Saturday, July 30, 2011

Capital Gains and Losses

According to Rismark, the median capital return to property owners since 1990 has been 7.8% per year.

Over the last 20 years, 9.3% of all home owners traded their property for a loss (note that these are pure capital returns, and ignore the rental income that you would have got along the way). This is also gross of all transaction costs, so you can be sure that the net number is higher. Ipso facto, about 90% of owners realise positive gross capital returns on their homes before accounting for rents and costs.

These returns reflect the change in the capital value of a home over time. What they do not tell us is what the home owner’s actual equity, or geared return, would have been. We can comfortably assume that the equity returns are far higher (likewise the losses for the one in 10 folks who get unlucky).

This analysis excluded gross rents, which are currently around 4% to 5% per annum. It also ignores all transaction costs, which sum to around 1% to 2% per annum for the average home owner who stays in a property for seven to eight years.

Source: Chris Joye in Property Observer

House Prices to Fall Further Following Next Interest Rate Rise

An increase in the cash rate will spark house price falls, according to Cameron Kusher, senior research analyst at RP Data. Rents and yields need to increase further to attract investors, he says.

“Yields are not where investors would like them to be… Some cities are doing better, for example units in Brisbane and Sydney,” he says.

See Property Observer

Oracle Broadbeach

A new marketing campaign has been launched by the receivers of The Oracle development at Broadbeach. Take a closer look.

Riparian Update

A three bedroom apartment in Riparian (4801/71 Eagle Street) on level 48 recently sold for $2 million. This is a 314 sqm apartment. It was listed last year for sale at $3.4 million. (The current owner paid just over $1.6 million in 2002.)

The three bedroom apartment next door (Apt 4802) is currently for sale. It has been listed with agents for $3.8 million. Noel Robinson, the architect, paid just over $1.8 million in 2002.

Downstairs, a two bedroom apartment (4702/71 Eagle Street) is listed for auction. See video. This property sold in 2001 for just over $1 million, in 2006 for $1.6 million, and has been on the market for a year. In September, it was listed at $1.6 million, but today's advertising says "disregard all previous pricing.... must be sold."

Apt 4804, with 3 bedrooms, sold in December last year for $2,350,000.

Harry is Happy about Soleil

"FOR "high-rise" Harry Triguboff, it doesn't get much better than this. Despite the downturn in residential property, especially in once white-hot Brisbane, Mr Triguboff says business has rarely been so brisk.

He explains with more than a hint of satisfaction how the Australian property dream is changing -- trading up, he argues, from the quarter-acre block in the suburbs to an eyrie in the centre of town.

His 74-storey Soleil tower, at 280m, will be Brisbane's tallest building by the time it is completed this year. But its record will stand for only three years, as Mr Triguboff is building an even bigger residential tower on the other side of the Brisbane CBD.

Soleil will be Australia's eighth tallest building when it opens later this year, but there are several within metres of each other. Soleil will be able to house 2000 people, right on the edge of the CBD, while it would take about 500 homes, the equivalent of a small suburb, to house them in detached cottages. The Brisbane inner-city high-rise market, where Mr Triguboff will soon be king, has had two major tower proposals withdrawn in the past few years, with developers unable to get either the finance or the customers. "I think a thing like this should be self-funded, because otherwise you have all these banks worrying and pushing you," he said.

"It's hard to say what the market's like, because you build this building for a few years, so when you start it could be very bad and when you finish it could be a lot better."

Property analysts say that, with the limited number of developments this year, the increasing demand predicted by Mr Triguboff means rental rates for apartments in the inner city are likely to rise."

Full Story in The Australian and video

With 2000 people in Soleil, I hope Harry has included enough elevators!

Friday, July 29, 2011

RP Data Rismark June 2011 Index

The modest overall decline in national dwelling values conceals considerable variation across the capital cities. For example, whereas Brisbane and Perth home values are down 6.3 per cent and 4.7 per cent, respectively, over the last twelve months, property values in Sydney are up 0.5 per cent.

Rismark’s economist, Christopher Joye, added, “We think the RBA is likely to raise rates at least once or twice more to address Australia’s burgeoning inflation problem, which means dwelling values will probably soften a bit further. This should open up attractive investment opportunities.”

