Why Brisbane's Incredible Property Value makes for an Ideal Investment Destination

Why Brisbane's Incredible Property Value makes for an Ideal Investment Destination
Research conducted by RiskWise Property Research revealed that:
 
  • The gap between Sydney and Brisbane is significantly wider than the gap before the mining boom. This means that the relative house prices in Brisbane are very low, from a long-term perspective,. Therefore, Brisbane is more attractive than Sydney as an investment destination; and
  • Brisbane has the best Surplus/Shortfall Ratio (SSR), which is the ratio between the gross rental return and the funds required to service a mortgage (based on 80% LVR and the discounted variable rate as published by RBA). This means that the out-of-the-pocket costs to service the mortgage and the ongoing costs associated with the house are significantly lower for houses in Brisbane.
Due to its great house value, Brisbane has become an attractive investment destination from both capital growth and rental return perspective.
 

Research One - Potential Capital Growth and Relative Affordability

 
The first research, ‘Structural Changes in the Housing Market – Before, During and After the Mining Boom’ revealed the relative dwelling prices between Sydney & Melbourne and Brisbane & Perth, before, during and after the mining boom.
 
The new research from RiskWise Property Research provides answers to the following questions:
 
  • What are the long-term, ‘normal’ house prices in Brisbane and Perth, relative to Sydney’s and Melbourne’s?
  • Adopting a long-term perspective, does Brisbane really offer good house value, and should we expect the Sunshine State to shine?
RiskWise Property Review created a ratio between the relative prices in our capital cities, which can help assess the long-term price trends in Brisbane and Perth relative to prices in Sydney and Melbourne. The aim of this ratio is to leverage more than 30 years of historical perspective of dwelling prices, to better understand the fundamentals of the housing markets in Brisbane and Perth post-mining boom.
 

Part One – Median House Prices and Capital Cities against median Australian House Prices

 
 

Results - Houses


      
What’s the house value based on prices today?
 
If the mining boom never happened, what were house prices tracking towards?
 
 
 
 
Commentary:
  • The current prices in Brisbane are very similar to the long-term price projections for these states.
  • The current prices in Sydney are 31% higher than the long-term ratio – this is significantly higher than the long-term trend.
  • Post-mining boom, the gap between Sydney & Melbourne and Brisbane is actually bigger than the gap that we had before the mining boom.

Part Two – Comparative analysis of the four capital cities against each other

 
 
Results - Houses
 

 
Prior to the mining boom:
 
Sydney house prices were significantly and consistently more expensive than the prices in Brisbane, with an average of 58% gap. In 2001, post Sydney 2000, Sydney’s prices were roughly twice as high as the prices of Brisbane.
 
Interestingly, the gap between Melbourne to Brisbane was inconsistent. While overall Melbourne was 20% more expensive than Brisbane, during the 1990s the gap between these two capital cities was very narrow, and from 1993 to 1993 these cities were roughly on par.
 
During to the mining boom:
 
Unsurprisingly, during the mining boom the price ratios between Sydney & Melbourne to Brisbane has been changed significantly:
  • In July 2009, Sydney prices had a median price of $470K, only 14% more expensive than Brisbane with a median house price of $412k.
  • In November 2008, the median price in Greater Melbourne was $390k, about 10% cheaper than the median price in Brisbane of $425k.
After to the mining boom:
 
The gap between Sydney and Brisbane is significantly wider than the gap before the mining boom. Therefore, QLD appears to be more attractive than NSW as an investment destination.
 


Research Two – Rental Return for Investment Properties - Surplus/Shortfall Ratio

 
 
RiskWise Property Review has created a groundbreaking new data-modelling tool that can help to predict investor activity, and assist everyone from policy makers and property professionals to real estate investors themselves in planning for the future.

The Surplus/Shortfall Ratio (SSR), which is the ratio between the gross rental return and the funds required to service a mortgage (based on 80% LVR and the discounted variable rate as published by RBA), aims to take the guesswork out of forecasting where investor demand is headed.

Unsurprisingly, a clear correlation has been identified between the SSR and the number of investors in the market. In other words, the higher the ratio (i.e. the lower the ‘out of the pocket’ expenses for an investor), the greater number of investors there are in the market.
 
This correlation has been found in all three markets that were reviewed, NSW, VIC and QLD:
 
 
 
Equilibrium points – the real surprises

The table below summarises these estimated points across the three states, with some interesting results:
 


 
Overall, the current ratio for houses in QLD of 139% is:
  • Significantly better than the SSR ratios in NSW and VIC;
  • Very high comparing to the average ratio in QLD during the last 10 years;
  • Significantly higher than the equilibrium point (i.e. the ratio where prices are projected to decrease)
This means, that overall, houses in QLD provide a low out-of-the pocket costs for property investors.