Brisbane Apartment Glut, then Crash

Queensland University of Technology property economist, Professor Chris Eves, has warned a glut in apartments in Brisbane's CBD, South Brisbane and West End would cause a price crash for apartments in 2016.

"I know of one construction company [Hutchinson] that currently has contracts out for 3000 units in those locations and basically when you are looking at those sorts of numbers, you are looking at a serious oversupply, he said.

Professor Eves said research showed there had been a 9% increase in the number of approvals for apartments in inner-city Brisbane in the past year.

"But we are not seeing the same sort of increase in the population," he said.

The crash will hurt major developers, off-the-plan buyers and some banks, but deliver a bonanza for renters and buyers.

"If we see those approval numbers continue, we are looking at the potential of another Gold Coast/Sunshine Coast glut in the unit market."  

He said the glut in Brisbane CBD, South Brisbane and West End apartments would peak in 2016, causing prices to drop sharply.

See Brisbane Times

Rental Yields Decreasing as Prices Increase

From RP Data CoreLogic:

"CoreLogic RP Data February Home Value Index results released today showed that Australia’s combined capital cities have seen dwelling values rise by a further 0.3 per cent in February taking home values 8.3 per cent higher over the past twelve months.

According to CoreLogic RP Data head of research Tim Lawless, dwelling values continued their upwards trajectory over the month of February by recording a 0.3 per cent gain over the month. This now takes combined capital city dwelling values 2.5 per cent higher over the rolling quarter and 8.3 per cent higher over the twelve months to the end of February.

Over the past twelve months the CoreLogic RP Data Index shows dwelling values across the eight capital city aggregate index are up 8.3 per cent. Sydney is once again the clear standout with dwelling values 13.7 per cent higher while Melbourne values are 7.4 per cent higher. Australia’s third largest city, Brisbane, recorded the third highest rate of annual capital gain with dwelling values up 5.9 per cent. In contrast, dwelling values have increased by less than four per cent in every other capital city over the year.

Evidence of compressed rental yields is continuing across each of the capital city markets. A year ago the gross rental yield for a capital city dwelling was averaging 4.3 per cent; by the end of February the typical gross yield has been eroded down to just 3.7 per cent - due largely to the consistent high rate of dwelling value growth relative to rental growth."

Brisbane apartment prices (to 28 February 2015):

February 2015 - up 0.5%

Quarter - down 2.3%

Year to Date - up 0.3%
Year on Year - up 0.5%
Median price based on settled sales of Brisbane apartments over the quarter - $385,000

So, Brisbane apartment prices over the past year have barely increased, and increased much less than detached houses in Brisbane.  Brisbane is still under performing compared with Sydney and Melbourne.  And if you purchased at the peak of the market in about 2008, you would still be well underwater.

Rental Report

RP Data has recently released its quarterly rental review.  It shows that Brisbane apartment rents are flat.  My sources tell me that rents are declining.

• Vacancy rates are longer.  My rough rule of thumb is that for every week a property is vacant, that is approximately $10 a week off the rent for a one year period.
• Rental periods (e.g. 1 year, 6 months) are tending to be shorter, with tenants turning over more often
• Actual rents are flat, or decreasing slightly.
• New apartment buildings that have many empty apartments are offering rent free periods, which in effect is a rent reduction.  For example, if the weekly rent is $500 a week, but the landlord offers four weeks for free, then the effective rent for the year is $461 a week.  But the RP Data report will show the rent as $500 a week.

Large number of off-the-plan apartments being marketed in Brisbane

There are a large number of new apartments being marketed by developers in Brisbane at present.  Buyers beware!  Here is a list of just some of them.

Cinque at Kelvin Grove
FV in the Valley (Flatiron Valley?)
Light and Co at West End
CP Residences at Indooroopilly (Central Park Residences)
Arbor at West End
The Highgate at Highgate Hill
Mode at Newstead
Unison at Newstead
Rivers Edge at Breakfast Creek
Habitat West End
Citro at West End
Abian Skyhomes on Alice Street
Spire in the City
Grace on Coronation at Toowong
Boggo Road
The Hudson, at Albion
Spice Apartments, South Brisbane
The Milton
Skyring at Newstead
Newstead Towers
Broadway on Ann in the Valley
Central Village, the Valley
New World Towers in South Brisbane
Riverview Towers at Kangaroo Point
South Point in South Brisbane
Liberte, Kangaroo Point
Yungaba, Kangaroo Point
Hamilton Reach
Proximity Hamilton
Canopy at Bardon
Circa at Nundah
Basse at South Brisbane
Hope Street at South Brisbane
Soda at South Brisbane
Botanica at South Brisbane
Jade at Albion
OneBrisbane at Bowen Hills
The Yards at Bowen Hills
Keynote at West End
River Le at West End
Art House at South Brisbane
Opera at South Brisbane
Hercules at Hamilton

Brisbane still under performs

RP Data reports that the Brisbane property market has under performed the combined capitals average since 2008 but is gathering some momentum.

