Sunday, October 31, 2010

Risks With Short Term Rental Buildings

When I am looking to buy an apartment in Brisbane, I look at Trip Advisor to see if there are reviews about the apartment building and the onsite manager. As a general rule, if the apartment building is listed with TripAdvisor, I will only buy if I am seeking a non-residental investment. There is limited resale opportunities for short term non-residential buildings.

Example Reviews:

Many reviews highlight the problems -- these buildings were designed for residential apartment living, not as hotels. People ask for adjoining rooms, and don't get them (of course). Items from rooms are stolen. Linen trolleys and food trays are left in hallways, as there are no service cupboards or service rooms for hotel staff. Furniture breaks, as the apartments were furnished for residents, not using hotel quality furniture. No minibars. Parking problems. I wonder what the owners of these apartments think about their real estate agents who are managing their investment -- a real estate agent pretending to be a hotel company.

I love this recent review for Evolution: "What a disaster. We never new accomadation could be so foul .. so many light bulbs broken, Filthy carpets, No drinking glasses (even when you ring & ask a certain staff member who couldn't have been any more passive agressive they still don't come) We changed rooms which was even worse, kitchen tap fell off in our hand, no shower door as it had broken off, huge rip in the lounge, even filthier carpets, rug all ripped, more light bulbs out, TV not tuned so most of the channels hissed at you a lot like most of the staff.. broken light shades, blind pullies broken. When we checked in they held on our credit card $200 for breakages.. there was nothing left TO BREAK!! This place is not rateable unless there is a minus."

Why would anyone want to buy in this building?

Saturday, October 30, 2010

Pricing Trends


"... Australia’s housing market has flat-lined in the second half of 2010. The monthly RP Data-Rismark Hedonic Home Value Index was the first benchmark to report a big shift in housing conditions with a substantial fall in Australian dwelling values in the month of June. This followed annualised double-digit capital growth since the start of 2009. ...


In the month of September, this theme continued with RP Data-Rismark’s Capital City Home Value Index effectively unchanged (+0.1 per cent seasonally-adjusted / +0.4 per cent raw). Since the market started turning at the end of May, Australia’s capital city home values have declined by a total of 1.0 per cent seasonally-adjusted (-0.8 per cent raw) according to RP Data-Rismark. (The previous August month capital growth estimate of 0.0 per cent is largely unchanged at -0.1 per cent). ...

The rental market continues to offer solid cash-flows, with gross apartment yields rising in the month of September to 4.9 per cent while yields on houses remained unchanged at 4.0 per cent.

Some of the highest yielding rental markets for apartments are Darwin (5.7 per cent), Canberra (5.3 per cent) Sydney (5.0 per cent) and Brisbane (5.0 per cent). The weakest apartment markets are Melbourne (4.1 per cent) followed by Perth (4.4 per cent).

RP Data’s senior research analyst, Cameron Kusher commented that with market conditions expected to be flat for the remainder of 2010, astute investors should now look for opportunities to enter into the market.

“Early signs suggest that rental rates are once again improving, listings are at above average levels, and leading indicators such as time on market and vendor discounting are creeping up.

“For those active in the market there is increasing scope for price negotiation and less competition amongst buyers with an above average number of properties for sale. These conditions are likely to afford opportunities to purchase property at more competitive prices,” Mr Kusher said.

See RP Data

Friday, October 29, 2010

At 20 At Kangaroo Point - New Development


New apartment development at Kangaroo Point. It will be twenty storeys. One bedrooms from $340,000; two bedrooms from $490,000. See At 20 website or alternative website.


New Farm Apartments

The AFR had an article last Friday about New Farm, titled "Grunge to groovy", that says:

"... Back from the river are art deco apartment blocks, Queenslander houses, and a few rather ugly residential developments. ... But prices are well and truly off their peak. ... Unit prices also fell, but only 6.8 per cent, to a median of $451,000. Some apartment buyers off the plan have made substantial capital losses. ..."

