Sunday, July 28, 2013

Off-the-plan apartments overpriced

A story in the Courier Mail yesterday:  "Bank revaluations hit apartment buyers".  Some extracts:
  • Buyers of off-the-plan apartments are reporting that banks are revaluing their properties once the buildings are completed and only lending a lesser amount.
  • "The difference between the price paid by a property buyer and the bank valuation is often high, over 20%, and the differential is spreading.  Many off-the-plan purchases are made at prices significantly above true market price.  On completion, it is not uncommon for valuations to come in at least 10 to 15% below the contract price." said Michael Yardney.
  • The problem arises in two ways:  the buyer initially pays too much and the property declines in value during the construction period.
  • "As a general rule, off-the-plan will go down in value as soon as it's built." said Mr Roylance, director of iProperty Plan.
  • In this situation, the lender will usually provide a loan at 80% of the valuation, not 80% of the contract price.

Saturday, July 27, 2013

Chinese Buyers & Infinity

The AFR had a story on 24 July:  "Brisbane keen for more Chinese buyers".  Some extracts:
  • Harry Triguboff from Meriton apartments expects Brisbane to be next in line for an influx of Chines investors, but says it will depend on the growth in education in Brisbane.
  • Chinese buyers in Brisbane were few and far between, when compared with Sydney and Melbourne.
  • Infinity Tower, by Merition, has sold about 200 apartments according to Urbis. 
  • In the first quarter, only seven apartments were sold in Infinity, for an average price of $560,714.
  • Meriton has no additional plans for apartments for Brisbane.  "I want the Brisbane market to get stronger first."

Friday, July 26, 2013

Fat Australia

It is even making new in New York that Australians are getting fatter.  In New York, many people live in apartments, and do a lot of walking.  In Brisbane, many people who live in apartments still drive everywhere.  One reason for this -- there are often less facilities within walking distance.  The government thinks that high density living is good, but only thinks about the place to sleep.  In NY, it is easy to walk to schools, playgrounds, kindergartens, swimming pools, and everyday stores (such as chemists, bakers, barbers) from your apartment.  This is often not the case in Brisbane.

Thursday, July 25, 2013

Outlook for Property on a Weaker Dollar

The AFR had a story on Wednesday titled "Outlook for property on a weaker dollar."

An abstract from ABIX is as follows:

"While it is pointless trying to accurately forecast the future changes in the Australian dollar's value after a decline of about a tenth during the six months to July 2013, it is worth considering the effects this has on real estate investors. Those with existing overseas assets are seeing a boost to the income streams, while those only now starting to allocate funds to the segment will have to pay more. Foreign investors looking to buy off-the-plan properties in Australia, the only option available to them, will find this easier to finance and demand should increase. However these investors account for only 3% of the market. Meanwhile local real estate buyers may feel the impact of inflation, but in general the fallout from the foreign exchange rate fluctuations will be moderate."

Some quotes from the article:

"A lower Australian dollar may increase the attraction of Australian property to overseas investors - particularly new or off-the-plan property, given that FIRB rules exclude non-residents from buying established property."

"The reality is that inward investment flows into Australian residential property are modest, and represent a very small proportion of the total market.   According to FITB, in 2011-12, around $15.5billion was invested in off-the-plan developments, either by overseas buyers or by development companies marketing to overseas buyers.  Compare this to the $500 billion in mortgage financing for property purchases recorded by the ABS in the year to November 2012 -- overseas buyers represent just 3% of the residential property market.   The most significant issue for property investors emanating from a weaker dollar is the potential flow-on for inflation and mortgage rates.

"Unless there is a precipitous decline in the Australian dollar, there is little to worry local property investors.  But large declines do happen from time to time."

Tuesday, July 23, 2013

Population Growth

Population growth and employment drives house price growth.  Population decreases and unemployment causes property prices to fall.  The following statistics are relevant.

Monday, July 22, 2013


After delays and false starts, it now appears that SouthPoint at SouthBank is ready for a sales launch.  See this site and this site, for example.  The development is on Grey Street, opposite the Galleria and next to the train line, on what has been called the Collins Place site.

According to sales agents, the SouthPoint building has three sections, arranged vertically.  The central section will be an Emporium Hotel, with residential apartment sections on either side (called the North and South cores).  On the rooftop will be a 25m wet edge infinity pool, a day spa with massage rooms, hairdressing and manicure options, a roof top bar and gymnasium.

