Ask Margaret: Will buying off the plan in Brisbane be a worthwhile investment?

Dear Margaret,

I was considering buying a two bedroom, two bathroom apartment off the plan in Newstand, Brisbane for about $650,000. 

However, there are mixed opinions about supply and demand there. Some says it is already oversupply, while others say say there is a shortage.

Do you think this is a worthwhile investment?

Regards, 

Ming

Hi Ming,

It would seem that at the moment most property investors want someone to simply tell them if they should buy a property they have seen, or not, or even just tell them where and what to buy. In asking such a question, it assumes that all investment properties are right for all investors, and nothing could be further from the truth.

Property investing is actually a very personalised thing, and what is right for one investor, may not be right for another.  While some properties simply should not be purchased at all, and some areas will never deliver anything in terms of growth, when it comes to buying property in what is thought to be an area which may have potential, there are a number of things to consider:

• Risk

All property types will carry different levels of risk to each other and each investor should consider whether their own risk profile matches the level of risk each property type presents to them. 

For example, a serviced apartment in a tourist destination would be considered to carry a lot more risk than a three bed house in the Brisbane suburbs. Further, that serviced apartment would present a lower risk to a person with a large portfolio of properties, and plenty of personal cash flow than it would to the one who has a tight personal budget, and a complete reliance on that property delivering weekly income, and growing. 

The investor with the large portfolio can afford for it not to work out, while the other investor might have their entire financial future changed by just this one property if it works out badly.

• Cash Flow

Some properties deliver better cash flow than others, and some investors can withstand higher levels of negative cash flow than others can.

The cash flow of any property you buy must be one which you have established you can manage – and you must build in a margin for lower than expected cash flows to cover times when vacancies may be higher than anticipated.

• Capital Growth

The investor with the large portfolio can afford it if one or two properties stagnate and do not grow, while the newer investor, particularly if they have low equity in their own home, must have a property with more assurance of growth.  While there are no guarantees of growth anywhere, it’s commonly known that some areas have characteristics which assure at least some growth over time (like suburbs of a capital city) while others may experience fabulous growth, or none at all (or even a loss, such as in some mining towns).

And so, in direct answer to your question, while Newstead definitely possesses characteristics which demonstrate that it has what it takes to grow and deliver a decent cash flow, there are concerns over the short term supply factor.

In the event that the developments keep being approved, the supply will grow faster than the demand, and, in the short-term at least, prices may stagnate.  Given the strong fundamentals of the area, this oversupply will eventually work its way out, but no one can tell you with any certainty when this will happen – and so you must determine the level of risk that this presents, to you.

Kind regards,

Margaret

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