Saturday, April 30, 2011

USA Prices Reverse Again

From the USA:

"PRICES for both homes and commercial real estate are falling again. Meaningful improvement may have to wait until there are many fewer distressed properties for sale.

Indexes of the two markets showed this week that the latest declines had almost wiped out the mild gains the two markets had shown after prices appeared to have hit bottom.

The Standard & Poor’s/Case-Shiller index of home prices ended February 3.3 percent below where it was a year earlier, and just 0.5 percent above the low reached in May 2009. The Moody’s/REAL Commercial Property Price Index was reported to be down 4.9 percent over the last 12 months, but still 0.8 percent above its low, reached last August. ..."

NY Times

RP Data - Rismark March Report

Table 3: Apartment Prices

While Australia’s capital city home values were flat in March (-0.2% seasonally adjusted and 0.0% raw), they softened by -2.1% (seasonally adjusted) over the March quarter (-0.4% in raw terms). In contrast to these results, weekly rental rates are up 4.6 per cent over the last six months.

The latest RP Data-Rismark Home Value Index results show capital city dwelling values were flat in the month of March (-0.2 per cent s.a. and 0.0 per cent raw). However, over the March quarter capital city home values softened noticeably (-2.1 per cent s.a. and -0.4 per cent raw).

Over the twelve months ending March 2011, Australian capital city dwelling values were broadly unchanged (-0.6 per cent).

According to RP Data research director Tim Lawless, while residential property owners may not have seen any capital growth over the past 12 months, many are realising robust increases in rental yields.

“In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9 per cent and 4.2 per cent, respectively, in March 2011 according to RP Data-Rismark’s estimates,” Mr Lawless said.

Ben Skilbeck, joint managing director with Rismark International, said this is consistent with the sprightly rental appreciation documented by the ABS in its inflation measure, with the dollar value (as opposed to the price yield) of the rental component of the ABS’s inflation benchmark rising by a striking 1.3 per cent over the March quarter alone.

According to Tim Lawless, Brisbane has recorded the weakest results over the quarter and the year.

“Unsurprisingly, the flooding that has occurred within South East Queensland has likely compounded Brisbane’s weak market conditions. Brisbane homes were the worst performers during the March quarter, with values tapering sharply by -4.6 per cent s.a. (-3.3 per cent raw). Brisbane values are down 6.8 per cent over the year to March 2011,” he said.

At the end of the March quarter, in the capital cities the national median dwelling price was $455,000. For all regions across Australia, the national median dwelling price substantially lower at $410,000.

The moderation in Australian housing valuations are likely to be warmly welcomed by prospective home buyers, particularly first timers who have been confronted with affordability barriers. RP Data’s research director, Tim Lawless said, “With household incomes growing at 6 per cent per annum, interest rates potentially approaching the peak of the tightening cycle, rents increasing, and house values going nowhere, buyers are seeing an improvement in their position. With first time buyers now representing a bit less than 15 per cent of all owner occupier housing finance commitments, it is likely that market activity in the first-time buyer market will increase in the medium term,” Mr Lawless said.

Rismark’s Ben Skilbeck, added, “Rismark forecast a soft-landing in the Aussie housing market in the second half of 2010, and projected that this would persist through 2011. These forecasts are coming to fruition. If the RBA does raise interest rates one or two more times this year, we expect to see further valuation improvements.”

RP Data’s Mr Lawless said the tightness in the rental market combined with flat to negative change in home values is providing a boost to rental yields.

“Based on the RP Data-Rismark Total Return Index, we estimate that weekly asking rents are up 4.6 per cent over the last six months. While the highest yields are found in the Darwin apartment market (5.7 per cent), apartments in Hobart (5.4 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.1 per cent) also offer attractive yields,” Mr Lawless said.

He added that key leading indicators point towards a sedate capital growth environment for the remainder of the year.

“Clearance rates are bouncing around the low fifty percent mark each week, the number of homes being advertised for sale is almost 30 per cent higher than at the same time last year, and sellers are being forced to adjust down their price expectations. Before there is any real upwards pressure on home values there will need to be some absorption of effective supply and a return of sustained buyer confidence to the market,” he said.

