Two Tier Property Market in Brisbane?

Is there are two tier market in Brisbane for apartments?  Are Brisbane owners, investors and renters looking for one kind of apartment, but developers are building another kind of apartment for foreign investors?  Some commentators have said that there will be an oversupply of apartments in Brisbane. For a certain kind of apartment, that may be correct.  But for what Brisbanites want, there may be an undersupply.

Take Bowen Hills for example.  It is close to the city, but has very few local amenities.  It was a light industrial area, and with highways cutting through it.  It is not inner city, and too far to walk to downtown or the Valley.  There are no parks or restaurants or river views.  There are number of large apartment buildings being constructed in that area, with small one and two bed apartments.  A lot of the sales and marketing is targeted at foreign investors, particularly the Chinese.  But do locals want to live in these apartments?  They are very small, and the buildings are very dense.  There are very few owner occupiers in these buildings.

Some examples are Madison Heights (286 apartments) and Chelsea (195 apartments).  It appears that it is taking a long time to rent out or re-rent the apartments in these buildings.  Rents are being reduced, for example, to $485 for a two bedroom apartment.  I suspect that the rental market is saying that, for the location and facilities, you can do much better elsewhere, so the apartments are renting only if rents are very competitive.

On the other hand, river front apartments in Brisbane city, apartments in New Farm, and "normal" residential locations such as Indooroopilly (where very few new apartments have been added to the market in the past five years), appear to be selling well and renting quickly.  These apartments are often much larger (130 sqm compared to 75 sqm for a 2 bedroom apartment, for example), have a better location, have more owner occupiers, and there is not an oversupply.

I also wonder what rents and returns the investors in the new apartment buildings have been promised, and what they are actually receiving, and for how long the apartment sits empty not generating rent?

Will the rents hold up when it comes renewal time in six months or a year?  Will tenants stay on or move out?  The Chelsea is an example of a building that appears to have a number of apartments for rent; it completed in 2012, and received bad press at the time.  (An advertisement below from last year for Urban Edge at Kelvin Grove, settled last year, where apartments will be coming up for renewal about now.  Kelvin Grove is a much better location than Bowen Hills in my view.)

Rents at Madison Heights, Bowen Hills

Madison Heights at Bowen Hills has completed, and apartments are available for rent.  For a 2 bedroom 2 bath apartment,  the listed rent is $445 (with 4 weeks free - so really the rent is $410 a week).  Some are even less.  Under the NRAS scheme, the listed rent for a 2 bedroom is $389 per week.

The building has 308 apartments, with 174 under the NRAS low income rental affordability scheme, which offers apartments for 70% of the market rent (so a two bedroom under this scheme should be $287 a week based on the REA listing quoted above.)  Most of the apartments are 1 bedrooms -- in fact, 228 or about 75% of the apartments in the building are one bedroom apartments with a typical size of 51 sqm internal.

Apt 2901, 2 bedrooms, is for sale for $715,000, which appears to be outrageously expensive.
This two bedroom is $547,000.  67 sqm internal. Crazy!
A one bedroom is for sale for $485,000 -- not a bargain!

Here are some photos of the views from Madison Heights apartments.  The entry to the Airport Link tunnel cannot be seen from these photos, but is just to the right:

Aria's South Brisbane Bet

The AFR on Thursday (30/01/14, p.38) had a full page story about Brisbane apartment developer, Aria.  Some highlights:

• Aria has sold 188 apartments in three residential towers it has completed in South Brisbane since mid-2012.
• It has a 20 storey tower under construction on Grey Street.
• It is about to start another 20 storey tower of the corner of Edmondstone and Boundary Streets.
• Aria owns a dozen more sites in South Brisbane.
• South Brisbane is catching up to Bowen Hills and The Valley for residential apartment development.
• The change is due to construction of office towers, bring 10,000 workers to the area.
• Residential building approvals have jumped from 151 in 2010/11 to 744 in 2012/13.
• Gross rental yields are said to be 6%.
• Prices for Aria's apartments are $7,500 to $8,000 a sqm, and are likely to rise.
• Aria has lodged a DA for a 26 storey tower on Hope Street that will have over 180 apartments.
• Aria pays interest on deposits for off-the-plan apartments.
• 75% of Aria's clients are investors, with fewer than 10% being SMSFs.
• Half the buyers are from SE Queensland.
• There are more than 4000 apartments under construction in inner Brisbane.  The biggest supply potential is in Brisbane's North Eastern area, around Bowen Hills and The Valley - this is seen as a risk.

