The property game isn't for the faint-hearted: Brisbane 'not spots' require patience

This article is in response to 'Stafford blooms but four out of five Sam Saggers Brisbane hotspots yet to show promise'

People ask me, “Were you angry about the article?” My reply is pretty simple: I’m not. The way I see it, it’s the job of a journalist to create and start debate.

So better late than never, I’ve finally found time to reply. If you have not read the article I am referring to, it states that four out of five of my “Brisbane hotspots” are “yet to show promise.” I appreciate the perspective. Brisbane has been underperforming for a while now. Yet one thing that still plays on my mind is that in conventional capitalism, it’s still better to buy during a market low rather than a market high. Thus smart investors are buying up in Brisbane LGA and buying as many properties as they can.

Those smart investors also entered the Sydney market late 2009 when prices were simply capitulating and it was a real buyers’ market. Of course scepticism in 2009 was rife, and investors were defiantly swimming against a tide of media gloom. Now in 2013, some five years later, the Sydney market is boiling hot. Early investors that struck at the bottom in 2009 have already made huge gains and that is now not disputable. It’s easier to look back and wish you had bought than it is to buy when sentiment is against you. Remember, despite the medias best efforts to de-rail property investors, the job of an investor is to avoid buying because of a fad or because everyone else is in “boom” mode. It is the job of an investor to swim against the tide.

In 2006 many property investors launched into Melbourne despite negative press, they received their rewards some three years later as the market boomed in 2009 and 2010.  See, investing is a game of courage and a game of patience. It’s not for the faint hearted, that’s for sure.

The article is right; Brisbane LGA suburbs did not match the growth of Perth and Sydney.  But is it all doom and gloom? I personally think it’s a great buying market and I personally have invested there. I am confident in my investments already and the best part is that the market growth upside hasn’t even started.

Let’s take a look at two properties I have bought in the last 18 months in Brisbane.

My first buy was a second-hand one-bedroom unit in the suburb of New Farm, Queensland. It is a highly sought after suburb due to its picturesque streets and because it’s located only 2 kilometres east of the Brisbane CBD on the river. It boasts the popular cafe, bar and restaurant strips of James and Brunswick Streets, and has excellent transport infrastructure in place with regular Ferry and Citycat services, as well as several bus routes. As unit prices are sub-$500,000 and the median house price is over $1 million, units are extremely attractive for home owners and investors alike. Growth drivers included:

  • Supply and demand;

  • Transient population growth; and

  • Demographics.

So what did I buy? I managed to get a great deal due to the soft conditions. I secured the recently refurbished one-bedroom unit for $280,000. Seems cheap? Well, I agree! It rents for $400 a week, which is a 7.4% rental yield. Of course, once the Brisbane market takes off, I can foresee that the unit will reach a value of $400,000 – where I’ll make a small win for my bravery of buying at the bottom of the market cycle.

My second purchase was in South Brisbane, Queensland. Without doubt the rental yields in South Brisbane are the best for an inner city suburb anywhere in Australia. Located within 300m of the Brisbane CBD. The suburb is a mecca for students, executives and the cities elite. It is a cultural hub of Brisbane. With some of the best award winning restaurants, the museum of Modern Art, access to train lines and amenities a plenty. With over 30,000sqm of commercial office space and some of the largest big name commercial tenants in the country, the residential market is tight. In 2007, there were 17,000 office workers in South Brisbane and 900 apartments. In 2012 there are 30,000 office workers and 1,100 apartments. The rents are some of the best in the city with yields pressing 6.5% if you buy well. There aren’t many locations left in Australia today where you can buy so close to a capital city at an affordable rate. This alone makes South Brisbane a standout market. Nicknamed “Brisbane’s Greenwich village”, growth drivers include:

  • Supply and demand;

  • Yield variation;

  • Transient population growth;

  • Macroeconomics;

  • Infrastructure; and

  • Demographics.

So what did I buy? Well I a decided to buy a brand new unit. I actually bought it off-the-plan and paid $440,000 all up that included some furniture. I rented the property furnished from day one, its current rent is $600 per week and the Defence Force is the tenant. What a formidable return, wouldn’t you agree? Actually both these properties are yet to really perform from a growth aspect. But I’m getting $1000 per week for two properties in two great suburbs, and have paid in total $720,000. That’s a 7.2% return on my investments and I’ve done it in Australia’s third largest city without leaving the 3 kilometres ring of the CBD!  I’m not financially stressed either, because the rents pay my mortgages and it doesn’t cost me anything to hold the properties.

I don’t know about you but I think I have bought really well. So why does the article state they're yet to show promise? And why did I pick areas where the median didn't perform?

What I can tell you is this:

Smart Property Investment magazine was doing a property cycle report on Brisbane and asked me to identify suburbs that were likely to represent the best buying opportunities in 2012. At no point did I refer to these areas as ‘hotspots’. I worked with the writer to come up with five areas that fit his criteria. The writer required five suburbs within 10 kilometres of the CBD with properties available for under $400,000. I did express that they were the best buying opportunities available at that time, in that area, for under a certain price – and I still stand by what I said.

I know investors can still buy well and still buy at the bottom of the market in these areas. And if agent interest is anything to go by, I think we are starting to see the winds of change finally creep into the Brisbane market. There is definitely a new air of confidence and agents are becoming increasingly confident as sales volumes begin to surface.

Real estate is a long-term wealth creation strategy, and you can’t expect overnight success. I suggested a market high in 2016-17, which is still three to four years away. I did suggest a double-digit price growth but I did state it would be over a three year time period. Again, as it’s only been just over a year since the article was published and I’d love to revisit this discussion in 2016. In truth neither the article nor I can win this debate, at least not for a few years yet. One thing that is certain though is the way data is reported is often very different to what is happening on the street.

Let's explore:

Michael Matusik published an article on Property Observer commenting on the inaccuracy of median property prices for judging realistic investment returns. Matusik writes, “Far too much commentary about the residential property these days focuses on price. Very little is actually said about sales.” I completely agree.

Matusik sums it up nicely when he says, “Investors, especially, should pay little or no attention to median or average prices.  It’s sales volumes that are really important.” Well, that’s true and I agree with Matusik, if you are looking for a hot market. Sydney today has massive sales volumes and regardless of the median price, the market is surging. The more sales volume activity, the more demand, the more growth. Would I buy in Sydney now? Well, in truth I don’t have to. I bought three properties over the past four years in Sydney and have done well. Again, primarily using bottom of the market buying strategies.

When will Brisbane sale volumes take off?  Well, as an early investor into that market, I can share with my co–investors, it is not a matter of if they will, but when! One thing I think we can all agree on is, it is smarter to buy in a market low than when the market is high. Brisbane is inexpensive right now and low. If you don’t believe me about the theory, perhaps then Mark Bouris can help win this argument with his buying advise.

To quote Mark Bouris, from his article 'When is the best time to buy property?', “Close followers of house prices are often investors who look for total return on their properties, which combines rental yield and capital appreciation. This can be a good test of overall property health.”

Today Brisbane exhibits strong yields, combine that with expected growth and I think the debate will soon be over. Brisbane LGA and its many inner suburbs, including the ones named in the article, are absolute opportune investment areas and just like Mr Bouris says, once you combine high yields and capital appreciation you have a very healthy property market.

Growth will happen. Brisbane has too much right going for it for it not to.


Sam Saggers is CEO of Positive Real Estate.

 

 


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