Thursday, April 28, 2011

Brisbane Not Cataclysmic After Floods

Brisbane house prices are the lowest of any mainland capital with January's floods and a struggling state economy blamed for a 2 per cent fall in the median price over the March quarter. But analysts believe the fall is a good result compared with "cataclysmic" predictions for the city's property market in the aftermath of the natural disaster.

According to Australian Property Monitors' March Quarterly House Price Report, the Queensland capital overtook Adelaide as the most affordable mainland city with the median house price standing at $448,669, a 4.3 per cent annual drop. Brisbane unit prices remained the second cheapest in the country at $354,089, well ahead of Adelaide ($296,939).

Andrew Wilson, a senior economist from Australian Property Monitors, said the fall in median house prices from a mark of $457,889 in the December quarter was only marginal compared to some analysts' post-flood predictions.

Dr Wilson said declines of up to 15 per cent and 20 per cent for the city had been predicted.

"There were suggestions people would be reluctant to live in areas which were subject to that sort of extreme climate outcome in the future," Dr Wilson said.

"History does show us that people are very resilient, they are very attached to their neighbourhoods and governments take action to mitigate against this happening again.

"I think a two per cent fall over the quarter is a very good result considering that it will be the main hit that we get from the floods."

Dr Wilson said Brisbane had suffered from a buyer hesitancy in recent years, reflective of an underperforming Queensland economy reeling from the high dollar affecting tourism and some of the state's mines remaining inoperable.

He said the city's house prices had been going through an adjustment period following the city's strong price growth prior to the global financial crisis and the floods may have put off a stabilisation in prices.

Brisbane Times and SMH

Waterfront Newstead

RESIDENTS of Newstead and surrounding suburbs could be in for 12 years of construction and added traffic as a new waterfront development takes shape.

Two apartment blocks have been completed at Waterfront Newstead, but a spokesperson for development company Mirvac said the finish date could be more than a decade away, depending on market demand.

Of the 99 apartments already constructed, 54 have been sold, with the penthouse selling at a Brisbane property industry record of $14.25million.

City News

China's Ghost Towns

It is said that there are around 64 million empty apartments in China.
Have a look at SBS and BBC and Time.
So what will happen to the Australian real estate market and Australian economy when the Chinese bubble bursts?

Wednesday, April 27, 2011

Dangers of buying off-the-plan

"When they returned to the Dolphin Bay Real Estate office, Mr Conolly told Mr and Mrs Brecht about the development which was to be Number One Park. He told them that it was a “crème de la crème real estate investment opportunity”. Number One Park consisted of apartments with four penthouses at the top, two of which had been sold, he said, to a company associated with the former celebrity tennis player, John Newcombe. Those were units 9 and 10. The third penthouse, unit 8, had been sold and the fourth penthouse, unit 7, was being held by the developer because he wished to keep it for himself. However Mr Conolly told them that perhaps the developer could be interested in selling the last penthouse at Number One Park.

Mr Conolly told Mr and Mrs Brecht that unit 7 would be suitable for them because it was going to have uninterrupted views that could never be built out and although there was a development to be built in front called “Splash”, the residents of the penthouses would be able to see over the roof of Splash because the balconies of the penthouses, in particular of unit 7, would be higher than the roof of Splash. Mr Conolly said there would be uninterrupted views from unit 7, Number One Park and those uninterrupted views would be views of the ocean. He said to them that if you were standing on the balcony “you may not see waves breaking onto the sand, but you will see waves breaking.” He said that those surf views were panoramic, which Mrs Brecht understood to mean 180 degree views. In common parlance, the word “surf” is synonymous with the words “breaking waves” or “white water”, so that a view of breaking waves has the same meaning as a view of surf or white water views.

The apartments in Number One Park were yet to be built so they were to be bought off the plan. It was not therefore possible for intending purchasers to stand on the balcony to see if the representation made as to the views was correct. In such circumstances the vendor, real estate agent and intending purchasers all realise that purchasers must rely in the usual course on representations made by the real estate agent retained by the vendor to market the property for sale. ...

In order for Barnscape to settle, the company borrowed $600,000 and used $600,000 of its own funds. Mrs Brecht said that if they had not used the $600,000 to purchase unit 7 at Number One Park, they would have otherwise invested the funds. They were unable to take up an opportunity to purchase a beach front block of land for $540,000 later in 2005 on Kangaroo Island (Lot 256 on De Coudie Drive) because the funds had been spent on Number One Park. The rest of their funds were invested elsewhere, and so were not available to purchase Lot 256. An RP Data Property Search showed that Lot 256 sold on 17 May 2005 for $540,000 and then on 27 March 2006 for $755,000.