“Higher rates means the rental market will tighten beyond its already firm levels, with vacancy rates near all-time lows. In turn, this will drive rents and yields even higher. Over the next year we expect to see wages and disposable incomes continue to rise solidly while house prices flat-line or taper modestly,” Mr Joye said.

Unit markets have continued to outperform detached houses, with unit values recording no change in value over the June quarter compared with a 1.2 per cent fall in (more expensive) house values. A similar result applied over the twelve months to June: unit values were unchanged whereas house values were down by 2.6 per cent.

Mr Lawless said the variation in performance between the two housing types comes back to affordability.

“Across the combined capital cities, median unit prices are $67,000, or 14 per cent, lower than the median house price. In Canberra and Sydney the gap between median house and unit prices is more than 20 per cent. With more Australians seeking to live closer to the city and transport nodes, as well as seeking out more affordable housing options, the superior performance of the unit market makes sense.”

Rismark’s Mr Joye added, “As a conservative guide, dwelling prices tend to track disposable incomes through-the-cycle, or the typical owner’s average 7-8 year holding period. Historically, disposable incomes have expanded at a six per cent per annum pace. Going forward, a more realistic guide is probably around 4-5 per cent per annum. Over the next 10 years, it would not be unreasonable to expect to generate this kind of capital growth in concert with rental yields net of costs of 3-4 per cent annum. Patient folks opportunistically investing in housing are probably going to find the best prices, and valuation fundamentals, that they will have had access to in a long time. Otherwise, we favour variable-rate cash as an asset-class given our long-held forecast that the RBA will raise rates to deal with Australia’s growing inflation problem.”

“The Australian housing market’s demand- and supply-side fundamentals remain healthy. And they will improve further in the year ahead. The one fly in the ointment is interest rates. When the RBA comes to cut them, affordability in this country is likely to be the best we’ve seen in over a decade, which will help fuel a robust recovery and encourage investors to allocate scarce capital to boosting housing supply” Mr Joye said.

See RP Data Press Release

RP Data Report


  • Fell by -0.2% during the month of June 2011, the rate of decline is easing – after values fell by -0.5% in March, they fell by -0.4% in April, -0.3% in May and by -0.2% in June. Darwin recorded the greatest fall (-2.8%) and Hobart the greatest increase (+0.9%).
  • Over the last quarter, values have fallen by -0.9% across the combined capital cities, with Melbourne the weakest performing market (-1.6%) and Canberra the best performed (+0.5%).
  • On an annual basis, values are down by -2.0% with Sydney the only market in positive territory (+0.5%) and Brisbane the weakest (-6.3%).
  • The Premium market has been the weakest performer with values down by -5.6% over the year, compared to the most affordable market recording value falls of -1.2% and the broad ‘middle market’ down -1.5%.

Sales Volumes

  • Estimated sales volumes are estimated to be -16% below the five year average.
  • · Estimated volumes in Sydney, Hobart and Canberra are at above average levels with all other capitals recording volumes below average.

Rents and yields

  • Capital city unit rents have increased by 3.6% over the 12 months to June 2011, compared to average annual growth over the past five years of 7.1%.

Time on market and vendor discounting

  • The average number of days on market is starting to level however, houses are taking 55 days to sell currently compared to 42 days last year and units were taking 38 days to sell last year and currently take 54 days.
  • Vendors are having to discount houses by 6.0% from the initial listing price to achieve a sale currently compared to 5.9% last year and unit vendors are discounting by 6.0% also compared to 5.1% last year.

Property listings

  • New and total listings have begun to ease during recent weeks from record highs.
  • Whether this is the result of sales or vendors removing their properties from the market remains to be seen. The majority of listings are actually recorded outside of the capital cities.

Consumer sentiment

  • Fell to its lowest level since the GFC with optimists now outnumbered by pessimists.
  • Poor consumer sentiment is likely to result in ongoing low transaction volumes for properties.

Housing finance

  • First home buyers remain relatively inactive.
  • Investor activity has improved but remains at low levels.
  • The volume of refinances for owner occupiers is up 25% over the year while non-refinances are down -4.2%.

Dwelling Approvals

  • Approvals continue to fall. The decline in approvals is much more substantial for houses than it is for units.

