Disclosure of proposed or planned works

Here is a note from a reader, and it is a good reminder to do as many searches as possible and ask questions of as many people as possible before signing a contract for an apartment.

"Here is Winchcombe Place Apartments at 15 Vernon Terrace in Teneriffe (a.k.a. Newstead).  Underpinning of the building is taking place.  The front stairwells that exit to the street were recently underpinned as they had “parted” from the main building with cracks about 40mm in width appearing between the two. 

These photos show the huge cracks at the rear of the building which is currently being underpinned.  Several units in this complex were on the market prior to the work commencing.  I looked at one at an “open” a few months prior to the work commencing and was unaware this work was to occur.  Glad I didn’t buy one and then find this out.

The agent didn’t tell me anything about it when I inspected  the apartment in March 2011.  I’ve since learned a levy had been struck to pay for the underpinning.  I’m not saying the agent was dishonest, perhaps he did not know, only that I was not told. Perhaps I should have asked about proposed or planned works.  Had I made a successful offer, I would not have been very happy to discover this and the extra levy that records show had already been struck at the time of inspection in March. Buyer beware!"

Gold Coast and Soul

Herron Todd White says that the Gold Coast apartment market is still in decline.

It will be interesting to see how many of the Soul apartments actual settle.  Some photos of Jupiter's Soul -- the place looks bare and barren.

Brisbane Sales Volumes

Here are the number of properties sold in the 4000 post code area each year.  This volume includes apartments and houses in the downtown Brisbane area and Spring Hill.  Mostly, it will be apartments.

• 2007 - 1,342 properties sold
• 2008 - 729 properties
• 2009 - 825 properties
• 2010 - 525 properties
• 2011 - year to date reported sales - 254

Buying Off The Plan

If you are buying an apartment off the plan in Queensland, whether in Brisbane or on the coast, you want to make sure that you buy the right apartment for you, at the right price.  At present, there are some great off the plan developments at reasonable prices, and there are others that are not so good or are overpriced. Why buying off the plan, get the right advice first.  Buy the ebook from Amazon Buying An Apartment Off The Plan in Queensland - A Guide For Successful Buying.

Small One Bedroom Apartments

"Many people reject the idea of buying a one-bedroom apartment in the belief they are too small and boxy and might be hard to resell.  If you're in this group of sceptics, it's time to change your thinking.  Shrinking household sizes, a fast-growing population and Australia's housing shortage point to a rolled-gold future for well-located one-bedroom units."

Source: Domain

Apartments Becoming More Popular

Across the country there is generally a wide gap between the price of house and a unit, a factor that is likely to become increasingly attractive to first home buyers and other budget conscious property buyers.

Housing affordability remains a topical issue across most housing markets around Australia and many prospective home buyers are looking to minimise their debt by either purchasing a house in the outer fringes of the city or choosing an apartment located closer to the city.  Both options have their pros and cons, however units are becoming an increasingly popular option, particularly amongst younger market segments like Gen Y’s and DINKS who like to live close to where they work and play.

Across the other large capital cities (Melbourne, Brisbane, Perth and Adelaide) the price gap between the median house and unit price is much less at around 18%. In dollar value terms that still represents a sizeable price gap; generally around a $70,000 difference and slightly more than $60,000 in Adelaide. Going forward we are likely to see apartments continue to garner a larger share of the market.

Twenty years ago apartments comprised only about 25% of all sales. More recently the proportion of apartment sales peaked at 36% in mid 2009. The fall away since that time is most likely attributable to both a slow down in investor and first home buyer purchases as well as ‘off the plan’ sales yet to settle which do not appear in the figures.

Extract From RP Data Premium Property Pulse 

Currently in Brisbane, apartment sales are 27% of all sales.

Growth Slows in last 5 years

"Over the past ten years capital city home values have increased at an average annual rate of 6.8%, however it has been a tale of two distinct five year periods: the boom times during the first part of the decade and more subdued growth recently. ...

The recent superior performance of units as opposed to houses continues today and is reflective of changing lifestyle patterns. In particular, first home buyers and young professionals are likely to be much more attracted to an inner city unit rather than a house 20 plus kilometres from the city centre, especially if they work centrally and they also work long hours.

Overall the data highlights the impact of the property 2001-2004 ‘property boom’ which has well and truly lifted the annual growth rates across the first half of the decade. The two recent growth phases (ie 2007 calendar year and 2009/2010) were much more sublime compared to the meteoric rate of growth early in the new century. Looking to the future, with housing credit growth constrained and affordability a barrier to market entry, property values are likely to grow at a slower pace and the likelihood of large spikes in value growth over a 12-24 month period as witnessed at times during the past decade is less likely. Basically, property value growth fundamentals are largely returning to normal conditions after being abnormal for much of the last decade. "

Source: RP Data

Off The Plan The Tips and Traps

See this article about buying off the plan apartments:

Seven traps for unwary off-the-plan buyers

What Are Valuers Saying About Brisbane

A report from Herron Todd White this month, that is well worth reading. I have seen real estate agents email the positive parts of this to their mailing lists, leaving out the negatives! With that said, some extracts, but read the full report on the HTW.com.au website.