If Barnscape had not purchased a unit in Number One Park, then there were properties which they could have bought on the Sunshine Coast between Coolum and Noosa with uninterrupted surf views. Of the alternative properties particularised, however, only unit 4, Splash appears to have become available during the relevant period and have the type of ocean view sought by the Brechts. Unit 4 Splash sold on 7 October 2003 for $1,950,000 and Unit 2 (rather than Unit 1), 16 Henderson Street sold on 18 October 2003 for $1,725,000. Those units were larger in size than either Unit 7 or Unit 8 Number One Park; Splash is closer to the ocean and has fewer units. Those factors made the units more expensive to purchase than unit 7 or unit 8, even if units 7 and 8 had shared the expansive views enjoyed by the units in Splash and 16 Henderson Street. Barnscape had access to an additional $1,000,000 at the time of settlement if more monies had been required to purchase a more expensive property. So those are opportunities that Barnscape missed as a result of the purchase of unit 7.

As the unit at Number One Park had been bought as an investment property, it was let as a holiday rental property. It was also used from time to time by Mr and Mrs Brecht personally. The rental was designed to provide some income while steps were put in place to work out what the cause of the problem with the view was and then to sell the property. The net rental received by Barnscape was as follows:

01/07/04 – 30/06/05

Dolphin Bay Real Estate


Laguna Noosa Holidays


01/07/05 – 30/06/06

Dolphin Bay Real Estate


Zinc Realty


01/07/06 – 30/06/07

Dolphin Bay Real Estate


Zinc Realty


In addition, Barnscape had other expenses, including interest paid on the $600,000 loan. However, had they bought an alternative property at Sunshine Beach, they would have received rental income and most likely paid interest on borrowings. They would probably have received more income but paid more interest so it is very difficult to say they made a net loss on rental income and interest payments.

Unfortunately units 9 and 10 were for sale when the Barnscape contract settled and the Brechts took the view that the Barnscape unit would not attract a good price if it was put on the market at the same time as two other penthouse units. On 12 May 2006, Barnscape appointed Zinc Real Estate to sell unit 7 for $1,375,000. Once it was offered for sale it took 12 months to sell. Barnscape signed a contract to sell unit 7 on 29 May 2007 for $1,035,000.

See Avis v. Mark Bain Constructions and

Developer ordered to pay compensation after off-the-plan unit's views are blocked

Morning Money's view

Morning Money publishes a newsletter encouraging people to buy stocks and gold, and is adverse to investment in real estate in Australia. From a recent newsletter (not that I necessarily agree):

"we’d been invited to appear at a housing debate in June. According to the organiser of the event, there will be six people on the panel. On the housing-bubble side will be Professor Steve Keen from the University of Western Sydney, David Collyer from Prosper – the group organising the buyers’ strike – and your editor.

On the no-housing-bubble side will be AMP economist Dr. Shane Oliver, Mr. Harley Dale from the Housing Industry Association, and Mr. Christopher Joye from property index firm Rismark.

We’ve been told the date to pencil in is 7 June. When more details are available you’ll read about it here.

We’re looking forward to the debate for a number of reasons. But most of all we’re looking forward to the property bulls providing some original arguments.

It’s boring combatting the same old tired excuses. We’ve bashed down each argument as they’ve made it. Now their only option is to recycle the same old trash and hope they can get away with it.

I mean, after spending the past two years denying a house price crash was possible under any circumstances, we’d like to hear them explain the situation in Queensland. After all, they never made any distinction between Queensland and the rest of Australia...

If anything, Queensland was compared to Western Australia as a safe place to buy due to the resources boom.

But according to the Courier Mail article sent to us by Money Morning reader Bill:

Housing slump falls to 2000 levels as access to finance cuts construction

And don’t even think about blaming the slump on the floods. As many spruikers now admit, the Queensland property market has been dead for two years... not that they admitted it until recently."

