Property analysts have given their most dire warning for the Brisbane apartment market yet, predicting rents could fall as much as 10 per cent in the next 12 months.
Michael Matusik from Matusik Property Insights made the call: “It has the potential to ‘get out of hand’, I guess you could say,” he said.
Mr Matusik cited a number of different economic factors for the potentially significant drop in apartment rents. “There’s a pretty persistent unemployment rate,” he said. “You’ve got about five or six people applying for every job.”
“And wherever you see markets with a [rental] vacancy rate of 3 per cent you see rents either stay flat or fall.”
This coupled with the rising supply of rentals in Brisbane, meant investors would be forced to drop their prices to compete with cheap, new and readily available apartments in inner city Brisbane.
“The person who’s got the second hand unit or the house in the inner middle ring suburb, they have to drop the rent to
attract tenants,” Mr Matusik said.
Mr Matusik said investors needed to prepare for the fall to be as much as 10 per cent. “It’s a worse case scenario but it could be that much,” he said.
But Domain Group chief economist Andrew Wilson said a 10 per cent fall in rents was unlikely.
“I think we’d have to see a lot more vacancies than we have now,” he said.
He conceded current sentiment was gloomy. “There’s no doubt there’s strong downward pressure on rents in Brisbane,” he said.
“We’re releasing our rent report next week and it will show a fall in rents in Brisbane.”
Dr Wilson thought 10 per cent would be an extreme drop and said immigration growth would slow the fall. “We are seeing a pick up in migration in South East Queensland now,” he said.
“I think affordability is attracting people back.”
Michael Yardney from Metropole was largely on-board with Mr Matusik’s prediction. “I think it is very likely there will be a significant fall in income and minimal capital growth for five to 10 years,” he said. “I never thought that inner city or off the plan apartments have made good long term investments.”
Mr Yardney said the relative conformity among off-the-plan apartments meant their biggest selling point was the fact they were brand new. “Each big building is built out by an even larger tower, so there is no real scarcity.”
He also was concerned a lot of the apartments wouldn’t sell well with owner occupiers if investors weren’t interested. “What I’m getting at is there’s more stock but there’s a lot of the wrong stock, it’s not how most of us want to live,” Mr Yardney said.
To avoid empty rentals, Mr Yardney said landlords should reassess their expectations of income. “Investors will have to prepare for longer vacancies initially and less cash flow over the term of their investment,” he said.
Mr Matusik said many people in the industry were in denial about the potential effects of the
apartment oversupply. “A lot of owners and investors with older stock don’t understand we need to meet the market and roll with the punches.”
“The market will sort itself out.”
Originally Published: https://www.domain.com.au/