Place Apartment Report

Place has released its June quarter Inner Brisbane Apartment Report.  Place also has a property blog.

Brisbane Apartment Prices Down Slightly in August

From RP Data's months report for August 2014:

According to today’s results, with rental rates rising at a slower pace than dwelling values RP Data expects to see a compression in rental yields across each of the capital cities. The only regions where yields have moved higher over the past 12 months have been across the Adelaide and Hobart apartment markets.

Across the combined capital cities, the typical gross yield on a house has reduced from 4.1 per cent to 3.7 per cent over the past twelve months. Mr Lawless said the most significant yield compression is taking place in Sydney and Melbourne.

Investors are currently comprising their largest proportion of new mortgage commitments since late 2003. In fact, investor loan commitments have accounted for more than 38 per cent of all mortgage lending for nine consecutive months, the longest period ever that investment lending has held above that level.

“Investors are mostly concentrated across the Sydney and Melbourne apartment markets where capital gains have been strong but yields have been pushed very low. Potentially there are better investment returns to be had in the smaller capital cities where the growth trend is less mature and yields are also healthier.” Mr Lawless said.

Brisbane apartment prices (to 31 August 2014):

August 2014 - down 0.5%

Quarter - up 1.6%

Year to Date - up 2.6%
Year on Year - up 5.6%
Median price based on settled sales of Brisbane apartments over the quarter - $389,250

When should I buy? When should I sell?

The Brisbane inner city apartment market is somewhat strange at present.  Some points to note:

• I mentioned in a recent post that there were fewer apartments listed for sale than in recent times.  That is the case for resales of existing apartments.
• There is a large potential increase in the number of inner city apartments, due to a large number of high rise apartments being developed.
• With spring, more apartment owners are likely to list their apartments for sale.
• Rents are down, vacancy rates are up.
• Sydney and Melbourne are or have boomed.  Brisbane has not.  It is still behind its peak 5 years ago.
• Future capital growth is uncertain, but apartments are currently selling at good prices due to lack of stock available and low interest rates.
• My prediction is that in 3 months time, prices will decrease slightly.  So now may be a good time to sell, but an uncertain time to buy.

High-rise Brisbane

A newspaper article by Matusik in the Courier Mail today reflected on potential changes to the Brisbane inner city apartment market:

"Brisbane is set for an increase in the supply of new inner-city digs.  Brisbane could well face an oversupply of downtown apartment stock.  And that increase in stock might more resemble a tsunami in terms of its impart on the market and potential investment outcomes.

For the past five years, the Brisbane market has been undersupplied, with an underlying demand of about 9000 new dwellings across Brisbane.  However, when we break down future demand by market segment, going rental demand (those who occupy a significant percentage of inner-city apartments) appears likely to fall.  And Brisbane's future demand will more likely be deriven by the increasing downs and retirement markets.  Those folk are, for the main, not enticed by large, high-rise complexes.

Rents are down, the vacancy rate is increasing and some resales in recently completed inner-city apartment buildings are already selling for losses.

Currently, the vacancy rate in Brisbane city is 4.2%.  Two years ago it was 1.2%.

And there are now 276 properties (as at June) for rent in Brisbane/Spring Hill, compared with just 48 two years ago.  For the first time in five years, rents have fallen."

Limited Stock Available for Sale

In Brisbane (and also the Sunshine Coast), there are a limited number of apartments listed for sale by owners (excluding off the plan and developer sales).  Some agents are saying (for the first time in years) that there are more buyers than sellers for apartments.  In some suburbs, there are very few apartments listed for sale, and in some larger buildings, there are no listings at all.  That being said, prices are up, but not dramatically.

One could conclude that:

• owners don't think it is a good time to sell
• owners believe that prices will rise soon, following on from the trends in Melbourne and Sydney
• owners are still underwater, and don't want to sell at a loss, and so are waiting for further price increases before selling
• interest rates are low, and so holding costs are low -- why sell a cash flow positive property?
• Brisbane is a good long term investment
• buyers believe that the Brisbane market will improve
• off the plan developments are overpriced, and so buyers are looking at existing apartments, which are better value

Place Apartment Report

Place has published their "Current Market Report - Inner Brisbane Apartments - March Quarter 2014".  Link is here.

The report focuses on new, off-the-plan apartment developments, and is worth reading.  Many people say that there soon will be an oversupply of apartments in Brisbane.  At present, it is taking longer to rent out apartments, so maybe the glut is already here.  Maybe there will be an oversupply of smaller rental apartments and an undersupply of apartments for owner-occupiers?

