Queensland property warning

By Alex May

The marketing is slick and the myriad of new apartments, townhouses and homes available in Queensland appeal to southern states investors in search of the rental yields that have been sadly lacking in the Sydney and, to a lesser extent, Melbourne.

Australian Property Monitors research director Louis Christopher says there could be bargains in Queensland as developers try to offload stock that cost more-than-anticipated to build. But he has a word of warning – beware.

“A lot of developers out there are saying they’ve reduced prices by $50,000, but really all they did was over-price the developments in the first place,” he says. “Do your homework big time and you might be lucky to find a bargain.” Christopher says there are good opportunities in the north of the state where the local economy is still strong, but South East Queensland prices will be fairly flat for the next year.

Queensland property analyst Michael Matusik, director of Matusik Property Insights, says the overall outlook for new developments in Queensland is positive, and he predicts that average prices across South East Queensland will rise by between 5 and 8 per cent this year. He says rental yields in Queensland are around 4.5 per cent, which is better than the 4 per cent in Melbourne and 3 per cent average in Sydney.

“We think the market will be the strongest in land-based developments, suburban subdivisions and anything master-planned,” he says. “But when yields start reaching 5 per cent, that’s when the investor opportunities will really open up again.” He argues that even highrise apartments have good long term investment prospects because building costs have risen so much that it will be impossible to build more apartments for a lower price.

Matusik says the state’s population grew by 77,000 last year, which will underpin demand for housing, which he believes is in short supply on the Gold Coast and in Brisbane.

“I think the seachange properties and top end of the market are oversupplied, but there is good prospects for the greenchange locations in the hinterland and in country towns,” he says. “I also think acreage properties surrounding Brisbane are massively undervalued – you can buy a two bedroom apartment in the inner city for $400,000 but you can buy 10 acres for $800,000 just 20 minutes drive away,” he says.

“That makes me think that prices for large land holdings have to adjust upwards.”

Herron Todd White National Project Director Phillip Grahame says there is still a stream of apartment and townhouse developments being completed from the boom years of 2001 to 2003.

“Developers had been able to sell stock locally because there was really strong demand and they could sell out a project off the plan - but demand has since suffered and building costs have risen so developers are working harder to move product,” he says.

Grahame says there is an oversupply of generic apartments that are easily replicated, and suggests investors seek out developments in prime locations with views or close to the water.

“If you can’t get a good location, insist on developments with high quality fittings and fixtures with good, flexible floorplans and easy access to local facilities,” he says.

BIS Shrapnel property analyst Angie Zigomanis says Queensland still offers investors better rental yields than NSW, especially Sydney, but the outlook is for flat price growth.

“The fundamentals definitely still apply to Queensland developments – look for prime locations, ideally near the water,” he says.

Christopher suggests any out-of-state investors should pay for an independent valuation of any new developments and research comparable local unit sales.