Foreign Investors

Foreign buyers snapped up one in every eight new properties built this year - up from one in 20 properties in 2011, National Australia Bank research reveals.

Australia's foreign investment rules ban foreigners from buying established homes, and developers can sell half their properties to foreign investors before they are built.

Colliers International's managing director of residential property in Australia, Peter Chittenden, yesterday said Asian buyers were purchasing 60 per cent of units being sold off-the-plan in big developments.

He said overseas buyers had snapped up two in every three of the 588 luxury apartments in the Singaporean-owned Tower Melbourne development - being constructed as the city's tallest building.

Foreign investors have bought 15 to 20 per cent of the 710 apartments being built by Pearls Australasia and Metro Property Development in three towers in the inner-Brisbane suburbs of Bowen Hills and Fortitude Valley.  Pearls Australasia executive director David Higgins said Asian buyers were more likely to buy the more expensive apartments - costing more than $600,000 - with extra space or views.

Source:  Courier Mail

"According to research from LandMark White, of the 27 apartment projects completed in the inner-city precinct between 2011 and 2012, the vast majority were rental properties.  "Anecdotal evidence reports circa 40% to 50% of these investors are Asian buyers," it reports.  "Current conditions indicate investment in the inner apartment market remains robust due to strong rental growth and tight vacancy."

Source:  Courier Mail, Saturday August 24, 2013, p.33

See also: Property Observer: Trends

The Chelsea - an analysis

Matusik has done a very interesting analysis of The Chelsea development in Bowen Hills, that recently completed.  It is worth studying this analysis.  See The Chelsea.

Some points from the Matusik study:

• More than half the sales were "rebated sales", making it hard to determine the actual sales price.  Most rebates were given early in the sales process.
• It took about 2 years to sell the 177 apartments in the complex.
• Only six apartments have been purchased by owner occupiers.  This is a very low percentage.  (My rule is to purchase only in buildings where there is a high percentage of owner residents in the building.)
• 70% of the buyers appear to be Chinese, either from the Sunnybank area, Southern States, Singapore or elsewhere.
• A number of apartments are now listed for resale, at about 10% below the recorded purchase price (before any rebates are taken into account).

"Too often the last dwellings in a new project are discounted [by the developer].  This undermines the project’s overall value; is very unfair to those who bought early in the piece (regardless of what incentives were offered) and also reduces the developer’s profit (assuming there is any!)"

Metro's Central Village

Metro Property Development has announced a new project with over 1,000 new apartments.  It is called Central Village and is located at 66 Brunswick Street in the Valley.    This is a busy road.   It is not the greatest location either.  Even through it is called "Central Village", according to Google, it is an 18 minute walk (1.5 km) to the Emporium Hotel (shown in the photos on the website) and 1 km to the main part of the Valley.  Neither of these would be pleasant walks.  You should try the walk before buying!

The first stage, called Cambridge Towers, has 163 apartments over 18 levels, mostly 1 bedroom apartments.

See also Brisbane Times story.

High Hope for Bowen Hills

There is talk that Bowen Hills will be the next boom area in Brisbane.  I am not sure that I agree.  There is little infrastructure at present, and no sense of community or neighbourhood.  It is a semi industrial area, surrounded by major roads, that is slowly being redeveloped with mostly low quality highrise apartments.  See AFR.  If the pricing was 30% of what developers are asking, then I may be interested, but at present, it seems way overpriced for what is in existence today.  My advice is to wait, and you could be waiting some time.

Rental Crash Coming?

I wonder if a rental crash is coming?  From my review of listing portals, there is a build up of property for rent in Brisbane.  Some landlords are reducing rents.  I am not sure if this is seasonal, or part of a trend.  There are less students renting in Brisbane at present, and less consultants doing government work.

A reader sent me this via email:

"Enjoy reading your blog, just wondering if you have noticed the huge rise in listed apartments for rent in Brisbane. The price also seems to have fallen, seen 2b2b1c furnished in Bowen Hills/Kelvin Grove for $520. Casino Towers 2b2b1c for $480 Emporium has gone from 2 apartments available 2 weeks ago, to over a dozen. Not sure you keep stats on these things, but would be interesting if you could post them if you do."