From what I have been told, in the South core, the one bedroom apartments range from $425,000 with a Southern aspect and no car parking, to $560,000 for the top level facing the river with a car park.  The one bedroom apartments are all less than 60 sqm in size.  Two bedroom apartments in the South core start at $645,000 for a lower level rear apartment facing the railway line to around $840,000 for the top level river and city view apartment.  These two bedroom apartments are all less than 80 sqm internal size, so are much smaller than similar apartments in Saville (Mantra) SouthBank.  Compare also apartments in Quay West, where one bedroom one car apartments are about 73 sqm, and sell for about $450,000 with river views and furniture.

In the North core, there are three bedroom apartments that range between $1.7million and $3.8 million. These appear to be large apartments.

Apartments on the rear of the building face West, looking over the train line.  There are surrounding buildings, so to get a good view, you will want to be on a higher floor.

This development is by Anthony John Group, who is doing lower priced apartments in Cannon Hill.  Their apartments in the Valley Emporium development were not, in my opinion, high quality apartments.  It seems that SouthPoint will have three levels of finishes, so care must be taken to ensure that you understand what level of finish will apply to each apartment.

Sunday, July 21, 2013

Festival Towers lawsuit

Many owners of apartments in Festival Towers in Brisbane, and the body corporate, are suing Devine Limited and Brookfield Multiplex Constructions for a large amount of damages concerning the construction (and alleged construction defects) in Festival Towers.  Details of the lawsuit can be found here on the Supreme Court website.  I have been told that there have been special body corporate levies to partially fund the lawsuit.

Any prospective purchaser should have their lawyers study the lawsuit paperwork, including the schedule of defects, in detail.

At the time of development and construction of Festival Towers, Devine Limited was run by David Devine, with Ken Woodley as the senior person on the sales side.  Devine and Woodley are now running Metro Property Group, which is a marvellous sales machine.

Festival Towers, managed by Oaks, doesn't have the greatest feeling in my view.  Partly short term accommodation and partly foreign students (packed into small apartments, and sleeping in hallways and living rooms), and a popular place for travelling hookers, Festival Towers has always disappointed me.

In my opinion, purchasing apartments off-the-plan has risks, because you don't know the level of quality that will actually be delivered.  The sales contract is most often in the developer's favour.  In a number of circumstances, I have seen glossy brochures inferring high quality, but the product that is delivered is low quality.  For this reason, I always take that view that off-the-plan pricing should be less than current market pricing to take into account this risk.  Unfortunately, most developers are selling apartments off-the-plan at prices that are higher than you could buy an existing similar apartment -- the only difference being age.

An agent I spoke to recently who was selling off-the-plan informed me that his competition was not other new developments, but resale apartments in recently finished buildings by the same developer.  He said the price of the resale apartments was about 15% less than his almost identical new, under construction apartments.  And buying an existing apartment is way less risky than purchasing off-the-plan.

Recent Apartment Sales in Downtown Brisbane

  Apt 171, 1 bed, 1 bath, no car - $310,000
  Apt 107 - $1.3M
  Apt 61, 3 bed, 2 bath, 1 car - $715,000
  Apt 94, 3 bed, 2 bath, 1 car - $790,000
  Apt 363, 2 bed, 2 bath, 1 car - $587,500
Charlotte Towers
  Apt 3206, 1 bed, 1 bath, no car - $335,000
  Apt 3508, 1 bed, 1 bath, no car - $317,000
  Apt 4009, 1, bed, 1 bath, no car - $347,000
Metro 21
  Apt 3001, 2 bed, 2 bath - $553,500
Quay West
  Apt 129, 3 bed, 3 car - $1M
  Apt 304, 3 bed, 2 bath, 1 car - $1M
  Apt 272, 2 bed, 2 bath, 1 car - $675,000
  2 bed, 2 bath - $527,000
Festival Towers
  2 bed, 2 bath, 1 car - $457,500
  Apt 1906, 1 bed, 1 bath, 1 car - $309,000
Admiralty Quays
  Apt 78, 3 bed, 2 bath, 2 car - $920,000
  Apt 76, 1 bed, 1 bath, 1 car - $550,000
  Apt 46, 2 bed, 2 bath, 1 car - $780,000

Saturday, July 20, 2013

Brisbane Property Prices Flat in FY12/13

Over the 2012/13 financial year, Brisbane had a 0.6% increase in property values, according to RP Data.  This is less than inflation.   And below the Australian capitals average.  Not a good result, but better than going backwards.