Real Estate Agent Tricks

Have you heard about these two tricks from real estate agents?

One is listing a property for sale by forthcoming auction, but never actually scheduling the auction. There is no list price, and the agent tells prospective purchasers do get in quick before the vendor has to pay for advertising, and that once the auction campaign commences, the vendor will not accept conditional offers subject to finance or building inspection.

The second trick is to set a high reserve at the auction. The agent then takes telephone bids, but in fact, the person bidding via telephone is a friend or co-employee. Because the agent knows the reserve, the fake telephone bidder comes in close to but just below the reserve. This bids the price up, and then when the property doesn't sell at auction (as it usually will not), the agent then lists the property at the reserve price and says that there was a bidder just below the reserve (which, of course is not true).

Opinions Regarding Brisbane Property

Here is a good set of articles from Michael Matusik, regarding Brisbane property:

Opinions

Saturday, October 23, 2010

Undervalued Brisbane apartments

The Courier Mail had an article today that suggested that over reliance on property databases by real estate agents is leading to pricing discrepancies, particularly for some apartments. Reading between the lines, the suggestion is that some agents don't know the market as well as they think. The article states that "... the reales values of many homes - especially older, well positioned apartments - are being artificially curtailed. This is part of the reason why older properties remain so much cheaper than comparable newer stock."

My views on some of the inner city apartment buildings, based on recent listing prices and recent sales achieved:
  • Admiralty Towers One - undervalued - large riverfront apartments, with an excellent new onsite manager
  • Admiralty Towers Two - possibly undervalued - large riverfront apartments, but onsite manager has gone bankrupt and some owners hostile to body corporate committee leading to inefficient building management
  • Admiralty Quays - at value - beautiful riverfront building, but apartments are smaller than Towers One and Two
  • Riverplace - at value - great location on riverfront with large balconies, but lesser quality than Admiralty buildings, and larger less personal building
  • Skyline - overvalued - poorer quality building surrounded by other buildings
  • Evolution - significantly overvalued - located on a freeway, sold mostly to Asian investors, small poor quality apartments in badly managed building
  • Casino Towers - overvalued - good views from some apartments, but these apartments face West and views likely to be built out when old State Library site redeveloped into multistory tower
  • 212 Margaret - overvalued - located on edge of construction site
  • Charlotte Towers - probably overvalued - many apartments listed for sale and not selling
  • Festival Towers - probably overvalued - poor quality Devine building, likely to be further surrounded by new development and remaining views built out
  • Quay West - undervalued - large apartments with Gardens and river views never to be built out, well run building with good finances
  • Grosvenor - at value - large apartments with Gardens and river views never to be built out, low turnover of apartments
  • Felix - overvalued - smaller apartments looking with little privacy
  • Metro 21 - mixed - great difference between apartments in this building - smaller well run building with much better value than the Oaks run buildings, but one bedroom apartments in this building are not great
  • Aurora - overvalued - large, poorly run building

Apartment Auctions in Brisbane

Newspaper reports and auction clearance statistics show that less than half the properties that are for sale by auction do not sell at auction. In fact, probably only 1 in 3 sell at or immediately after auction. For apartments, my guess is that the sales rate for sellers is even worse. The reason is that it easier to value an apartment, by looking at similar sales in the same and nearby buildings. So a purchaser is less likely to overbid (and overpay) for an apartment at auction, and thus less likely to reach the seller's reserve price.

Wednesday, October 20, 2010

Good Advice from Matusik

This is from Matusik's email this week. It is worth subscribing to his newsletter

Matusik Missive – A new paradigm?

20th October 2010

The numbers of housing loans and new housing starts continue to slide. Every excuse under the sun is offered up as to why. The real reason, being an actual lack of demand, is rarely mentioned. But in short, buyers across the board are not that interested in buying residential property at present. This is especially the case for new stock.

Why?