Housing Affordability in Brisbane

House prices in capital cities are forecast to stay severely unaffordable for at least a decade.

A study by the University of Canberra and AMP found that median house prices jumped 147 per cent to $417,000 between 2001 and 2011.

Most affordable


Brisbane middle ring


Price/Income 2011:

Price/Income 2001:

What is the property market doing?

There were a number of stories in Thursday's Australian Financial Review (28 July 2011) about residential property. Reading the articles, it seems like no one knows what is going on. Just a bunch of people taking guesses. Some quotes:
  • "House prices fall for sixth month"
  • "Analysts have reversed their position expectations for the housing market and warn there is a significant risk of another round of price falls as a picture emerges of tight consumer spending and fears of global fallout from the US debt crisis."
  • Westpac said that the housing market was "delicately poised."
  • "We think there are significant downside risks for the housing market over the next 12 months."
  • "... several capitals showing no sign of bottoming as the usual winter slowdown in buying activity compounded already weak market conditions."
  • Buyers and sellers were "waiting for spring."
  • "... significant drops in hose prices were unlikely because there was no reason to expect a big increase in forced selling."
  • "tough trading conditions in Queensland" for a cautious Australand
  • "Queensland, Victoria and WA were all experiencing slow-downs."
  • "We do not expect sentiment in SE Queensland to recover any time soon."
  • "...the apocalypse is yet to arrive. I don't think it will."
  • "Prices are falling in Brisbane; they have collapsed on the Gold and Sunshine coasts."
  • "the worst since the 1960s"
  • "investors are unlikely to return in numbers until prices start rising."
  • "House and unit prices in Brisbane have dropped further and analysts have mixed views about whether they have yet reached the bottom."
  • "In fact, we can't see there being any bottoming [in Qld prices] until 2012."
  • "the value proposition in Brisbane now was quite compelling."
  • "the [Brisbane] market may be at or approaching the bottom of the cycle."

Saturday, July 23, 2011

Will Hamilton Harbour Buyers Settle?

"Hamilton Harbour’s settlement rate should be on the development industry’s “must watch list”. Hamilton Harbour is a litmus test for the Brisbane apartment market – a beachhead, if you will."

All investors in Brisbane apartments should read this note by Matusik.

Ugly West End Tower

Developers Aria are planning an ugly high rise tower in West End. It will be 30 storeys, with 275 apartments. Local residents are not happy. It is clearly out of character in the area. What facilities are the council building for all the new residents coming to West End? None.

Maybe buyers and renters should avoid Aria's other projects as a sign of protest?

Allure West End

Another out of the way development in the industrial area of West End -- Allure. Before buying, check out the near by Ferry Road apartment buildings, and look at the price drops for those apartments.

Allure has one bedrooms from $375,000 and two bedrooms from $489,000. Sounds expensive to me. Take care!

Mirvac's Foreshore Hamilton

Mirvac has Foreshore Hamilton in pre-release at present. Mirvac sales agents are calling all potential buyers to make sales. Lower floor apartments in the first building, called Foreshore One, are being marketed off-the-plan. The building is about 23 floors, and only the top few floors will have a view. The actual outlook and location, although in the redevelopment area of Hamilton, is not great. The development will be located behind the Portside buildings, and next to a proposed Citimark building, Rivana. So really crowded. (Foreshore One will take away the rear views from the Promenade building being built by Multiplex.)

Many of the apartments are very small. One bedrooms are about 52 sqm to 55 sqm in total, no balcony, priced from $345,000. The two bedrooms range in size from 72 sqm to 105 sqm in total -- the smaller 2 bedrooms do not have a balcony. The larger 2 bedroom is priced from mid $600,000 to low $800,000. Not cheap. Some two bedrooms are priced from $495,000, but these are small.

Mirvac will probably build a quality product (better quality than Promenade and Rivana I suspect) but due to the apartment size, poor location and cost, I am not lining up to buy. Also, there are a huge number of apartments being being built in this area, including Hamilton Harbour by Devine next door, and so there will always be plenty of competition if you ever have to sell or find a tenant.