Monday, April 25, 2011

This Time is Different

"The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us, here and now. We are doing things better, we are smarter, we have learned from past mistakes. the old rules of valuation no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provoke a crisis of confidence that pushes it off."

From "This Time is Different"

Friday, April 22, 2011

Good Size Two Bedroom Apartments in Brisbane

I have been asked recently as to which apartment buildings have good sized two bedroom apartments in inner Brisbane. Not including the super luxury apartments (such as Riparian, or Coronation Residences (169 sqm)), the following list of Brisbane apartments gives some examples of larger two bedroom apartments (all including balcony, not including car park or storage rooms):
There are others, and I would be happy to add to this list with more examples.

High Rises

In a post below, I mention that the May edition of Australian Property Investor had a good story about the oversupply of inner city Melbourne high rise, titled "High on High-rises" (page 86, May 2011 edition). Some quotes about the Melbourne apartment market:
  • "What we have sitting out there is a potential tsunami of apartments. They're all high-rises and a lot of them are aimed at the investor market."
  • "They're missing the point altogether, building high-rises and thinking this will solve the housing dilemma. These places have poor facilities, with a lack of shops and where people don't get a chance to mix in a community."
  • "High-rise apartments are largely marketed to investors because developers are under pressure to sell a certain percentage off the plan before they can build. You're buying brand new, so obviously paying a premium for the 'wow' appeal."
  • "The majority of this construction will also be relatively small one and two-bedroom apartments aimed at investors, and 50 to 70% populated by students. The initial vacancy rate is likely to be high, taking significant time to absorb the necessary demand."
  • The Age recently reported 88% of the 4,155 apartment sales in the first half of 2010 were in investment focused buildings.
  • "My concern is that with a high-rise there are so many of them and they're all the same. There's no point of difference."
  • "Because so many come on the market at once, they get let very quickly to anybody that comes along. Before you know it they look like slums."
  • "Investors should try and buy two-bedroom properties [rather than one-bedrooms] if they can afford it."
  • "In a high-rise, you're buying a carbon copy of 100 or 200 other units. Your until will be completely dictated by what the last unit sold for."
  • "Poor property struggles in the market for years."

Does the RBA think there is a bubble in the housing market in Australia?

Actually, for the past year or two, house prices haven’t done anything much at all. They’re up in some parts of the country, down in others and, interestingly enough, the two regions where house prices have been weakest are Queensland and WA. Given the nature of the resources boom that’s building up, it’s hard to believe that they’re going to see chronic weakness over a long time. I think the story for recent weakness is probably that they’ve got some indigestion as a result of the previous upswing.

But, as we see that unfold, we continue to see arrears rates on mortgages very low by global standards – 50 or 60 basis points. ...

So, you know, that’s probably not top of my list of worries. I think there are significant issues to do with housing values, but I think they are as much social, really, as economic, and I won’t go into that today; there’s not time. But I think – the other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the radio it about 4.5 and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.

Quote above is from Governor of the Reserve Bank of Australia, Glenn Stevens, in London in March 2011, when asked if Australian residential housing was a bubble. He should know. Commentary by Chris Joye here.

NY Short Term Rentals Law

Oaks Group should be happy that they don't do business in NY. A recently enacted law prevents short term rentals of apartments. That seems like a good idea to me. Apart from fire and safety issues, if you buy to live in an apartment building, it is not much fun having people stay next door thinking it is a hotel.

Thursday, April 21, 2011

One or Two Bedrooms?

I am often asked by potential property investors is it better, all things being equal, to purchase a one bedroom or two bedroom apartment? There is no absolute answer to this, but my preference is for two bedroom apartments.

The main reason is that there are more likely buyers for two bedroom apartments. A one bedroom apartment is good for a divorced father, a widow, a rich foreign student or a lonely yuppie. A two bedroom apartment is better for a newly married couple, a young family, a divorced mother with children or a retired couple.

When it comes to renting, a good two bedroom apartment often rents faster. One reason is that if the apartment is well designed, it rents to single younger people who share.

Consider the maths. A one bedroom apartment rents for $400. In the same complex, a two bedroom two bathroom apartment rents for $520. So if two people share the rent, they only pay $260 each.

