The Brisbane property market is currently undervalued according to ratings agency Moody’s, having yet to follow recent price gains in Melbourne and Sydney.
The agency’s quarterly report on Australia’s housing market found property in Western Australia (10.1 per cent) and Queensland (7.7 per cent) was moderately undervalued at current interest rates, while most markets were at or just below fair value when judged against rents, incomes and repayment costs.
The Victorian market (8.8 per cent) was the only one Moody’s reported was overvalued given the cash rate of 2.5 per cent.
Discussing the report with ABC News, Moody’s senior economist Glenn Levine said the Australian property market overall remained fairly valued relative to its long-run drivers.
“We see that prices are going up, particularly in the Sydney market as well as some others,” Mr Levine said.
“Perth has picked up a little bit lately, and to a lesser extent Brisbane, however these prices are supported by rising rents (and) falling interest rates, particularly now that the banks are competing more heavily with each other.”
Mr Levine said the Brisbane and Perth markets were below fair value given current interest rates.
“Queensland, or particularly the Brisbane market, looks pretty good and I would argue a touch undervalued,” he said.
“We’ve seen rents rising, incomes going up there but prices haven’t responded in the way that they have in the Sydney and Melbourne markets and this is typically what we’ve seen in previous cycles.
“Usually Sydney’s the first to go, Melbourne’s a little bit behind and then the rest of the capital cities follow suit. So I think the Brisbane market looks pretty promising right now.”
Interest rate stability
The cash rate has been at 2.5 per cent for than a year, with the RBA again deciding at its November meeting that “the most prudent course was likely to be a period of stability in interest rates”.
Minutes of the meeting revealed the forces underpinning the outlook for domestic activity were largely unchanged; GDP growth was still expected to be below trend over 2014/15, labour market conditions remained subdued and the inflation outlook was consistent with the bank’s 2-3 per cent target.
As well as modelling for rates at 2.5 per cent, Moody’s also tested current prices against a cash rate of 4 per cent. Even if rates rose, Mr Levine predicted property prices were more likely to grow slowly than decline.
“Given the market is pretty close to fair value in aggregate, perhaps leaning a little bit towards overvalued, you would expect that as interest rates increase then house prices would … be flat to slightly positive,” he said.
Brisbane property investment
Portfolio Management Services has continued buying investment properties in Brisbane that meet its stringent investment criteria on behalf of clients.
Compared with Sydney and Melbourne, the Brisbane property investment market is more easily accessible for first- and second-time investors with budgets in the $600,000 to $700,000 range looking for established houses close to the CBD.
Portfolio has continued to focus on established housing bought for the medium to long-term, avoiding the raft of apartment living and off-the-plan options hitting the Brisbane market.
Property acquisitions adviser David Powell said the company had done exceptionally well with established housing over the years. It was particularly good at identifying which houses in which areas would make the best investments for clients.
“Beyond finding the best suburbs, you need to find the good streets and the houses within them. In Brisbane it’s even more so, you can’t throw a blanket across everything and say everything’s good,” he said.
“Our clients pay us to do that research and find property that will make a successful long-term investment for them.”
Portfolio Management Services remains active in the Melbourne, Sydney and Brisbane property investment markets. To speak with one of the company’s acquisitions experts, call today on 9621 1044.