For a number of years now, Sydney property buyers have been coerced into buying in Brisbane. Lured by the promise of massive capital gains and thinking they are getting greater value because the prices were so much cheaper than Sydney.
What due diligence did these investors actually undertake? Often it was a schmick presentation by a professional marketing company that claimed to have carefully scoured the entire property market around Australia, and hand-picked a particular unit in a particular development.
Well, these investors are about to revisit what they learned in Economics 101, however unfortunately clearly forgot….the law of Supply & Demand.
CoreLogic recently released their expectations for the number of units due to settle over the next 24 months in each capital city. Whilst Sydney can expect an uplift of 12.2%, Brisbane blows that number out of the water with a massive uplift of new units of 21.4%.
With such a massive jump in the supply side, you would need to see a huge lift in the demand side for these units to avoid a complete blood bath in Brisbane. And unfortunately the demand is just not there. In the last 5 years, jobs growth in NSW has increased by 38%, compared to Queensland’s 12%…and it is jobs growth that drives population growth to those States.
In the last 5 years the NSW share of national population growth was 29%, whilst Queensland experienced 20%……. ‘Brisbane, we have a problem.’
The picture is becoming very clear right now and is showing up in what is known as ‘Settlement risk’. That is, the % of off the plan units that were sold in the last few years that are settling today with a valuation lower than the contract price. Sydney has the lowest number in the country sitting just above 10%. In Brissy that number has just hit a whopping 50% according to CoreLogic. That means that 1 in every 2 settlements, is coming in at less than what it was bought for. And whilst some investors will have the cash or equity to complete that purchase, many wont.
The lesson here is simple. Property doesn’t always go up. Property can carry substantial risk. And most importantly you must always always do your own due diligence.
– Kiril Ruvinsky, Director Corporate Partnerships