If anyone has any evidence on this topic, please let me know.

The economy is not strong in Brisbane.  Some government departments are doing forced redundancy programs, where 30% of employees and almost 100% of contractors are being let go.  Small business is hurting, with costs increasing and revenue decreasing.  My guess is that the actual inflation rate and unemployment rate is higher than being reported.

Reader's Comment - Is there a boom?

A reader's view:
There seems to be a dramatic marketing shift going on in Brisbane at present in regard to marketing of apartments and units. The advertising has shifted to promoting the merits of “investing in apartments for rental return” rather than marketing to owner-occupiers. It appears the owner-occupier buyers have all dried up, perhaps they are among the 20,000 workers slated by the State Government for redundancies?

Or are potential owner-occupiers waiting for the release onto the market of thousands of houses and flats currently owned by State and Federal Government that are soon to be placed on the market as a result of the Government push for the private sector to provide (former) public housing by offering the tax-deduction carrot being offered to owners who place rental properties into the NRAS scheme?

One only has to attend the Home Show in Brisbane to see this over-night marketing shift or take a cursory glance at this Saturday’s Courier Mail Property insert. The marketing hype seems to have abandoned the (now) non-existent new owner-occupier buyers and switched to promoting the merits of “investing in units or apartments for rental return” since clearly, the notion of capital gain is now just a pipe dream, at least for the next 5-10 years.

Accompanying press releases and advertisements say how successful the developments are (or going to be – many haven’t even started building) and advertise the numerous sales that have already been made to “investors” for fabulous rental returns. Who is buying these apartments is the question.  For example, one in Milton advertises that it has sold $90 million in pre-sales with a vacancy rate of 0.7% and a rental return of 12.4% p.a (Courier Mail Sat 21/7/2012) yet not a sod has been turned on the vacant site. Puzzling indeed.

Others are advertising rental returns of $600-$850 per week around Newstead and Bowen Hills yet a newly completed complex at Bowen Hills, just 2 minutes from the CBD has huge placards visible from the ICB offering rentals at $300 per week. Quite a difference from the advertised rentals of $600-$800 per week available to “investors” less than a kilometre away. Recent data shows around 130 apartments available for lease or sale in the Teneriffe and Newstead area. So while alleged hundreds of units are being “snapped up” by savvy investors cashing in on the “rental boom” (remember the mining boom?) around Brisbane, a number of large unit and/or apartment complexes have been abandoned before they even turned a sod. Puzzling indeed?   Yet the marketers claim buyers are scrambling to line up and buy off the plan? More puzzling.

Brisbane Not Yet At Bottom

For Apartments:

The Brisbane apartment market fared worse than the house market in the last six months of 2011 and faces an oversupply of this type of property.  REIQ figures for the December quarter 2011 show that rental vacancies in inner Brisbane – where most of the stock is apartments – increased from 1.4% in the September 2011 quarter to 1.9% in the December 2011 quarter while the overall city vacancy rate remained unchanged at 2.3%  

In addition, valuation firm LandMark White is warning that a combination of too many projects and historically low demand could result in an oversupply of new apartments in inner-city Brisbane suburbs like Fortitude Valley and Bowen Hills.

The firm’s property valuers believe affordable “entry-level” apartments within five kilometres of the CBD will continue to appreciate in value but expect values in prestige units in new complexes to continue to fall.

“We have seen demand for prestige units decline again, with extended marketing periods or heavy price reductions,” says WBP.

On the other hand, “entry-level units are being purchased by single professionals who require affordable housing and access to the Brisbane CBD. We have recently seen volumes of sub-$400,000 unit sales increase.”

Michael Yardney is very bearish about Brisbane units, placing the market in the relatively early stages of a property downturn at three o’clock.

“There are a large number of off-the-plan apartments available in the Brisbane CBD and surrounding suburbs. Many of these remain unsold, and this oversupply of properties will put downward pressure on prices and rentals,” he says.  “Many of the apartments that have been sold off the plan are coming on stream in the next few years and have been purchased by investors.  Some will have difficulty getting finance and settling their purchase. Others will be disappointed to see the end value of their properties is less than their purchase price,” Yardney says.

