Cheapest Units within 10 km of Brisbane downtown

RP Data released a report today, showing the suburbs with the lowest median price for units within 10km of Brisbane's city centre.  The results are here and here.  The three cheapest suburbs were:

• Chelmer
• Zillmere
• Kedron

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.

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.

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

Postcode 4000

Source:  RP Data: Brisbane City and Spring Hill Postcode 4000

Leaving Brisbane

Many young adults live in apartments in Brisbane.  But many want to leave.  Brisbane is expensive, and is not yet a first tier city.  I like Campbell Newman's new motto for Brisbane that sums things up:  "Brisbane -- It could be worse!"  As recently reported in England:

"But the Queensland capital’s younger residents are voting with their feet, seemingly unconvinced it is worthy of global renown."  See The Guardian

I bet no real estate agent in Brisbane will be distributing this RP Data chart.  Brisbane is more than 10% below the most recent peak, and has been a poor property performer.

Brisbane Property Prices

RP Data reports that Brisbane property prices are increasing, but looking back five years, the annual change in capital values is still negative.  That means, on average, a person who purchased five years ago has made a capital loss in Brisbane.

Property Sales in Brisbane

RP Data reports that the number of sales of houses and apartments in Brisbane is more than 15% below the rolling five year average.  The number of sales is slowing increasing.

REIQ reports that apartment demand is increasing

Sales of units and townhouses across Queensland have strengthened further over the last year, according to the latest Real Estate Institute of Queensland (REIQ) data report.  Over the March quarter, the preliminary numbers of unit sales in Queensland increased by 2 per cent compared to the same period last year.

But it is sales in our major tourism centres of Cairns and the Gold and Sunshine coasts that are the real story with sales sky-rocketing over the past year in these areas.

“The popularity of units and townhouses in our major tourist precincts has returned,” REIQ CEO Anton Kardash said.  “These areas have experienced the highs and lows of the GFC, and the strength of the Aussie dollar, more than most over the past four years so it is heartening to see them stepping back into the light.  Many of these areas have also become more affordable, even those with unique seaside locations, so this is no doubt spurring buyers into action before the tide has turned to the positive completely.” 

In Brisbane, the median unit price was steady at $390,000 over the March quarter. Solid performers over the period were Upper Mount Gravatt and Kelvin Grove which posted price growth of 9.6 per cent and 8.8 per cent respectively. 

[Click on chart to enlarge]

Brisbane Rental Report

Brisbane Letting Agent RBCX has issued the following rental report for Brisbane City and inner Brisbane:

"The CBD market seems to be like no other.  Apart from short periods here and there, the demand for rental properties in the CBD is very strong.  There may not be the 20+ attendees at every ‘Open Inspection’, but there are generally eight to 10 interested parties.

The rental demand is strong for units up to $800 per week – and this includes furnished units.  Above that level, the market shrinks significantly and vacancy periods can be three to four weeks+, unless the property is new and/or modern, with fixtures, fittings and décor to match. River and City views are essential.

The CBD buildings that experience less demand are those that offer short-term letting, as well as long- term residential. These buildings can be very noisy with a pervasive party atmosphere.

The Inner-City market is not faring as well as the CBD market.

In the last quarter of 2012, the rental market tightened markedly with the first signs of the downturn in the Resources Sector. There has been further erosion to rents in 2013.  There are many reasons why the rental market is flat and rents have contracted: the gradual 2012 exodus of Corporate tenants, who were the bread-and-butter of Inner-City rentals, gained momentum. In some areas, they have almost disappeared from the rental landscape; the announcement of the Federal election almost six months out from 14 September 2013 has seen many businesses go into semi-hibernation; job shedding in the Public Service market; the fallout from a Resources Sector seemingly in increasing decline; job insecurity; rising unemployment due to a flat economy; and loss of consumer confidence.

Also, many people who were Inner-City tenants have moved to the suburbs. They are prepared to sacrifice proximity to the city for more affordable rents. This trend is increasing with properties, particularly houses within 10 kms of the CBD being in heavy demand.

Our experience is the Inner-city renter wants everything within walking distance: transport, shopping, entertainment. They do not want to have to drive to services, facilities, infrastructure and entertainment precincts.  There is also a great deal more competition from new developments in the Inner-City areas, including Kangaroo Point, Teneriffe and New Farm. New building stock with all the aforementioned criteria is offered at rents below those of older, established buildings. New buildings with trendy, contemporary interiors and more attractive rents are appealing to the sought-after Corporate market, as well as private renters."

Brisbane Under-performs

Recent charts from RP Data show that Brisbane is under performing compared to the other Australian capital cities.  Does this mean that a boom is coming for Brisbane houses and apartments?  Interest rates are currently low, but long term, there is a significant risk of inflation.  So what does that mean for Brisbane apartment prices?

Time on Market in Brisbane

Brisbane still has a very high "time on market" for apartments.  On average, 80 days to sell from first listing.  This is about double what it should be, and shows that the market is still stuggling.  Chart from RP Data.