From a Mirvac email:
This is what will set 'Foreshore - Hamilton' apart in this exciting new urban development.  We will bring to the market 1 and 2 bedroom apartments:  1 bedroom apartments are priced between $345,000 and $525,000 - size range from 50sqm to  58.5sqm  2 bedroom apartments are priced between $495,000 and $975,000 - size range from 73sqm to 104sqm  Completion date will be the later end of 2013.

Why I Like Property

A recent article from Washington Brown Group is titled "Why I like property". It makes good points, provided that you are looking for a long term investment that can go through periods of being hard to sell (like the present).

Market Commentary from a leading Brisbane agent

"... Countering that has been the deteriorating level of urgency in buyers as plunging confidence in Australia's economic future bites ever deeply into their psyche. This erosion of confidence isn't just making it 'challenging' to get buyers to make offers on property, it is making it doubly difficult to get deals to hold together once agreed.

More broadly and in keeping with Darwin's theory of only the strongest ultimately surviving, current market conditions are systematically cleansing the industry of all but the very best property professionals across all property sectors from Commercial to Residential. Whilst we know we can expect such repositioning of markets every generation or so, it doesn't make the process of enduring them any more comfortable."

My comment: I have seen a number of residential real estate groups impload in Brisbane in recent times. Colliers closed down its Brisbane city residential resale group (but kept project marketing alive), Savills closed down its Brisbane residential group, ReMax city office with Chris Hinds reportedly went bust recently, Open House went bust last year and has been taken over, GoGecko is bankrupt, the list goes on.

Monday, July 18, 2011

Residex Statistics

Residex has released its report for June 2011 prices. See report here. For Brisbane apartments:
  • Capital Growth over past 10 years - 9.66% per annum
  • Capital Loss over past 12 months - 3.19%
  • Median Value - $360,000
  • Rent - $360

Sunday, July 17, 2011

Viridian Noosa - Receiver's Sales

Viridian Noosa, an Outrigger managed short stay development, went into receivership. The receivers are now trying to off-load the substantial amount of unsold apartments and villas. One bedrooms are listed as being for sale from $339,000 including furniture; two bedrooms from $680,000. The one bedrooms were initially marketed at over $500,000 each. The property is not in the greatest location, a long walk up the hill from the beach and Hastings Street. Most apartments have no outlook or an unattractive outlook.

Dumb Advertisement

An advertisement in this Saturday's Courier Mail by Ray White CBD for an apartment at 6 Parklands (Apt 6008): "CBD Parkland Living - Below Market Value. Auction." How can a well run and well promoted auction sell a property at below market value? The auction result is exactly market value on the day of the auction. Is Ray White CBD is saying that it does not do a good job promoting the auction so that few people will know about it, and therefore it will sell at auction below market value? Another example of dumbness.

Ciel Penthouse Loss

Tom Dooley develops expensive apartment complexes. One was Ciel, in New Farm. Completed in 2007, the penthouse sold off the plan for $4.6 million. It was recently re-sold for $3.15 million, a loss of $1.5 million (not including agent's fees and stamp duty and holding costs). That is a huge loss. I bet Tom Dooley made a good profit when he sold it off-the-plan.

Charlotte Towers View and Sale

Recently, apartment 1009 in Devine's Charlotte Towers sold for $366,000. This is a larger one bedroom apartment with a car park. It is on level 10. The building is managed by Oaks. Unfortunately, its view will be impacted by the new The Midtown development across the road. Construction can be seen from this photo from apartment 1009. This type of apartment has sold for as high as $430,000 in the past -- so one can see that there has been a 10% to 20% decline in prices in this building since the peak of the market.

Apartments that are not zoned for residential living

There are a small number of apartment buildings in Brisbane (and on the Sunshine Coast) that are zoned for short term rentals only and where bylaws or the zoning prevent owners from using or renting the apartment for a permanent residences. One is the Quest Story Bridge apartment complex at Kangaroo Point, discussed in this story.
"Unit owner Cameron Green said lawyers carried out standard property searches for him in 2009 but this did not reveal that only short-term occupants were allowed. He said he and other buyers were not made aware when they bought their homes that they could not live in them permanently, due to a development condition imposed on the 14-year-old building. It is understood a building approval search would have revealed the problem but this type of check is generally considered to be “optional” during conveyancing."

Bowen Hills Developments

See article in BusinessDay.

