Two-tier market: Brisbane’s apartment and housing gap to widen

Investors have been urged to focus their attention away from Brisbane’s booming apartment market, as oversupply threatens to stagnate capital growth.

New research from property investment firm Momentum Wealth has revealed a higher than average apartment approval rate could drive down prices, while a stable level of new home approvals could increase the value of housing stock.

“We’re likely to see a greater divergence between the performance of houses and apartments, given these supply-side fundamentals,” said Momentum Wealth Managing Director Damian Collins.

“The research report explains that as the pipeline of new apartment projects comes to market, it’s going to weigh on rental returns and capital growth for these types of assets, particularly in those areas with a high concentration of new stock.”

According to the report, the top three suburbs in Brisbane with the highest concentration of apartments approved for construction centered in and around the CBD area - with South Brisbane (2,084), Brisbane City (1,731) and Newstead-Bowen Hills (1,493) topping the list.

“While we don’t expect all of these new apartment projects to go ahead, there will still be a considerable amount of new apartment supply coming to market in Brisbane over the next few years,” said Collins.

“Investors should avoid apartments in areas with high levels of new supply waiting in the pipeline because when it comes to market the new stock will weigh on capital growth of similar stock in the surrounding areas.”

Despite the growing gap, Collins noted that the Brisbane market as a whole continued to show encouraging signs that would drive demand, including a balanced economy as well as population and labour market growth.

The research showed that inner city houses could be the ideal investment opportunity for those turning away from the apartment market.

“In the Brisbane market, investors should instead focus on established houses, in inner-metropolitan areas with large land content and low supply,” he said.

Momentum Wealth’s research backs up earlier predictions which forecasted the median Brisbane unit price to shrink from $367,720 to $353,011 in 2017, while the median house price of $532,050 was expected to rise to $553,332 during the year.

Mozo's repayments calculator shows a borrower with a 20% deposit looking to purchase the median priced house in Brisbane, would be looking at repayments of $2,342 per month, compared to $1,618 if they invested in the median priced apartment.

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