Some highlights from the report:

• The three months to March 2014 recorded 639 unconditional sales. Although this is not to the same level of transactions as the record breaking December Quarter prior, this is still almost twice the 10 year average of 326 unconditional sales per quarter.
• A weighted average of $710,524 was recorded during the March 2014 quarter. This is a figure 30% above the December period previously and representative of a higher level of owner occupier sales recorded in Inner Brisbane as opposed to any genuine price growth.
• The increase in local buyers has seen 52% of transactions recorded as two bedroom configurations.
• Despite this weighted average price rise, the 12 month rolling average price remains under $600,000, reflecting an overall longer term demand for affordable inner city apartments.
• One bedroom sales represented a further 40% of the quarter’s transactions, again the bulk of which transacted within the $350,000 and $450,000 price point.
• The distribution by price point was more evenly spread through the first quarter of 2014. The $350,000 to $450,000 price point still however retained the market share with 26% of the quarter’s sales.
• There were 1,225 apartments remaining for sale in Inner Brisbane at the end of the March 2014 quarter – The lowest level in 4 years.
• Overall, two bedroom apartments maintain the majority of current supply within Brisbane equating to 58% of the apartments remaining on the market. One bedroom apartments total only 29% of the available apartments for sale, and 3 beds represent only 9%.
• There were six new projects which recorded unconditional sales during the March 2014 quarter. These included Abian (CBD), Proximity (Hamilton), 38 High Street (Toowong).
• The best performing projects in Brisbane during the quarter were Abian (108 transactions), Broadway on Anne (58 transactions), Southpoint (46 transactions), Proximity (45 transactions), and 38 High Street (44 transactions).

April Index Results from RP Data

Brisbane apartment prices (to 30 April 2014):

April 2014 - up 1.9%

Quarter - up 1.4%
Year on Year - up 2.8%
Median price based on settled sales of Brisbane apartments over the quarter - $382,750.

Brothel in your building

There is an interesting article in Domain regarding a Sydney apartment building that became home to a brothel.  In Brisbane, a number of inner city apartment buildings are used by travelling escorts on a regular basis to see their customers.  Some of the escorts are Eastern European, posing as tourists.  Many are from Australia or NZ.  An example list of visiting tourists is here.

Based on the informal surveys I have done, the preferred Brisbane apartment buildings for travelling escorts are [X ]and [Y].  M on Mary is also popular.

If you reside in one of these buildings, you may find that your neighbour for a week is a busy busty blonde from Prague with many male friends.

For reference,  an old Commissioner's decision on this topic is here.

Update on May 8, 2014:

The blog received a letter of demand from a management rights owner, threatening a lawsuit.  As a result, the names of two buildings have been deleted from this post at the present time.  Before buying or renting in an inner-city apartment building, it is recommended to conduct appropriate investigations.

Brisbane Apartment Prices Going Backwards

Don't let real estate agents or the News Corporation press (including realestate.com.au) hoodwink you.  The Brisbane apartment market is not booming.  In fact, it is going backwards.  Compared with inflation, not great capital gains.  If you bought at the peak, you are still 5% below, not taking into account stamp duty and real estate agent fees for selling.  So ignore the headlines and look at the detailed actual results (that is, Brisbane apartment prices, and not Australian housing in general or Brisbane house prices).

From RP Data:

"After a flat February result, the RP Data – Rismark Home Value Index finished the March quarter in a strong fashion with dwelling values rising 2.3 per cent over the month to post a 3.5 per cent capital gain over the first quarter of the year. Apart from Perth, every capital city recorded a rise in dwelling values over the past three months. Melbourne posted the highest level of growth at 5.4 per cent over the quarter with Sydney and Hobart also recording a strong result in the March quarter with values up 4.4 per cent and 4.7 per cent respectively.

According to RP Data research director Tim Lawless, half of all Australia’s capital cities are now posting record high dwelling values, with Sydney’s housing market showing the most substantial increase beyond its previous market high."

Brisbane apartment prices (to 31 March 2014):

March 2014 - down 0.7%

Quarter - up 0.3%
Year on Year - up 1.7%
Year to Date - up 0.3%
Median price based on settled sales of Brisbane apartments over the quarter - $368,000.

Time to Buy or Sell in Brisbane?

A Brisbane real estate agent, Brad Munro from Position Property, has released a newsletter that states that the Brisbane market is booming.  He specialises in inner ring apartments.  He states "From 6th January of this year, we have seen the market explode!"  Brad then goes on to say that 5000 new apartments located within a 5km radius of the Brisbane CBD are expected to be completed in the next two years, and so there may be an oversupply of apartments, and more sellers than buyers.  Then, he concludes:  "Overall, the long term outlook for the property market in Brisbane looks good, however if you were looking at selling your property over the next 2 or 3 years, the next 3 to 4 months is, in my opinion, the best time to be doing this.  The less competition (other properties for sale) you have, the better the sale price will be, without question."

