It’s a popular debate… is buying a unit in Brisbane a good investment?
There is a lot of discussion around this topic, but it is important to highlight that it can be a mistake if an investor has not done their research and due diligence.
Buying a unit in Brisbane seems like a no-brainer for some property investors due to the attractive cash flow benefits. Units also have a much lower entry price point. And, they often provide people with the desired lifestyle, especially when the units are in popular precincts.
We are going to touch on some risks associated with purchasing a unit in Brisbane so you know what to watch out for.
1. Oversupply risk with buying a unit in Brisbane
It has been a strong discussion point in Brisbane for some time now. The issue that investors will uncover when purchasing a unit in Brisbane, is that the Brisbane Unit market moved into a state of oversupply following the peak rate of unit construction in 2016, which meant there was a huge supply risk for several years.
Areas like Newstead, West End, Chermside, Mount Gravatt, and Coorparoo have all gone through physical growth spurts where large unit developments have been constructed, replacing the lower-density housing that once stood in its place.
This happened off the back of a change in the Brisbane City Plan in 2014. At that time a lot of land use zoning changed to make way for higher-density living. The consequence of this change was that developers moved in very quickly and the completed unit developments were being delivered to the market very quickly and in high volumes, all at once.
Oversupply in any one area can affect old and new apartments. From an investment perspective trying to rent a unit when there are 300 other identical units to yours can affect the performance of the investment. Vacancy rates tend to rise and this puts downward pressure on rents.
You may have a property that you purchased brand new four years ago, however, due to brand-new developments being constructed nearby since, selling your asset can be tricky when you are located in an older complex and competing against brand-new stock.
Before you consider buying a unit in Brisbane, you must assess the current state of supply and also what the potential for future supply in the immediate are also looks like. Not all areas are created equal.
2. Appreciation vs Depreciation with buying a unit in Brisbane
When purchasing a brand new unit you do get some great depreciation benefits. However, what you will find is that the value of the unit often depreciates at a faster rate than the capital growth appreciates. This resulted in many property investors who purchased brand new units in Brisbane during the peak supply period, realising a loss when the time came to sell.
There have been many horror stories of properties selling for over $100,000 less than what they were originally bought for due to the depreciating condition of the property, and the new supply of brand-new properties for Buyers to choose from. The greater the supply, the less scarce the property is, and this puts downward pressure on prices.
When you purchase a property with a larger component of land (for example, a house on its own block OR a unit in a smaller complex on a larger block of land) the land is the component that experiences the capital growth. In the case of a unit, you are increasing your downside risk by only owning a very small share of the land that the complex sits on. In some instances, hundreds of units can be constructed on multiple levels. In this instance the proportion of land owned by an individual unit holder is minimal.
3. Off the plan Risk with buying a unit in Brisbane
When thinking about purchasing a unit it is very easy to get drawn into buying off the plan. Many developers need to meet pre-sales targets to obtain funding before construction commences. Generally, developers create a targeted marketing campaign to draw buyers in. Amazing quality images along with the promise of fantastic resale value and high-yielding benefits are the focus. It is not uncommon for other bonuses to be thrown in too … but whatever the bonus may be, it is simply built into the purchase price!
Yes, we have seen this before when people are buying a unit in Brisbane.
Many investors have been burnt by purchasing off the plan for a number of reasons. There can be significant changes in the market, between when you purchase the unit and when it is due to settle. You may select a location where your unit complex might be the only development around at the time you enter an off-the-plan contract. However, when completion comes up (which can sometimes be a couple of years later or more) you find that the complex may be surrounded by other brand-new developments. This can cause the value of the unit to drop, once again due to oversupply issues.
You are usually paying a premium price for off-the-plan properties. Remember, off-the-plan sales have not been tested in the market. Also when you buy brand new, there will be a lot of hidden costs. You can read about 5 Traps to Buying Brand New in a previous blog post.
If a developer is offering attractive incentives with your purchase, chances are you are paying for those in the purchase price.
Another scary thought is not receiving the product you were promised and what you paid for. Some developers will switch out quality products for cheaper alternatives. Because the property is not built yet these changes are normally made after you have committed to the purchase. Good project management and understanding the complexities of off-the-plan contracts can avoid you getting caught out in this regard.
4. Risk of being built out when buying a unit in Brisbane
So, you may have just secured a property that has city views!
You can’t wait to show your friends and family.
Imagine the years and years of river fire and city lights to watch.
Then you realise that a building is going to be built right… in front…of your view!!! This is common in the higher-density areas of Brisbane. It is definitely something that buyers need to be aware of when buying a unit in Brisbane. There are searches that can be completed to check what development is approved, or likely to be built on adjoining lots or in the line of a view. That’s where getting professional assistance helps.
If you are unsure if buying a unit in Brisbane is the right thing for you, we would recommend seeking professional advice from our investment-focused Brisbane buyers agent team who are qualified property professionals. Click HERE to learn more.
Our Brisbane buyers agent team can help you understand if buying a unit in Brisbane is right for you.
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