It is important to focus on a good layout for a two bedroom.
  • It should have two bathrooms. If it only has one bathroom, it is not so good to share. Often, a two bed one bath apartment is really a one bed plus study apartment.
  • The second bedroom should be near the bathroom. It is not good if you have to walk through the living room to get to the bathroom.
  • The bedrooms should be separated and have privacy.
  • Both bedrooms should have external windows. A window onto a hallway does not count.
  • Ideally, both bedrooms should be a reasonable size. Anything less than 3.2m x 3.1m for a bedroom (not including the wardrobe) is too small in my view. It is best if the smallest room is no less than 3.4m x 3.2 m. The main bedroom should have a wall that is at least 4m.
  • There should be room for a desk in both bedrooms.
Also, some one bedrooms are left-overs -- an apartment that could have been a two bedroom apartment, except that the developer need room for a lift or fire escape, so the second bedroom disappeared.

Below is an example of a good two bedroom design. The apartment is 92 sqm internal, plus balcony. Both bedrooms are more than 12 sqm each.
Here is an example of a bad two bedroom design. Although the bedrooms are separated, look where the second bathroom is located.

Additionally, on a price per sqm basis, a one bedroom apartment is often more expensive than a two bedroom apartment in the same complex. That premium is not worth it.

Off-the-plan apartment risks

I have previously written about the risks of purchasing off the plan apartments. See this post for example. Others have also written about these risks. See this article for example.

The May edition of Australian Property Investor had a good story about the oversupply of inner city Melbourne high rise, which is also worth reading. See "High on High-rise". One point made is that many of the apartment buildings planned for Melbourne are aimed at being sold to investors, not owner occupiers. This is resulting in the wrong type of apartments being built and the article predicts that these apartments will not grown in value.

A similar issue is revealed in a story in The Australian today regarding Meriton apartments. Meriton is currently building two very tall high rise apartment buildings in Brisbane, Soleil and Infinity. Meriton reports that sales have mostly been to Chinese investors, who have stopped buying. Meriton says that it is Chinese investors who purchase most of the off-the-plan apartments in Australia. There is a clear risk in buying an apartment as an investment in such circumstances. As I have previously written, it is best to buy in a building where there are a large percentage of owner-occupiers in the building.

"Mr Triguboff said prices in the overheated Chinese property market were starting to fall, while the Australian dollar continued its stellar run, making Australian property increasingly expensive compared with China.

"Our (real estate) market is the Chinese market, just like coal and iron ore," Mr Triguboff said.

"We need lower interest rates so that our dollar drops and it stimulates growth."

Mr Triguboff, whose Meriton Apartments builds more than 1000 units a year, said Chinese owners and investors had accounted for about 75 per cent of Meriton sales for the last two to three years.

But in the past month, numbers had fallen steeply. ..."

Apartment Prices Level with Houses

Terry Ryder published an opinion piece in The Australian today. Some extracts:

"THE planets are falling into alignment for property investors at present. We not only have a buyers' market in many key locations, but the scenario for rents and yields looks positive.

Two reports from credible research sources record a revival in rental growth in most of our major cities and predict solid rises throughout the year. "Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first-home buyer market," said APM's senior economist Andrew Wilson. Units in particular have seen a major shift in demand, with low vacancy rates for inner-city residences in most capital cities intensifying competition.

It has long been a basic tenet that houses show better capital growth than apartments, but changing lifestyle choices and affordability issues mean more households are opting to live in attached dwellings.

Last year, units showed slightly better capital growth than houses in terms of average growth across the nation, according to RP Data figures. ...

The 4 per cent average growth for dwelling rents recorded by Matusik Property Insights in the past year is very moderate - about half the historic annual rise in rents - and inconsistent with notions of a chronic dwelling shortage (as claimed by the developer lobby).

Matusik says vacancy rates drive rental growth and a general increase in vacancy rates in 2009 and much of last year caused rental growth to stall. Rental growth is now starting to return, he says, with a recent drop in vacancies.

"A falling vacancy rate is likely to put further pressure on weekly rents," Matusik says. "Rises of between 5 and 8 per cent during calendar 2011 are not out of the question.

"This in turn should lead to an increase in property values."

The Queensland Rental Market

Extract from REIQ press release:

'Queensland’s residential rental market has absorbed the impacts from this year’s natural disasters however demand is starting to tighten in some areas due to lower buyer activity, according to the Real Estate Institute of Queensland (REIQ). The REIQ’s March residential rental survey has found vacancy rates have continued to tighten over the past six months as more and more buyers stay on the sidelines.

