Sunday, October 7, 2012

The Capitol Apartments

Forrester Properties is marketing The Capitol Apartments at South Brisbane.  Construction is under way, and according to documents provided by the sales agent, 70 of the 77 apartments have sold.

The development is located at 35 Peel Street, and backs right onto the rail line.  Peel Street is a busy access street for the Grey Street Bridge, and is not a residential neighbourhood.  So this is a pretty poor location in South Brisbane.

Although it is being sold as an apartment building, it is already being marketed as a hotel.  The sales agent says the the apartments are designed to be hotel rooms.  For example, looking at apartment 408, this is 68 sqm internal, and is a 2 bed 2 bath dual key apartment (i.e., a hotel room and a studio with a kitchen area along the wall).  One of the bedrooms does not have windows -- it is the back of the apartment, but as it is a hotel room, that probably doesn't really matter.  Although dual key, there is only one car park.  It is on level 4 and looks onto Peel Street.  If buying, care should be taken, because some banks will not lend for hotel room purchases.

Apat 408 is listed for sale at $608,000, including furniture.  This seems to be extremely expensive.  Better located better quality larger two bedrooms can be bought in near new buildings for about $100,000 less.

This apartment has a rental guarantee of $37,370 a year after agents fees, but before rates and body corporate.  So a net of about $31,500, or a return of 5% once stamp duty is taken into account.  (The developer misleadingly says that the net return is 6.15%, but ignores stamp duty, body corporate and rates when calculating the net return!)  At today's interest rates, this is still a loss.  And once the rental guarantee expires, I doubt that this small apartment will have a gross rent of more than $800 a week, which is what will be needed to accomplish similar returns to the rental guarantee.  (One can rent a furnished luxury 2 bedroom apartment at Saville/Mantra, which is 120 sqm, with river and city views, for less than $800 a week today.)

But it seems that Forrester did a good job marketing The Capitol Apartments, if 70 have been sold to date -- poorly located, small apartments that are really nondescript unbranded hotel  rooms for high prices.

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