More Sales in Brisbane

The Past Year

RP Data reports that Brisbane property prices have increased at a rate of 2.3% over the past year.  This is not keeping up with inflation.

Investing in Apartments

I have read a number of property books and property blogs recently relating to investing in apartments, and this is a summary of what I have read:

1.  The closer the apartment is to the GPO, the more desirable the apartment will be to renters and buyers.

2.  As a secondary factor, being located near to a rail station, bus way, ferry terminal, University or hospital is also desirable.

3.  The internal size of the apartment matters.  A larger apartment will be more desirable than a smaller apartment of the same configuration.

4.  The number of bathrooms has greater weight in determining value than the number of bedrooms.

5.  Internal layout and design is important.  Does the apartment have good natural light, significant external windows in all rooms, good storage and a good feel?

6. Property values go up and go down.  Property is not a risk free investment.  The whole market may change.  Or the value of property in a particular location may change differently to the market as a whole.  Or the value of a particular apartment may change in the opposite direction to the market (for example, if a building is built nearby that blocks out views.)

7. Employment has a greater weight in determining value and market movement than interest rate changes.

8.  A vacation property or short term rental property is a more risky investment than a CBD or near CBD apartment.  However,  pricing of vacation properties does not take into account this extra risk.

9.  Property investment should be for the long term.  Buying with the intention of owning for less than 5 years is risky.  Transactional costs are high, property is an illiquid investment, and capital gains are often small.  On average, over a period of less than 5 years, a property owner is likely to make a capital loss not a gain.

10.  Financially, for many people, renting is better than buying.  It is also easier to move to where jobs are located if you are not tied to a property.

11.  No one can predict the future.  Many predictions made in the past about property investment have been wrong.  Relying on the advice and predictions of "experts" does not guarantee success.  (Similarly, no one can predict future demand, future interest rates, future unemployment rates, etc.)

12.  Many "independent experts" are not in fact independent.  And many are not experts.  Many say the same thing each year, regardless of the market.  ("It is better to do something than nothing."  "Now is the time to sell."  "Now is the time to buy."  "The property market has bottomed and is on the rise.")

13.  Older apartments are often better value than new apartments. Older apartments are often in better locations and are larger.  When buying from a developer, you are paying for the developer's profit and marketing costs.

14.  There will be future demographic changes as baby boomers retire and die.  This may cause an oversupply of some types of properties or in some areas and an undersupply elsewhere.  But no one really knows what will happen.  (My prediction, for what it is worth, is that older people will prefer apartments to retirement villages where possible, thus creating a greater demand for well located apartments within walking distance of good facilities.  But as mentioned above, many predictions are wrong!)

No Capital Growth for Brisbane Property

As reported by RP Data, on an average annual basis over the past 5 years, Brisbane has not had capital growth in property values.   Taking into account stamp duties and other transactional costs, the losses would be even greater.  It would have been better of investors, on average, to put money in the bank.

Brisbane Real Estate Market Summary

The Brisbane real estate market is still about 10% below its peak.  And sales volumes are still down.  I guess that means that there is room for improvement.

An agent's view on inner city apartment rentals

"There’s now fewer rental homes in our CBD than we had in 2006, according to new data on Brisbane’s housing market. The Residential Tenancies Authority stats for the December quarter show our CBD rental pool shrank yet again.

The RTA track all rental bonds and in Brisbane CBD and Spring Hill the total has reduced by 700 since its 2007 peak. For example for the full year 2012 the rental pool in postcode 4000 grew by a miserly 3 homes, despite the completion of Adelaide Street’s “Soleil Tower” with 464 apartments.

And there’s no large additions to the rental pool on the horizon.  There’s just one big tower under construction in the CBD but it’s a long way from completion. So we’d expect it’s going to be well into 2014 before we see any worthwhile increase in supply.

Despite this we haven’t yet seen any big jumps in rent and 2012 finished with a modest 3% growth in Brisbane’s rents. Our team [at Bees Nees] and other real estate agents are reporting a busy January market and we’re overall optimistic.  But renewing tenants are generally not agreeing to big rent increases and rent affordability remains top of mind. Inner city tenants do often move further out to save money. Landlords are still cautious too and they don’t want to risk a vacant home. So it looks most likely that 2013’s rent rises will be steady.

As a sidenote we often see new apartments being sold off-plan with forecast rents that must have some large increases expected on today’s rents. ‘Ambitious’ might be the polite way to describe some of their estimates. Let’s hope those investors do their homework."

Extract From BeesNees Real Estate Blog

Cheaper to buy than rent

There was a story in the AFR yesterday (page 7) with the headline "Cheaper to buy than rent". However, take care with such stories. First, it is based on a report by a mortgage broker, that wants to encourage people to buy and take out loans. Second, it uses average loan sizes and average rents, and so does not compare apples with apples. Third, it does not take into account rates, water fees, body corporate, stamp duty, maintenance or insurance. The article says that it is $800 a year cheaper to buy in Brisbane, but once these additional costs taken into account, it is clearly cheaper to rent than buy even on these misleading figures.