“The floods did have a temporary impact on the rental market, but the REIQ rental survey has found this was mainly confined to flood-affected areas,” REIQ chairman Pamela Bennett said.

“However, the rental market is starting to be affected by the subdued property market given the low number of first home buyers and investors’ means there is more demand and less supply in the rental market. This also occurred in 2008 when high interest rates deterred buyers so it is not difficult to ascertain that the current economic conditions and the rapid nature of rate rises last year are having the same effect this year.”

The REIQ March rental survey, as well as statistics released by the Residential Tenancies Authority (RTA), have shown that the Brisbane rental market, while tighter, is not as dire as many anticipated.

The rental survey found vacancy rates for the Brisbane City local government area tightened in March, coming in at 1.8 per cent, down from 2.6 per cent in September last year.

RTA statistics for the start of this year largely illustrate drops in bonds lodged in suburbs directly affected by the floods, while January in general was a quieter month across the Brisbane area as many renters chose to stay put following the floods.

While median weekly rents were up significantly in some flood-affected Brisbane suburbs during January, Brisbane as a whole recorded steady rents and a drop in the total number of bonds lodged for the month.

“With reduced rental accommodation in their immediate area, many tenants and homeowners displaced by the floods had to look to other suburbs for accommodation in January and February,” Ms Bennett said. “However, REIQ agents in unaffected suburbs reported that this did not result in any significant increase in rental demand in their local areas.”

RTA statistics show that demand for three and four-bedroom houses increased following the floods, while the two-bedroom unit rental market remained relatively stable. In general, REIQ agents are now reporting that the rental market has begun to return to normal conditions.'

See also The Australian

Migration to Queensland

Bernard Salt from KPMG has a very interesting article in The Australian today. It says that interstate migration to Queensland is slowing. But this decline has been offset by international migration to Queensland and a higher birth rate. According to Salt, this means that the rental market will be good but the residential sales market will be adversely impacted in the short term. An extract:

"This time around, super is looking sick and older workers believe there's better value in working longer. The upshot is a diminution in interstate migration outflows and inflows.

This has affected the demand for property in states such as Queensland and Western Australia, where the economy and property industry have been geared around interstate-migration-supported growth. Take away interstate migration and these states are impacted, Western Australia less so than Queensland because of the mining boom.

But how long will this trend last? The answer is both simple and complex.

The slowdown in interstate migration to Queensland will last for as long as people have diminished confidence in their ability to achieve the shift. There needs to be time and positive consumer and workplace sentiment between the GFC and the recovery.

I'd suggest that, all else being equal, that timeframe would be three to four years, which means that recovery might not arrive until mid next year. But "demographic recovery" for Queensland could also be tempered by the floods and Cyclone Yasi as well as by further changes in policy settings coming out of Canberra.

And then there is the issue of negative media sentiment, which will continue for as long as the ABS reports show demographic decline."

Full story here. It is worth reading.

Devine and Leightons

David Devine, who founded the Devine development company, no longer owns part of it. He sold out as part of a legal dispute involving a long time personal assistant. Devine developed lower quality high rise apartments, primarily sold to offshore and interstate investors. David Devine has established Metro Property Group, and is back in business building large highrise buildings with small apartments in B-grade locations. David Devine, and his marketing manager Ken Woodley (also ex-Devine) both live in very large apartments not built by Devine.

David Devine recently has been critical Leightons who owns 49% of Devine. Extract from The Australian:

"In February 2007, Leighton paid $94.7m for a 40 per cent stake in Devine but the two groups fell out during the GFC.

"At Devine, they weren't interested in the fundamentals of the business. They just thought you do it and it happens," Mr Devine said. "I have a lot of respect for Wal King but I can't say the same for the other Leighton representatives on the Devine board while I was there."

A Leighton spokesman said Mr Devine's comments were no longer relevant to Leighton and its investment in Devine.

"Mr Devine would be better placed to look at his own performance and that of Devine when he was there rather than a company that he no longer has anything to do with," he said."

Wednesday, April 20, 2011

Home Loan Volumes Down

It is reported that home loan volumes are down. This does not bode well for property prices in the next few months.