Towers of up to 30 storeys high will soon start being built in Bowen Hills as developers snap up land in Brisbane's booming inner-north. But ailing confidence in the property market has one company struggling to secure pre-commitment commercial sales vital to the commencement of construction. ...
Metro Property Group, headed by property baron David Devine, has also turned its attention to Bowen Hills announcing last month it had sold all 195 units in The Chelsea, on Hamilton and Tufton streets, since the project's launch last November.
Metro Property Group has been given the green light for another two apartment towers of 24 and 30 storeys in the suburb.The developer's 24-storey tower on Mayne Road, which will protrude over the Edgar Street laneway, includes 242 apartments in total. Although the taller tower, The Madison on Campbell Street, exceeds the ULDA's 24-storey general height limit in the precinct, the body's design panel said the additional storeys made the tower appear more "slender".

Saturday, July 16, 2011

Brisbane Airport Flight Paths

Most suburbs within a 10 km radius of the Brisbane airport will be impacted to some extent when the new parallel runway starts operating in about 10 years. This will impact property values in some neighbourhoods. To have a look at current flight paths, and the future impact, see the Brisbane Airport Experience Centre website.

Interest Rates To Plunge?

The big story today is Westpac's announcement that they predict that Australian interest rates will drop rather than rise over the next year, by up to 1%. See The Australian for a good summary of this story (just be careful that they don't try to hack into your voicemail).

My gut feeling is that Westpac is right. The US economy is not doing well and politicians their a playing games regarding government loans, consumer confidence is low, and Greece is bankrupt and that issue still has a long way to run.

The economy in Australia is very bumpy, like a crocodile's back.

So interest rates could fall in the short term. If so, the question is: will property prices increase as a result?

Tuesday, July 5, 2011

How to Make a Loss on Residential Property

See Yardney's list of ways to lose money on property.

I agree with his list. Avoid off-the-plan apartment purchases! Rarely will you make money in today's marketplace purchasing off the plan in Brisbane.

Also, property is a long term investment. If you do not have the capacity to buy and hold for at least 5 years, then avoid property investments. Not only will the capital gains be slight over the next few years, but the transactional costs (stamp duty, selling agent's fees, legal fees, bank fees) will wipe out any short term capital gain.

Once Again, Floor Plans are Making Sales - in NYC

See NY Times article

"In recent months, though, several new developments around the city have once again sold apartments off floor plans. The practice is not widespread, and the examples tend to be in neighborhoods where there is very little new inventory. But at least one high-profile building that is under construction plans to sell off floor plans: the Extell Development Company’s 90-story hotel/condominium tower across from Carnegie Hall — One 57, at 157 West 57th Street."

Timing the Market

"With this in mind it’s important to note how dangerous it is to paint the whole real estate market with sweeping statements of downturns – or upturns. Every area must be assessed on its merit – hence many suburbs have shown a rise in median value over the first quarter, while other areas have dropped back to 2008 levels.

In short, the only thing we’re waiting for before the market swings upwards once again is the spark that’s going to inject confidence and an element of security into buyer psychology. However, waiting for that spark is not a wise thing for any investor to do if they want to purchase at the bottom! Have we hit the bottom yet? No one can make that call quite so soon – but if we haven’t, it’s not far away."

See Waiting for 6 o'clock

RP Data May 2011 Index

RP Data – Rismark Home Value Index Release

Capital city dwelling values declined by 0.3 per cent (seasonally adjusted - s.a.) in May, and are down 1.2 per cent (s.a.) over last 3 months. Rest of State house values were also weak in May (-0.1 per cent s.a.) and are off -0.9 per cent (s.a.) over last 3 months. Gross rental yields for Aussie apartments are now 5.0 per cent.

Based on more than 110,000 home sales nationally in 2011, the market-leading RP Data-Rismark Home Value Index for Australia’s capital cities declined by -0.3 per cent (s.a.) in the month of May (or by -0.5 per cent in raw terms). Capital city home values have now fallen for the last five consecutive months with by far the worst seasonally-adjusted result coming in the month of January (-1.2 per cent), which accounts for 45 per cent of the 2011 decline.

The softening in Australian home values is delivering a valuation dividend with Australia’s dwelling price-to-disposable income ratio falling to 4.2 times, which is its lowest level since June 2003 according to Rismark’s analysis.