Let’s cover the new supply first. This follows on nicely from the most frequent reply to our three-part urban myths missive series last month, which posed the question as to why a proper study into “what the market really wants” isn’t done. Well, we have done several; for the PCA for their Australia on the Move publication and for several clients including the Brisbane City Council.

In short, the current new supply is wrong. It is either too small, of limited quality and/or overpriced. What’s on offer too often does not offer value for money. Hence buyers increasingly opt for something established, which they might renovate or refurbish in the future, rather than buy a new dwelling.

In an ideal world, many would buy something alternate to the detached house, but only at prices much cheaper than new apartments, townhouses and the like are currently asking. In general, the market expects “other” housing to be about 20% cheaper than a detached house in the same area. Whilst they expect some shrinkage in the size of alternate accommodation, the current offerings are considered by most to be way too small.

Another complaint is that the quality of the new product – and in particular for apartments – is far too low for the prices expected. The thirst for a quality product is an opportunity and one which should grow in demand as baby boomers enter retirement.

The cheap and cheerful (often of late more “nasty” than “cheerful”) trend has gone too far. It is somewhat ironic that the housing industry is vamping up the supply of really tight product just as the emerging demographics suggest the opposite. Household sizes are increasing across Australia – fuelled by a baby boom, relatively high overseas migration and adult children remaining (out of choice) at home with their parents.

When it comes to existing product, many vendors, in short, want too much for the property. There is a flood of second hand stock on the market; the customary spring market pick-up is missing this year (although its impact is usually overstated) and with the threat of a further interest rate rise pending, vendors need to get realistic quickly or take their property off the market. Failure to do so could result in substantially lower offers (than a realistic price today) in the near future.

This issue was brought home quite clearly when a 293 square metre penthouse on the Brisbane River in Kangaroo Point (with uninterrupted views of the Brisbane CBD) was passed in at auction a few weeks back. The reserve was set between $1.2 and $1.4 million which equates to a paltry $4,600 per square metre.

Ironically, it is a buyer’s market and could be for some time to come – read “years” not “months” – yet potential purchasers are not buying. Usually and somewhat ironically, rising interest rates get interested parties off the fence. Maybe that will occur once the RBA actually moves the cash rate, but maybe not.

I cannot help but feel that we have entered a different paradigm – one in which a dwelling is a home, rather than a vehicle for speculation. If that happens, the term “real” estate will regain its true meaning.

To revisit our Aussie Urban Myths commentary visit newgeography.com

Saturday, October 9, 2010

Brisbane Skyline

A great photo of the Brisbane skyline from Jesse on Skyscraper City. You can see (from the left) Waterfront Place, Felix, the back of Riverplace, Riparian (behind Riverplace), Skyline, Soleil under construction and Aurora.

Friday, October 8, 2010

Empire Square To Be Reborn

According to the AFR, Grocon (owned by the Grollo family in Melbourne) is in due diligence to buy the Empire Square site and also the Trilogy site.

El Dorado Indooroopilly Delayed?

It appears that PCN's project on the El Dorado at Indooroopilly has yet again been delayed. On the second or third attempt, it was due to start in November 2010, but has been pushed back until 2011, according to workers in the cinema complex. I wonder if it will ever get off the ground. PCN is also developing Alderley Square. PCN did not proceed with its apartment project at Graceville. As far as I can tell, PCN has never completed an apartment project that it has attempted.

Roma Properties

Roma Properties, the onsite managers and letting agent at Admiralty Towers Two, has gone bust. Receivers & Managers have been appointed.

Until recently, Roma Properties was controlled and run by Tavis Callard and his father. Tavis is the principal of Open House Reality. A prior post is here.

RP Data September Report

In August the seasonally-adjusted RP Data-Rismark Capital City Home Value Index fell by 0.2 per cent. On a non-seasonally adjusted basis the index remained unchanged in August. (Residential data are ‘seasonally-adjusted’ to remove the influence of the seasonal swings that occur at various times of the year.) Since the market peak in May 2010, the RP Data-Rismark Capital City Home Value Index has declined by 1.2 per cent (raw and seasonally-adjusted). Over the year to end August 2010, capital city home values have risen by 8 per cent. The median dwelling price in all capital cities is $457,000. ...