Economics Blog

An interesting blog with stories about housing.

Q1 defects

See Courier Mail

THE developer of the Gold Coast's Q1 supertower is being sued over construction defects that allegedly have left the building requiring millions of dollars worth of repairs.

Only six years after its completion, the world's tallest residential building allegedly is riddled with corrosion.

Sunshine Coast Troubles

There was an auction last weekend of a large number apartments in the Crowne Plaza Resort near Caloundra, at Pelican Waters. None sold. See story from AFR:

"Heavy discounts, a year to settle and a $5000 rebate were not enough to entice buyers to a liquidation auction on the Sunshine Coast yesterday. Reed Property Group released the final 36 units in its 2005-built Crowne Plaza Resort & Spa in a Helmsman auction, where all units are offered simultaneously to boost interest.

Despite bids on 30 of the 36 units none was sold, although post auction talks continued later yesterday. Reed Property chief executive Ken Reed said the market was soft. “It’s a buyer’s market. Conditions on the Sunshine Coast are not too different from elsewhere in south-east Queensland,” he said.

An opening bid of $65,000 for an 88 square metre one-bedroom unit was the lowest offer made. One of the 512sq m penthouses attracted a maximum bid of $600,000 after it was listed for $1.58 million. Kings Beach residents Deborah and Jeff Taylor said the event was “a fizzier”. “The marker is so depressed at the moment. Things are selling for prices you wouldn’t believe. There are so many units on the market around here at the moment,” Mrs Taylor said.

The $65 million tower has access to a Greg Norman-designed championship golf course, pools, tennis courts and a gym."

Monday, April 18, 2011

Changes to Lot Entitlements for Some Apartments

After being approved by Queensland Parliament on the 6 April 2011, the Body Corporate and Community Management and Other Legislation Amendment Bill 2010 received Royal Assent on 14 April 2011, meaning that the new legislation is now in force. The new legislation will introduce a number of matters including:

  • New principles to be used when determining Contribution and Interest Schedule Lot Entitlements
  • A process where owners, who have been affected by a Lot Entitlement change, can submit a motion to the Body Corporate Committee before the 14th April 2014 to revert back to the Lot Entitlement Schedule before the change was made
  • Additional requirements for Disclosure Statements and rights of termination
  • Introduction of a new "Two Lot Scheme" module to make management of these smaller schemes much less onerous for their owners

Sunday, April 17, 2011

Albert Street

Photo of Albert Street, showing M on Mary and Festival Towers. Note that these buildings will be impacted if and when the small 6 story building in the front of the photo is demolished and a new high rise is built on that site. See here, and here.

Madison Heights Bowen Hills

Metro Property Development and Pearls are marketing a 29 level high rise off the plan in Bowen Hills. The development is called Madison Heights Bowen Hills.

Metro is a recently formed company by David Devine and Ken Woodley. Both are ex-Devine (a listed company controlled by Leightons). Devine has a reputation for building low end apartment complexes. Pearls is an Indian development company.

The Madison Heights development has 182 studio/one bedroom apartments and 104 two bedroom apartments. This gives a total of 286 apartments. However, there are only 204 car parks. So taking into account visitor car parking, about 100 apartments will not have a car park. The development is in an industrial area, on Campbell Street, opposite the Courier Mail printing site, with good views of the hospital and inner-city bypass. There are no amenities around, so a car is needed.

The apartments are tiny. For example, an example two bedroom apartment is 70 sqm, including a 4 sqm balcony. (It is hard to call 4 sqm a balcony -- that is smaller than a bathroom.) Typically, I would not recommend a two bedroom which is less than 85 sqm internally, and even that is small. A good two bedroom should be at least 90 sqm internally. For comparison, you can buy modern two bedroom apartments that are 110 sqm internal.

And pricing is not cheap. A two bedroom, two bathroom which is 73 sqm internally plus a 4 sqm balcony on a low floor is listed for sale at $548,000. This is outrageous. This is over $7,000 a sqm.

Compare this two bedroom apartment in River City, a Devine building (developed by David Devine and Woodley). It is not a great quality building, and it is a few years old, but there is no reason to think Madison Heights will be any better. It is located on Albert Street in the city -- a much better location. It is 76 sqm internal plus 13 sqm balcony, with views of the Botanic Gardens. It has one car park, and is being sold furnished, for "offers over $450,000". So if it sells at $450,000, that will be $5,056 a sqm.