"So our broad brush call is: Over the past six to twelve months, most markets in SEQ have seen a 5% to 10% fall, or at best remained steady, depending on the sector.

The inner and near city semi prestige and prestige sectors have shown some pain. These are usually stalwart markets with little that can dampen buyer enthusiasm but there are some higher end vendors who are obviously smarting and willing to meet the market as a quickly as possible.

For example: 16 McDonald St Gordon Park – purchased Feb 2008 for $1.022M. Reported recent sale May 2011 $950,000.

It’s also worth noting that our people on the ground are reporting with regular and frightening monotony on a raft of other resales we can’t quote here. Most are showing the magic 5% to 10% fall although some are bucking the trend and dropping further.

For real hurt, look no further than the affordable investor/ first home owner market in areas such as the western corridor. This sector has taken a hit as interest rate rises put fear in the hearts of those who are borrowing on the edge. Inala and Redbank Plains are finding serious and regular falls of 20% on prices achieved twelve months to two years ago. One of our team believes we are back to the early 2007 market in some areas.

If you’re looking for something safe, your best bet right now is an inner suburb traditional cottage. Who would have thougth during the heady days of late 2007 and early 2008 you would be able to pick something up in prestige Paddington for well under $600,000 come mid 2011. This is blue chip real estate my friends, and its selling at prices not seen since early 2007.

High end units in the city have also copped a hiding. A number of resales reported in the very desirable Riparian building for example are a testament to a slow slow market. There were a few buyers who bought off the plan here and looked to have made a handsome profit on completion of this landmark building. Unfortunately for those that held on and are now desperate to sell, the bad news is that they may have lost that upside and then some. As they say, no one ever made a loss selling at a profit.

The flat line performer in the CBD (i.e. read “winner”) seems to be the well located investor end one bedders. Whilst capital growth for this stock has never been glamorous, a ready and eager supply of tenants mostly in the form of overseas students means these properties have been relatively painless in the downswing.

Mid ring property has been having its ups and downs. Family homes here had, until recently, been fairly solid but a few recent sales are now showing buyers are less enthusiastic. Finally, large scale outer suburb projects are also on the wane. Two recent examples from north lakes in Brisbane’s north include:

1 Willandra Pde - Sold in May 2010 for $575,000. now under contract but not unconditional at the time of writing for $530,000. Interestingly the owners also put in a 36 sqm Bali Hut and timber deck since their original purchase.

20 Forrestal Cct - Sold in Feb 2009 for $780k, only to be resold April 2011 for $708k. A very nice house according to our man on the scene.

I know, I know, it all reads doom and gloom and it can be too easy to blame the examples on the conservative valuers peddling bad news, but this just isn’t the case. Our city has had a pretty good run in the property game since 2001 but the soft times are well and truly upon us. While some of our valuers are reporting a trickle of first home buyers back into the market, a serious trend has not yet emerged. On the plus side, our property market is presenting some seriously good opportunities for the cashed up buyer so Brisbane is well worth a look."

Apartment Starts and Sales Drop

THE latest data from the Australian Bureau of Statistics shows a worrying trend for apartment developers with commencement of new product down almost 13 per cent in the last 12 months.

The downward trend for apartment starts and sales comes as Queensland makes history by becoming the worst state for mortgage defaults. Two per cent of Queensland mortgage holders are in arrears, according to Fitch Ratings – with Logan city rated the worst district in Australia for ‘mortgage delinquency’.

See Brisbane Business News and Brisbane Times

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

Lower Demand Eases Apartment Market

REIQ Press Release:

The Queensland unit and townhouse market has not been immune from this year’s natural disasters and patchy economic conditions, according to the Real Estate Institute of Queensland (REIQ). According to the REIQ’s March quarter Queensland Market Monitor report, median unit and townhouse prices eased across much of South East Queensland during the first three months of 2011.

While a number of regional centres bucked this trend to record positive growth, this was mainly due to the construction of new unit or townhouse developments, or the sale of more expensive existing stock, in these areas over the period. The number of preliminary unit and townhouse sales in Queensland decreased 15 per cent over the March quarter.

“The unit and townhouse market has been impacted by lower numbers of first home buyers and investors, who are the type of buyers usually the most interested in this more affordable segment of the market,” REIQ chairman Pamela Bennett said.

