The large number of newly completed apartments – about 8300 – expected to hit Brisbane in 2017-18 will only worsen the problem, DFP says, quoting the latest residential data from property research group BIS Oxford Economics. A further 5000 units are in the pipeline for 2019. Yongyuan Dai/IStock
Mortgage revaluations of second-hand homes in inner Brisbaneare between 20 per cent and 30 per cent lower than the prices they originally exchanged for, one more sign of falling demand and over-supply in the Queensland capital, according to private property lender Development Finance Partners (DFP).
DFP, which provides commercial loans to residential developers, has discovered that not only are the values of new dwellings being pushed down, but secondary apartments and townhouses have been swept up in the downward slide.
The large number of newly completed apartments – about 8300 – expected to hit the city in 2017-18 will only worsen the problem DFP says, quoting the latest residential data from property research group BIS Oxford Economics. An additional 5000 units are in the pipeline for 2019.
According to BIS, the average number of apartments constructed in inner Brisbane outside of a boom year is about 2000.
DFP believes, based on information provided by its clients and industry experts, that the Brisbane apartment market will be further “tested” in the last half of the year.
“It’s a shock and it pressures those owners who do not have substantial equity,” DFP director Matthew Royal said.
“The new, shiny, state-of-the-art properties are easier to let and those owners, keen to get cash flow, may set a rental that is lower than rentals applying for nearby, older, properties.
“Making things worse is that, in a new development a large number of rental properties emerge at once, flooding the market,” Mr Royal said.
Adding to the woes of lower rents, banks are refraining from refinancing interest-only loans, forcing many borrowers to repay both principal and interest.
“Lower rents push down a property’s value, reduced cash flow arrives as principal and interest needs to be paid and an investor, financially comfortable up until then, is suddenly struggling to ‘hang on’,” Mr Royal said.
Additionally, Mr Royal is predicting more time on market for re-sales of apartments from the third quarter of 2018 onwards.
“Unfortunately I am predicting more pain than gain for the most exposed assets this time next year.”
It’s been two years since concerns about an oversupply of apartments in Brisbane began but many developers are understood to be still holding onto stock, hoping the dwellings will be absorbed by a growing population
This expectation of a gradual correction is supported by the relatively flat – as opposed to rapidly falling prices of Brisbane off-the-plan units, shown in settlement data from Corelogic.
But there are fewer projects in the city, with just 12 launched in 2017 compared with 57 in 2016.