Monday, April 19, 2010

SouthPoint at South Bank

"A premium central city location opposite the CBD Southbank is Brisbanes premier recreation and dining precinct, Southpoint is the last available site in Southbank and will provide a total of 86,433 square metres of GFA in a mixed use development of exceptional design standard.

Drawing on the success of the Emporium mixed use development by the same group, Southpoint will take the recipe further because of its exceptional location and the manner in which it will integrate into the area’s rail and bus interchange. This will not only provide amenity and market value for Southpoint’s residents and business tenants but will also stimulate demand for retail because of the high volume of commuter traffic.

Consisting primarily of three towers providing office, residential and genuine 6 star hotel standard accommodation, all with retail below, the striking architecture of Southpoint will make it a visual and commercial landmark in Australia’s fastest growing city."

Extract from Recent Matusik Email

Australian Property Monitors (APM) – a fully owned subsidiary of Fairfax Media – last month published a study which outlined what houses across Queensland (and by suburb) could be worth in three, five and ten years’ time. Needless to say, the projected growth trajectory is almost exponential, rising on average by 11% per annum across Queensland over the next decade. Prices rose by 11.7% each year, across Brisbane for example, during the noughties. Hopefully, APM did more work than just assume that the past will be repeated. But one wonders.

A check on 25 randomly selected Queensland suburbs finds a pretty consistent projected growth pattern, with values expected to rise by 30% in the next three years, then by just 10% between year four and five and then by a whopping 115% between the sixth and tenth year. By 2020, just short of 600 Queensland suburbs are expected to enjoy a median price over $1 million; and 54 areas could be, on average, priced over $2 million. The median Brisbane house price, today, is around $440,000.

What is driving the growth in five years’ time? Why does the growth rate plummet in year four? Surely there is something more than just “demand exceeding supply and strong economic growth, particularly in resources,” as quoted in the accompanying media commentary. Please APM, explain to us your methodology, as it is absent from the published forecasts.

Also puzzling is why Hamilton’s house values are expected to drop 20% over the next three years, whilst neighbouring Ascot’s prices are forecast to rise by 7% over the same period. And why just 7% – isn’t Ascot (and Hamilton for that matter) in a prime spot, with heaps of infrastructure support? Similarly, South Brisbane’s values are to drop by 8% by 2012, but West End’s values will rise by a staggering 33% or $236,000. Ditto for Surfers Paradise, down 36% in three years, versus a projected 20% jump for adjacent Broadbeach. I could go on and on. Please, APM, explain these anomalies as well.

The Gold Coast market, and in particular Surfers Paradise, has been getting a caning of late. According to the latest Queensland government valuations issued in March, ocean-front land has fallen by 30% on the coast, with residential values down 18% in Surfers Paradise since 2007, when land was last valued on the Gold Coast. According to a recent study by the REIQ, median dwelling prices in Surfers Paradise dropped by 30% during 2009.

Now there is no question that the Gold Coast is doing it tougher than the rest, with our data – which is based on cleaned up resales – showing that apartment values fell 9% during 2008 and a further 4% last year. But ocean-front apartment values – in Surfers Paradise at least – and again based on individual resale analysis, actually rose last year. Up by 8.9%!

There are two messages here. Firstly, in order to get a true handle on the residential market it pays dividends to narrow down the sample set and investigate individual resales. Sweeping statements – and especially based on suburb, or worse still, postcode analysis – are nearly always incorrect.

The second message comes in the form of a question. Why does the media (and too many punters, as well) accept these forecasts as if they are gospel? I understand why the Fairfax Media might, but the Murdoch Press? Maybe digging around a bit is too much work for journos these days. A recent study commissioned by suggests this is the case, with nearly 55% of the stories published across ten major Australian newspapers late last year being driven by media releases or public relations firms.

So what do I think prices will do over the next decade? In short, my answer is…not as much as they did over the last ten years.

Dwellings are overpriced but not (yet, anyway) oversupplied. The current “boom” is likely to run out of puff within the next twelve months, on the back of rising interest rates and declining affordability. We could “crash and burn” like the US recently did or go through a long, drawn-out adjustment, as happened in the 1990s. The latter means that residential values will be flat until affordability is rebuilt by a combination of gradual increases in household incomes and cyclical declines in interest rates. Given this scenario, growth over 5% per annum would be a strong result.

It’s back to the future, if you ask me.


Sunday, April 18, 2010

Flat Market in Brisbane

In talking with people in the real estate industry in Brisbane recently, it seems to me that the market is relatively flat. At some open homes for houses in the $600,ooo price range, only 1 family will turn up for an inspection. Off the plan sales for apartments are, for the most part, slow. Prices are relatively stable for apartments. It is not a booming market at present. On the Sunshine and Gold Coasts, the market is very dead.

