CommSec Report – What does it mean for Brisbane property?

By: Alex Dunn: October 24, 2016, Updated: January 21, 2019

You have probably already heard about the CommSec State of the States Report which was released today. It overviews the economies of each State and Territory and provides comparisons between them. Queensland comes in a disappointing 6th overall, but we dig a little deeper to see what is in this report for some hints where Brisbane property prices are set to go in the future.

Lets start with their summary:

“Queensland is second strongest on dwelling starts and population growth is the fastest in 15 months. Both tourism and agricultural exports will provide momentum in coming months and higher coal prices are encouraging.”

This sounds positive and it is. The Queensland economy is slowly re-balancing from the resources driven boom back to its traditional drivers of growth, construction, tourism and the rural sector. The report tells us that all three of these sectors are coming along nicely. Property construction is strong, as evidenced with new dwelling commencements being 34.2% above the decade average.

dwelling-starts-state-of-states-oct-2016

New Dwelling Commencements by State

Construction Work on the other hand is dismal according to the CommSec report. “In Queensland, overall new construction work completed in the June quarter was almost 19 per cent below the decade average.”

construction-work-state-of-states-oct-2016

New Construction Work by State

So whilst dwelling commencements are high, construction is down – how can this be I hear you say? Construction activivity is made up of all construction, not just residential dwelling construction, and that is what brings overall activity down. What the poor construction activity figures tells us is that construction work driven by resources (Mining and Gas) is almost non-existent and the Public Sector (State Government) is very low.

With Standard & Poor’s providing positive feedback on the Queensland Government’s improving financial position, and a possible upgrade to a AAA rating in the coming years, this bodes well for an increase in public sector spending on construction in the coming years, which will have a positive impact on jobs and property prices.

Traditionally net migration has been a strong driver for property prices in Queensland, and the CommSec report alludes to an improvement in net migration. In fact on the way into work today it seemed to be the topic of conversation, with a perception that this was really positive news. CommSec have not detailed their sources in this report other than a reference to ABS on the Population Chart as you can see below, however we can assume this is the source as the figures are identical.

Population Growth - State Of Place Oct 2016
Population Growth - ABS 2016
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Again this looks positive on the face of it, but as we detailed in our recent article – Net Overseas Migration to Queensland lower again – falls by over 50% from 2012-2013 – the CommSec report doesn’t show that Queensland is coming of a very low base.

Queensland’s population in 2006 was 3,904,500 according to the ABS, and our population in March 2016 was 4,827,000 (again an ABS figure), which gives us a decade long average growth of approximately 2.1%. So the current population growth on 1.3% is below the decade long average.

So what does all this mean when it comes to property prices?

It is natural to look at these figures and jump to the conclusion that you should only be investing in Melbourne or Sydney. However you have to remember that all of these figures are historical, look back as far as 6 months ago. When you are considering a property investment you need to be looking forward, trying to figure out where the market will be in 3 to 5 years, and in this respect we think this report is really quite promising for the Queensland and Brisbane property markets.

We see lots of benefits for the Queensland economy in the coming few years based on this report, namely:

– Improving population growth. We would expect to see continuing growth in population, moving back towards the decade long average of 2.1% as the tourism and agriculture sector continue to grow, together with the start of a revival in the resources sector;

– Growing Public sector spending. This is a tough one to call but we have to expect some increase in spending on infrastructure by the Queensland State Government in the medium term. The positive feedback from Standard & Poor’s is hopefully the start of a slow wind up in spending; and

– A small rebound in the resources sector is already starting, with a number of coal mines being restarted. There will not be a return to the recent and extraordinary boom, but we do expect the resources sector to start slowly contributing to growth with commodity prices slowly returning to more long term prices.

So all in all we see this CommSec State of the States report, together with the recent Standard & Poor’s report, pointing to plenty of upside in the economy and then in property.

It is never wise to buy at the top of the cycle, such as Melbourne and Sydney are. Wise investors will purchase when a cycle is beginning so they naturally benefit from medium term capital growth. It would be reasonable to conclude that based on the above there are good reasons for increased growth for Queensland and Brisbane property in the medium term.

 

SOURCES:

State Of States – October 2016 Report

ABS – Australian Demographic Statistics, March 2016

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