“There will be an oversupply of inner-CBD and near-CBD apartments in Brisbane for a few years, causing prices to fall slightly.”

See Report Here

For houses:

As the house price growth figures from RP Data show, Brisbane’s housing market continues to fall.

House prices were flat over the final quarter of 2011, according to figures compiled the Real Estate Institute of Queensland, which says that one year on from the floods, the housing market is showing signs of stabilising.

Michael Yardney, Louis Christopher and Charles Tarbey all believe Brisbane has some way to go before it bottoms out.

“House prices in Brisbane have dropped for the last two years. Brisbane buyers are lacking confidence to re-enter the market and are sitting on the sidelines waiting for signs that the market has bottomed before they make a purchase,” says Yardney.  “This may occur later this year as Brisbane prices stabilise. Prices are unlikely to start rising until the second half of this year or 2013.”

See Report Here

Midwood Report - Brisbane OK

"The outlook for the new Brisbane apartments market remains healthy with supply and demand evenly matched, but the Gold Coast market continues to struggle with sales of new apartments still at post-GFC lows, according to the latest Midwood Report.

Unconditional sales of new Brisbane units increased from 74 in the November quarter 2011 to 186 in the February 2012 quarter. Stock levels have declined to 1,446 from a peak of 1,683 in May last year, which equates to two-and-a-half years’ worth of supply at current sales rates.

Investors have been spurred on by rising rental returns, with one-bedroom inner-Brisbane flats registering rental growth over the past 12 months of 9% to a median of $300 per week, with a smaller 4% increase in two-bedroom flats ($380).

The strongest-selling project was David Devine’s Metro Property Madison Heights development in Bowen Hills, which clocked up 57 sales with prices ranging from $350,000 for a one-bedroom apartment to $434,000 to $556,000 for a two-bedroom apartment. Madison Heights features 296 apartments, with 200 sold since launch of the project in March 2011. There were also 15 sales at Metro Property’s The Chelsea development also in Bowen Hills, with 190 out of 195 apartments now sold in the project. Prices range from $355,000 for a one-bedroom apartment to $546,000 for a two-bedroom apartment, and there were 20 sales recorded for Brooklyn on Brookes in Fortitude Valley, Metro’s joint development with Indian-based developer Pearls. The other strong performer was Meriton’s 81-storey Infinity Tower, currently under construction, with 34 sales recorded and prices ranging from $470,000 for a one-bedroom apartment to $650,000 for a two-bedroom unit. To date 123 out of the 287 apartments in the tower have been sold."

Full article here at Property Observer.

South Brisbane and Indooroopilly

A recent report by Urbis lists South Brisbane as being "trendy" and Indooroopilly as a "prime unit location".  Bowen Hills also gets a mention as an area undergoing redevelopment.
See Article

Lend Lease Puts On Its Big Show

The headline of a story in the AFR on Thursday:  "Lend Lease Puts On Its Big Show", a story about the Brisbane RNA Showgrounds development, Show Ground Hill.  The first 43 apartments (The Green) will go on sale soon according to the AFR, with the developer using a $2 million sales suite and marketing shows in Sydney, Singapore, HK and KL to drive sales.  It is said to be a 15 year project, with 2000 dwellings, so I guess if you miss out on the first release, you will still have a chance to buy later on.

Prices for the first stage are reported to be $345,000 for a one bedroom apartment without parking to $665,000 for a two bedroom apartment.  This is a higher price than what you can buy today for a three to five year old apartment in a more central location.

CBRE says that "there was little demand for three-bedroom units in the market following a glut of high-end owner-occupier stock was built in the mid 2000s."

Off the plan sales data shows average price points have fallen 50% from the 2007 peak according to the AFR.  This means that cheaper, lower quality apartments are currently being marketed, not that prices for like-for-like apartments being sold off the plan have decreased.

CBRE says "Eventually it has the potential to become its own suburb."  This means that when first being built, there will be little infrastructure or amenity nearby for the initial residents.  In 15 years it may turn out ok, but that is a long time to wait, especially if the average hold period for an apartment is about 5 or 6 years.

CBRE also says:  "The Brisbane market is quite challenging at the moment, but my view is we are at the bottom of the market."