Take care!

Saturday, April 16, 2011

Milton Park

Extracts from an FKP Press Release:

Brisbane City Council’s plan to turn the old Milton Tennis Centre site into parkland is set to benefit surrounding properties, with The Milton the only major new development now on the horizon, says a leading property researcher.

Michael Matusik, director of Matusik Property Insights, said council’s plans to resume the 3.5 hectare site for suburban parkland would reduce the future supply of new apartments in the suburb by about 670, increasing the ‘scarcity value’ of stock in Milton.

Mr Matusik said, along with the reduction in supply, homes and apartments in Milton would benefit from a three to five per cent price premium generally afforded to properties within a one kilometre radius of major parkland.

“The single most common feature of any metropolitan area’s position as a desirable residential address is trees, and while buyers want to be in close proximity to the city, public transport and amenities, they still want access to green open space.

Mr Matusik said the significant reduction in future supply as a result of the development of the parkland at the old Milton Tennis Centre site would put increased demand on new and existing property in the suburb.

The 30-level The Milton, which is anticipated to begin construction this year, will feature 298 one and two bedroom apartments, most with views of the CBD or Brisbane River, along with a ground floor retail promenade and commercial office space."

My comment: The proposed park is some time off. It is located on the other side of the railway and the other side of Milton Road to that of FKP's development. So I don't think it will have much impact to people's decision to decide to rent or buy on a development near the Milton Railway Station, that has views of the brewery.

Rental Yields

From an REIQ press release from Friday:

"Demand for rental homes in resource-rich regions of Queensland is continuing to drive up residential rental yields in some mining areas, according to the Real Estate Institute of Queensland (REIQ).

The REIQ residential rental yield report found that over the December quarter 2010, the postcodes of Dysart, Blackwater and Moranbah in Central Queensland recorded gross yields between 14.5 and 8.9 per cent because there remains more demand than supply for rental homes in many of these mining areas.

Across the state, however, the market conditions of the past 12 months has resulted in more sustainable gross rental yields given property prices have generally softened and rents have remained stable.

Australian Bureau of Statistics (ABS) figures show that investor numbers in Queensland increased in February compared to January however numbers remain at historic lows."

For apartments and townhouses:

Recent Auctions

  • 2602/108 Albert St (Festival Towers) - 2 bedrooms - one of the better apartments in the building - withdrawn from auction and now listed at "over $500,000"
  • 110/540 Queen Street (Willahra Tower) - studio - failed to sell - highest bid was a vendor's bid of $175,000
I have attended a few open houses on recent weekends, for 2 bedroom apartments in the middle ring suburbs, selling at less than $500,000. I was the only person who attended each open house. Not that many buyers around.

Thursday, April 14, 2011

Market Cracks

See this story from Bloomberg:

Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by a fifth since 2008 as cracks emerge in a housing market that’s so far escaped the rout seen in the U.S., U.K. and Ireland.

The median apartment price in the tourism and retiree town 150 kilometers (93 miles) north of Brisbane has slumped 21 percent in three years to A$570,000 ($594,000), according to the Real Estate Institute of Queensland. Sales have more than halved across Queensland state’s Sunshine coast, home to “Crocodile Hunter” Steve Irwin’s Australia Zoo, and the Gold Coast, known for its surfing beaches and casinos.

“We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,” said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS), who asserts Australian home prices are as much as 40 percent overvalued. “We’re seeing that now in parts of Queensland.”

The Rental Market in Brisbane

This is an extract from a real estate agent's newsletter who sells inner city apartments:

"Where does that leave the rental market??

Going up, up, up – as many people are forced to wait much longer than they had hoped or expected for rebuilding to commence and renovations to be completed. Almost 8,000 homes were inundated by the January floods, and another 10,000 homes were partially affected. This means that the homes of almost 40,000 people would have been somehow affected!

“The increasing demand (for rental properties) us likely to create upward pressure on rental rates as those displaced persons look for temporary accommodation over the next 6-12 months”, according to recent RPData report on the effects of the floods on the housing market. “The issue is that rental houses will be in short supply and many may have to opt for a unit instead.”