is a key driver in demand for ­residential property.

Place Advisory director Lachlan Walker could not identify a reason for such a rapid rise in vacancy.

"Many data providers, including the REIQ, formulate the vacancy rate after surveying only 20 per cent of the market, and this means it may not necessarily be an entirely accurate reflection of the market's true vacancy rate," Mr Walker said.

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Rush to supply city’s boom

DEVELOPERS are racing to complete the construction of apartment towers in inner Brisbane, with the market preparing for a record sales boom in the second half of the year, according to property consultants Urbis.

Urbis senior consultant Paul Riga said demand had caught many developers by surprise, with at least six projects selling out ahead of schedule.

“Developers are desperately trying to get their projects finalised, with about 40 to 45 new apartment projects expected to be ready for sale in the second half of 2014,” Mr Riga said. “This equates to 5500 apartments, which is a substantial amount for the market to absorb.”

However, sales in the March quarter were down 37 per cent on the back of the limited stock released in the period.

Meriton sales manager James Sialepis said the group had seen the market improve during the construction and sales of its 82-level Infinity development in the CBD. “We sold out of our apartments there and the current rental market is strong,” Mr Sialepis said.

CBRE managing director of residential Paul Barratt said about 20 per cent of apartments sold in recent developments were to Sydneysiders.

He said the Brisbane apartment market was much more affordable than Sydney’s and yields were strong, which lured investors from the more expensive Sydney market.

Walker Corporation, meanwhile, is about to start on its $150 million Westmark Milton development, with the listed Devine Group announced as the builder.