Metro Property

Metro Property, owned by Pearls from India, David Devine and Ken Woodley (who lives in a Mirvac apartment), will soon launch The Plaza at South Brisbane.  It is a ten story building located on Manning Street, with 165 small apartments.

Metro have sold their 37 Mayne Road development in Bowen Hills.  The rumour is that it was sold to Arden Property Group.

In other news, there is a rumour that Devine/Leighton (no longer associated with David Devine) has sold its Camelot site on the corner of Albert Street and Margaret Street.

Show Ground Hill

Lend Lease has commenced marketing its apartment projects at the Bowen Hills Ekka redevelopment site.  See The Green.  There will be five buildings in The Green.  The registration form only refers to 1 or 2 bedroom apartments.

Lease Lease is currently in the process of completing the on-site Sales Centre, located on St Paul’s Terrace, which will showcase both the Showground’s new Master Plan and the apartment options that will be available in The Green. The Sales Centre will be opening for both VIP and Pre-Release appointments in early October 2011.

Oversupply of Apartments in Brisbane, especially Hamilton and Albion

THE number of apartments planned for Brisbane's inner north is the biggest threat to the success of the city's apartment market.

The June quarter report by real estate agent Place Advisory on inner Brisbane's apartment market says new developments planned for this precinct, which includes suburbs such as Bowen Hills through to Hamilton, threaten to create an oversupply in coming months.

Large multi-density communities are being approved almost on a weekly basis, while new mixed-use communities are poised to enter pre-release marketing campaigns before Christmas.

Place Advisory says that if many of these projects are not an overwhelming success, it will add to an already pessimistic local dynamic, ultimately driving away buyers from off-the-plan sales. The success or failure of only a few will affect the wider Brisbane property market in the longer term, it says.

Almost 70 per cent of the unconditional sales during the quarter were priced under $550,000. Only 6 per cent were above $750,000. Total sales were about $136 million, in line with the average total quarterly sales in the past five years.

There were 2144 new residential apartments for sale, or about 27 months' of stock, in inner Brisbane at the end of the financial year.

Of these, 50 per cent were two-bedroom, 33 per cent are one-bedroom apartments, and only 12 per cent three-bedroom configurations.

Place says most of the unconditional sales in the quarter were to interstate or international buyers.

Source: The Australian

Reapfield Sells Maidson Heights

If you are thinking of buying a property in Brisbane, why not ask a property consultant in Singapore. For example, Metro Property Group is marketing its Bowen Hills developments in Singapore through Reapfield. They are even advertising in newspapers. One example, above, is the "iconic" Madison Heights development. I wonder if buyers in Singapore know the track record of David Devine and the actual location in Bowen Hills of the property? As reported in the Courier Mail recently, Bowen Hill has 12 traffic bridges. It is not a place that I would want to spend the night.

The image immediately below, from the Reapfield website, shows the proposed Madison Heights location (yellow line) and Chelsea Apartments proposed location (thin red line). Below that is another view of Bowen Hills - Madison and Chelsea are located approximately behind the red circle titled Inner City Bypass.

Metro Property Group

There is a rumour that David Devine's Metro Property Group is in the process of selling one of its Bowen Hill's projects to another developer.

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".

Ekka Showgrounds To Become Apartment Getto

The 22-hectare showgrounds will be trimmed. Five and a half hectares will be transformed to residential apartments - 2000 across 12 buildings, with 145,000 square metres of commercial office space across six buildings.

Glen Steedman is the project director of Lend Lease's $2.9 billion project. He said the images of the first apartments - around 300 one and two-bedroom apartments with a small number of three-bedroom apartments - would go to the market in August.

Originally these were going to be in 10-storey apartment blocks, but testing of Brisbane's CBD market found a "courtyard" style with six or seven apartments per storey was more appropriate for the designers, architects Cox Rayner. They will now be offered in six five- and six-storey complexes behind the Jubilee Hotel.

Mr Steedman said Lend Lease is convinced these small changes will suit Brisbane's inner-city market.

"One and two-bedroom apartments react best to the demographic that lives in this area; the professionals, the students who want to live close to the city and close to the Valley," he said.

Mr Steedman believes the 1900 to 2000 units that will eventually be built will house just over 3000 permanent residents and around 12,000 people will work in the area.

Source: Brisbane Times