RP Data’s research director, Tim Lawless, added “For property investors, rental yields are also improving with RP Data-Rismark’s Index showing that gross Australian apartment yields have now risen to 5.0% (see chart). The best rental yields can be found in Darwin (5.7 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.2 per cent). The worst yields are in Melbourne (4.2 per cent), Adelaide (4.6 per cent) and Perth (4.9 per cent).”

Over the three months to May 2011 dwelling values in Australia’s capital cities have retraced by -1.2 per cent on a seasonally-adjusted basis. In raw terms, dwelling values have fallen by -1.3 per cent. The quarterly rate of decline has, however, moderated since the end of March when home values were off by -2.0 per cent care of a flood-affected January.

Over the 12 months to end May, Australian capital city dwelling values are now down -2.3 per cent (seasonally-adjusted). If we just look at the first five months of 2011, Australian home values have stepped back by -2.7 per cent.

Across the capital cities performance has been varied and counter-intuitive to the purported resources boom. Sydney is the only market to have recorded a modest capital gain over the last year (up 1.0 per cent). Homes in Canberra have also held ground (-0.1 per cent over the year). All other capitals have slipped into the red, with some down by significant margins.

According to Tim Lawless, the two weakest results have been Perth, where dwelling values are down -7.5 per cent year-on-year, and Brisbane, which is off by -5.9 per cent over the year. ...

According to Tim Lawless the weakness across equities markets is likely to be an important factor affecting the premium housing market: “The S&P/ASX 200 Index remains almost 35 per cent below its November 2007 peak and the index is down 8 per cent since the start of April. The top end of the market clearly benefitted from the circa 40 per cent rise in share prices following the trough in March 2009. However, the recent share market weakness is affecting premium demand.”

Ben Skilbeck, Rismark’s Joint Managing Director, added, “Demand for Australia’s luxury homes has also been sapped by the surging currency, which has made local housing much more expensive for expats located in Europe, North America and Asian countries with US dollar currency pegs to buy. Financial markets are currently pricing in a decent chance of an interest rate cut over the next 6-9 months. If the RBA does indeed reduce rates, this would provide substantial support to the market. However, our central case remains that rates are heading up, not down, and thus we are not looking for any capital gains in 2011. That said, total returns will be boosted by very solid growth in rents, with gross yields in May now at 5.0% for Aussie apartments. Rental vacancy rates remain very tight, so we expect to see further improvements in rental returns.”

See RP Data Press Release.

See also Brisbane Times

"Consumers are well and truly focused on saving, not spending," Mr Lawless said. "Despite the low rate of unemployment and the strength of the resources sector, it is clear that the average Australian is content to pay-down debt and wait for some economic certainty to return. As a consequence, transaction volumes in the real estate market are about 20 per cent below the five year average and listing volumes are about 25 per cent higher than what they were last year."

Vendor discounting in Brisbane has fallen back to 7.8 per cent after peaking at 8.3 per cent last December.

State of the Market

Herron Todd White, a firm of independent property valuers, publishes a monthly report, called Month in Review. The most recent report includes the following information about the Queensland apartment market.

Volume of unit sales:
Brisbane: steady
Gold Coast: declining significantly
Sunshine Coast: declining

Stage of market:
Brisbane: bottom of the market
Gold Coast: declining market
Sunshine Coast: bottom of the market

Demand for new units:
Brisbane: fair
Gold Coast: very soft
Sunshine Coast: soft

Sounds like it may be a good time to buy an apartment in Brisbane, but definitely not the time to buy on the Gold Coast.

Many Real Estate Agents do a bad job

Have a look at this article. It provides further evidence that many real estate agents provide poor service, do a bad job and are lazy. The commissions real estate agents receive are way too high for the work that they do. Many real estate agents actually hinder rather than help the sales process. Most properties sell themselves, and the agent does little to improve the sales price received. I love buying from lazy real estate agents -- I get a below market price!

Bumpy Ride in Residential Sector

"PROPERTY developers with an exposure to the residential sector are in for a bumpy ride in coming months, with Morgan Stanley analysts predicting a drop in home values of between 5 and 10 per cent.

Stockland and Mirvac have the biggest exposure to the home market but their earnings will be protected from big falls by the strong office market."