LA property prices in dramatic increase

I was recently looking a property in the LA area of California.  When a house I was looking at was listed for sale, about 20 written offers were received.  I was amazed.
Recent stories in the LA Times state that there is a property boom (or property undersupply) in parts of LA.
See:  Low Inventory and 28% Increase.
There was also a jump in the median sales price in San Francisco.

Friday, July 19, 2013

Brisbane Underperforms

Brisbane has been the worst performing city in Australia when it comes to capital gains for housing, looking over the last 5 years.  In fact, there have been, on average capital losses for the past 5 years.

Looking back 10 years, rather than 5 years, things look a little better.  But people who have purchased in Brisbane the last 6 years are doing badly today.

Sunday, July 14, 2013

South side apartment developments

I received an email from an agent selling apartments off-the-plan, listing four current projects.  Here are the details that were sent to me.

Fish Lane Apartments
-          48 Apartments at corner of Melbourne and Cordelia Street, South Brisbane;
-          Brisbane State High School catchment area
-          Currently under construction (completion to 5th floor) and expected settlement on December 2013.
-          Bosch appliance (gas cooktop, microwave, oven, dishwasher) and dryer inclusive
-          One bedroom apartments with car – sold out
-          Two bedrooms two bath one car apartments North East city view facing Level 5 from $595,000

Edge Apartments 
-          48 Apartments at Manning Street, South Brisbane
-          Brisbane State High School catchment area
-          Currently complete demolishment and expected settlement late 2014
-          Bosch appliance (gas cooktop, microwave, oven, dishwasher) and dryer inclusive
-          One bedroom apartment with car – sold out
-          Two bedroom two bath one car apartment South-West facing Level 1 and 2 from $555,000
-          Current promotion with $25,000 cash back at settlement or $10,000 cash back and full furniture pack

Arena Apartments 
-          191 Apartments at Edmonstone Street, South Brisbane
-          Brisbane State High School catchment area
-          Currently commence construction, expected settlement Dec 2014 to Feb 2015
-          Bosch appliance (gas cooktop, oven, dishwasher) and dryer inclusive
-          One bedroom apartment with car - $390,000 Only two left
-          Two bedroom one bath one car - $520,000 at Level 5
-          Two bedroom two bath two cars with 86m2 internal and 45m2 court yard - $645,000 at Podium Level
-          Three bedroom full upgrade Skyhomes with three cars - $1.45m, $1.7m and $1.75m three available

Glass Factory
-          47 Apartments at Vulture Street, West End
-          Brisbane State High School catchment area
-          VIP Launching on 7th September
-          One bedroom with car from $370,000
-          Two bedroom two bathroom with car from $555,000
-          Three bedroom two bath two car with city view at high levels from $825,000 

Saturday, July 13, 2013

Auctions Not Popular in Brisbane

In Melbourne, many properties are sold by auction.  In Brisbane, less properties go to auction, and auctions are less successful.  I find it interesting that some agents really push vendors to have auctions -- often leading to unhappy vendors.

See RP Data report

Wednesday, July 10, 2013

A soaring apartment market in Toronto ignites fears of a crash

An interesting recent article in the NY Times about apartments in Toronto: A Dizzying Condo Market in Toronto.  How similar is this to Brisbane?  An extract:

"Median condo prices have risen 25 percent since 2009. Two-bedroom condos of about 850 to 900 square feet in Liberty Village sell for about $500,000.  For Toronto, this is crazy.

“There is no question that the housing market in Canada is overshooting,” said Benjamin Tal, deputy chief economist of CIBC World Markets. “Now the cocktail party conversation in Canada is: ‘Will this lead to a U.S. style crash?"

Thursday, July 4, 2013

Will Brisbane Apartment prices go up or down?

Brisbane apartment prices did worse that Brisbane house prices over the past financial year.  There was a fall of 1.8% in Brisbane apartment prices in 2012/13.  The number of apartment sales are 13% low than 12 months ago.  This does not sound like a booming or healthy real estate market.  Some predict that apartment prices will slowly deflate, year on year, for a number of years to come.  Others predict that with low interest rates and good population growth, then prices will start to increase.  RP Data says that Brisbane will be flat for the next year.  If that is the case, no rush to buy or to sell.  Not good news for real estate agents, who rely on sales volumes to make a living.