Mr Lawless added, “Rental yields across the capital cities are now showing signs of improvement. RP Data and Rismark estimate that the gross yield on units is 4.9 per cent while for detached houses it is a lower 4.0 per cent. On a total return basis, Australian housing has outperformed most other asset-classes over the last 10 years.”

Christopher Joye commented, “We were not forecasting any further capital growth in the second half of 2010. Recent data vindicate this thesis. In the first seven months of 2010, capital city dwelling values have accreted by 4.8 per cent in raw terms, which is in line with consensus expectations for disposable household income growth.”

“Futures market pricing for interest rates has changed dramatically over the last month, shifting from expectations of rate cuts to at least two hikes by end 2011. But following hawkish RBA remarks, economists are now predicting we’ll get 4-6 cash rate hikes. We’ve modified our views accordingly,” Mr Joye said.

He continued, “If the resources boom combined with frisky consumer spending compel the RBA to lift the cash rate 4-6 times by end 2011, we would expect to see nominal dwelling values decline modesty. This is not a bad thing. Asset prices cannot always rise - the volatile sharemarket regularly subjects investors to savage swings. Since 1993 there have been five instances when the RBA has lifted the cash rate sharply. On every single occasion national capital city dwelling prices have flat-lined or declined. If the RBA aggressively raises rates, there is no reason to expect 2010-11 to be any different.”

Source: RP Data

Investment Apartment

“Four out of five investors reside in a detached home, yet just half buy a detached house as an investment. Investors seem to like apartments, not to live in as such but as an investment, with just 12 per cent living in an apartment but over a third of them holding an investment apartment."

Reserve Bank's View

Deputy Governor Ric Battelino of the Reserve Bank of Australia is optimistic that there would be turnaround in the property and real estate sectors as an encouraging shift of financing models will pave the way for future growth.

Rents in 2010


From RP Data September Quarter 2o10 Rental Review

"Over the last five years the weekly rent on a unit both nationally and within the capital city markets has increased by more than that of houses. This result reflects the growth in demand for units as lifestyle preferences change and affordability pressure see more prospective tenants turn towards unit living as an alternative to detached homes. ...

The slowdown in the rate of rental growth is commensurate with the Reserve Bank of Australia’s aggressive cuts to official interest rates as the Global Financial Crisis hit and the introduction of the First Home Owner’s Grant Boost. Both initiatives, coupled with softening property values during 2008 and consistent growth in rental rates during recent years, resulted in a significant boost to affordability for first time buyers. As a result during 2009, first home buyer activity was at its highest level on record. With first time buyers generally coming from the rental market it’s no surprise to see that the rate of rental growth had slowed so markedly."



Yardney's Advice

"... I foresee generally flat property prices over the next few months – possibly well into next year. But I also see some great opportunities.

With an improving local economy, strongly rising population growth, rising rents and the ability to buy a bargain from some motivated vendors – the type of bargain that we couldn’t find in the last few years when there was strong competition from other investors – I know some investors will set themselves up for success in this current stage of the property cycle.

My personal strategy is to continue what I have been talking about and doing personally for years:

1. Buy the right type of property – one that has some element of scarcity, which will always make it appealing to owner occupiers (who push up the prices) as well as tenants.

2. Buy in an area that has always outperformed the market.

3. Buy at the right price –this should be below intrinsic value - the type of price that even if values do drop 5 or 10 % (and I don’t think they will in most areas) you will be covered.

4. Only buy a property to which you can add value – during this time of flat growth, manufacture some capital growth yourself through renovations or redevelopment. ..."


See "Is it time to worry.." from Property Update.


Saturday, October 2, 2010

Bowen Hills

There will be a large number of new apartment projects in Bowen Hills. This area is close to the city and the Royal Brisbane Hospital, but does not have much else going for it.

Some example developments selling off the plan include