There are pending risks that may dramatically impact investment apartments in Queensland:
  • higher interest rates
  • risk of lower numbers of overseas students and tourists visiting Australia (including due to the higher Aussie Dollar)
  • The review of the Australian Tax System, due within weeks, which will likely impact the treatment of capital gains for real estate, and probably recommend the removal of negatively gearing of losses from investment properties to offset income tax from income earned from other sources
  • difficulties in obtaining investment loans, and the banks requiring a higher deposit for investment property loans
  • increased school fees, which impacts the ability of many families wanting to invest in property
  • increased body corporate fees and rates, making returns less
  • poor performing vacation rentals and low vacation rental returns, often less than 2% net returns

Saturday, April 10, 2010

Mirvac's Park

The public release of Mirvac's Park is taking place today -- the same day that 3 apartments at Mirvac's Tennyson Reach are being auctioned due to failure of the buyers to purchase -- and where the off-the-plan contract price is now above market price.

In my opinion, Park is overpriced:
"One, two, three bedroom apartments plus Pavilions are available for purchase now off the plan. Featuring classic toned interior colour schemes with functional spaces, clever storage and useable outdoor areas, each tower has a selection of floor plan styles to choose from.

One bedroom apartments from $495,000

Two bedroom apartments from $675,000

Three bedroom apartments from $975,000

Pavilions from $1.6 million"

See this post for a comparison of these prices with current market pricing. Before buying in Park, I would go to the auction of a 2 bed apartment in Mirvac's Quay West -- which is over 125sqm in size, park and river views, a better location, plus a pool (which Park does not have).

Sunday, April 4, 2010

Talking Up A Dead Market on the Gold Coast

Real estate agents are always the optimists. Take this story in the April 3, 2010 Courier Mail (a newspaper that relies on real estate agent advertisements for its profits, so you will only read positive stories in the Courier Mail about real estate). The story is about the Gold Coast off-the-plan apartment market, and is titled "New apartments to dry up". In the story, Julian Sutherland, a director of Ray White Surfers Paradise, says "History will show that buyers who put their foot on product at today's prices will benefit significantly when the supply constraints diminish over the next year or two."

Compare this with a report from March 31, 2010 from Herron Todd White, who are independent registered valuers. In response to the indicator: "Are New Properties Sold at Prices Exceeding Their Potential Resale Value", HTW responds for the Gold Coast apartment market: "Very Frequently". See page 51 of the report.

So, if buying a new apartment on the Gold Coast off-the-plan or recently finished, take care with what real estate agents tell you, because despite Julian Sutherland's positive views, the real story may be otherwise. And Julian earns his commission from selling off-the-plan apartments on behalf of developers, so he is not in any way independent.

HTW also reminds us:

"Like anything in the current economy, when investing in a holiday home, you need to take a softly, softly approach. You need to take your time, look at the fundamentals and make sure that they all add up. With the level of choice out there, it is even more important to select well, remembering profit is most often built into the purchase rather than the future sale."

Open House Realty

If you are dealing with Open House Realty, and its principal, Tavis Callard, or use Roma Properties as your letting agent, here is some information that may be useful:
  • Mr Callard, and his family, including his father, has a number of companies and trusts associated with them. These include Roma Properties, that has the management rights for Admiralty Towers Two. Roma Properties also had the management rights for Admiralty Towers One, but after a number of breach notices from the body corporate, sold the management rights and made a payment of more than $100,000 to the body corporate in relation to their breaches.
  • Roma Properties' conduct is being investigated by the body corporate for Admiralty Towers Two. It seems that a company called Brisbane City Cleaning and Maintenance, associated with Tavis Callard, billed the body corporate and owners who it managed properties for. See letter.
  • There is was a recent success complaint against Roma Properties before the Office of Fair Trading.
  • Mr Callard and his wife signed a contract to purchase a house at Pullenvale at the end of 2009, but failed to settle and lost their deposit. They moved into the house prior to settlement on a lease, but have not paid their rent. When the Callard's moved out, the house was in a terrible mess.
  • Mr Callard has not paid other accounts, such as hospital bills.
  • At least one company associated with Tavis Callard is being sued for failure to pay an account. This appears to relate to payments for signs for the Open House business. See this pending District Court lawsuit, filed by Adshel Street Furniture in October 2009 for money owing.
  • Roma Properties has failed to pay accounts on behalf of the owners of properties it manages, thus causing late payment and interest fees to the owners.
  • Another lawsuit involving Roma Properties and Admiralty Towers Two is detailed here.
  • There have been all sorts of issues involving the Callards and their indirect ownership of a coffee shop premises (now vacant) at Admiralty Towers. It is now listed for sale by auction.

Saturday, April 3, 2010

Brisbane Up Only Slightly

Brisbane housing prices up 0.4% in February quarter.

Brisbane Prices

"It's not only the sun that is expected to shine on Queensland this year; property prices are tipped to really begin moving.

The economist from Australian Property Monitors, Matthew Bell, a Fairfax Media-owned company, says Brisbane (and Queensland in general) will be one of the better performers of 2010, along with Perth."

See Domain