What this means to me is that now is not a good time to be buying, but wait a little while, and you may do better.

Or another view is that agents always tell property owners that now is the time to sell.

REIQ reports improving market for apartments in last quarter of 2013

The median price of units and townhouses across South East Queensland grew over the December quarter, according to the Real Estate Institute of Queensland (REIQ).

The REIQ’s latest Queensland Market Monitor (QMM), released 28 February 2014, also found the preliminary numbers of unit sales increased six per cent over the year.

REIQ CEO Anton Kardash said the unit market was continuing to improve in-line with the house sales market – albeit centred around the southeast corner.

“A key difference between the Queensland house and unit markets is that predominantly the lion’s share of these types of properties are located in the southeast as that is where demand for housing is the greatest,’ he said.

“In fact, demand for units in Brisbane has resulted in record numbers of off-the-plan sales lately. According to recently-released research, more than 1,000 new apartment sales were transacted in the December quarter – the highest level since 2002.”

Click on chart to make bigger:

The most sales where in the Brisbane CBD, followed by New Farm, Nundah and St Lucia.

The largest one year change to the median price were in Wynnum West, Highgate Hill, Windsor and Paddington.  The worst performing suburbs were Northgate and Kedron.

New or Resale?

I am often asked whether it is better to buy a new or resale apartment?  A new apartment can be unsold developer stock in a new building or an off-the-plan apartment for a building not yet built.  A resale is a sale from someone other than the original developer.

There is a price difference between a new and resale apartment in Brisbane.  Sometimes, this is because a new apartment is new, with no wear and tear (e.g., freshly painted, new carpet, new kitchen, new appliances, etc).  But often, the price difference is not explained by newness.  Sometimes, the price difference is due to developer profit and marketing costs.

For example, Sunland is currently marketing Abian.  A large number of people I know have received a fancy brochure mailed to them, unsolicited, by Sunland.  There is an expensive display office onsite in Alice Street, where the landscaping alone would have cost a small fortune.  There is a video of a lost rich girl wandering around Brisbane, that does a good job not showing the neighbouring Quay West building.  Buyers are paying for all these marketing costs, plus the developers profits.

Another example is Infinity, by Meriton.  2 bedrooms, 2 bathrooms, 89 sqm in total, no balcony, 7 apartments per floor, short stay and hotel guests, for $647,000 and up!

Or you can buy an apartment in Metro 21, on level 25, with river views, a large balcony, 2 bedrooms, 3 bathrooms, 113 sqm total floor area, 4 apartments per floor, no short term rentals or hotel guests.  For a price less than a Meriton apartment.   Metro 21 is a boutique residential building, with good facility, and a low ratio of residents to facilities.  Seems like an obvious decision to me.

That is $7,269 per sqm compared with less than $5,700 per sqm.

A valuer's view of Brisbane

From the HTW Month in Review for February 2014:

"... Brisbane is often touted as the next most likely to move after Sydney and Melbourne, and there’s no denying that some of these southern states saw a boom run on many suburban market as 2013 drew to a close.  In the field, agents are telling us that things are looking good. There have been multiple lookers at open homes and some auctions are jagging prices above vendor expectation. The pick locations are, and have always been, close to the CBD. The old story of limited supply and good quality stock plus comparatively high demand mean that as long as you’re appropriately priced, there is definitely a buyer or two out there for your property."

Brisbane Apartment Market is picking up

The above information has been provided by RP Data.

Interstate Property Buyers

The AFR had a story on page 3 on Wednesday this week: "Interstate property buyers see value in northern exposure."  Some extracts:

• Investors from Sydney and Melbourne are flocking to Brisbane's apartment market seeking better value for money after being pushed out of increasingly expensive southern cities.
• Brisbane developer Silverstone Developments reports that 72% of off-the-plan sales in its Vertice project at Dutton Park were sold in interstate buyers.
• Other developers are all reporting surging interest from interstate buyers.
• Mirvac's chief executive for residential said there was an upswing in sales of quality Brisbane properties to interstate investors due to the low rental vacancy rates and increasing rental yields in prime locations across Brisbane, as well as the price differential between Brisbane and those in southern states.
• Since 2007, the gap in prices between Brisbane and Melbourne/Sydney has slowly opened up again.
• Further interest in Brisbane will be contingent upon how may jobs the south-east of the state creates.
• There is a lot more value for money in the Brisbane market, according to Metro Property Group.