“First home buyers continue to languish at about 15 per cent of the Queensland residential property market, while investors appear to have adopted a wait-and-see approach until a clearer picture emerges on interest rates and the economy. The prestige market is also struggling with the number of preliminary sales of units and townhouses for more than $1 million across Queensland dropping about 40 per cent compared to the December quarter. “

The median unit and townhouse price in Brisbane eased 1.4 per cent to $395,000 over the quarter. On the Gold and Sunshine coasts, the median unit price decreased 2.7 per cent to $355,000 and 2.1 per cent to $350,000 respectively.

“REIQ agents continue to report a significant drop in demand compared to the same period last year, but this is creating wonderful opportunities for buyers with many sellers having to be very realistic about what price they can achieve in the current conditions if they want to make a sale,” Ms Bennett said.

Circa Nundah

A new multi-building apartment development at Nundah, called Circa, is currently being marketed. A colourful brochure has been produced. All up, the 2.5ha Circa Nundah will have 309 apartments, 13,000 sqm of office space and 6500 sqm of retail.

According to the AFR (9 June 2011), in the past three weeks, the marketing has attracted initial holding deposits from 50 potential buyers.

A two bedroom apartment (75 sqm internal, total 93 sqm) is listed at $535,000.

A small two bedroom apartment (70 sqm internal, 30 sqm balcony) is listed at $585,000, which seems to be incredibly expensive for a tiny apartment in Nundah. I would reckon $100,000 less and it may be in the right ballpark.

Valuer's View

Valuers Herron Todd White's recent report says that, for the apartment market, the Brisbane market and the Sunshine Coast markets are both at the bottom of the market, whereas the Gold Coast market is still declining.

Heavy Discounting on the Gold Coast

"Heavy discounting has helped the previously stalled Gold Coast apartment market move up a gear with several projects finally selling out of stock after languishing on the market. ... the lower prices were giving buyers who knew the market confidence to purchase with the belief that value would return at some stage."

Source: AFR, "Gold Coast units sell, but at a price", page 52 (31 May 2011).

Too Many Apartments

"According to Place research analyst Lachlan Walker, there were 2015 apartments available for sale off the plan at the end of the March quarter, the equivalent of about two years' supply given current sale rates.

There also are another 2000 off-the-plan apartments that could potentially be put on the market by the end of the year.

Mr Walker said the first three months of the year had been challenging for all types of residential property."

See Courier Mail: Unit Supply Hits New Heights

One or Two Bedrooms?

I am often asked by potential property investors is it better, all things being equal, to purchase a one bedroom or two bedroom apartment? There is no absolute answer to this, but my preference is for two bedroom apartments.

The main reason is that there are more likely buyers for two bedroom apartments. A one bedroom apartment is good for a divorced father, a widow, a rich foreign student or a lonely yuppie. A two bedroom apartment is better for a newly married couple, a young family, a divorced mother with children or a retired couple.

When it comes to renting, a good two bedroom apartment often rents faster. One reason is that if the apartment is well designed, it rents to single younger people who share.

Consider the maths. A one bedroom apartment rents for $400. In the same complex, a two bedroom two bathroom apartment rents for $520. So if two people share the rent, they only pay $260 each.

It is important to focus on a good layout for a two bedroom.

• It should have two bathrooms. If it only has one bathroom, it is not so good to share. Often, a two bed one bath apartment is really a one bed plus study apartment.
• The second bedroom should be near the bathroom. It is not good if you have to walk through the living room to get to the bathroom.
• The bedrooms should be separated and have privacy.
• Both bedrooms should have external windows. A window onto a hallway does not count.
• Ideally, both bedrooms should be a reasonable size. Anything less than 3.2m x 3.1m for a bedroom (not including the wardrobe) is too small in my view. It is best if the smallest room is no less than 3.4m x 3.2 m. The main bedroom should have a wall that is at least 4m.
• There should be room for a desk in both bedrooms.

Also, some one bedrooms are left-overs -- an apartment that could have been a two bedroom apartment, except that the developer need room for a lift or fire escape, so the second bedroom disappeared.

Below is an example of a good two bedroom design. The apartment is 92 sqm internal, plus balcony. Both bedrooms are more than 12 sqm each.

Here is an example of a bad two bedroom design. Although the bedrooms are separated, look where the second bathroom is located.

Additionally, on a price per sqm basis, a one bedroom apartment is often more expensive than a two bedroom apartment in the same complex. That premium is not worth it.

Apartment Prices Level with Houses

Terry Ryder published an opinion piece in The Australian today. Some extracts:

"THE planets are falling into alignment for property investors at present. We not only have a buyers' market in many key locations, but the scenario for rents and yields looks positive.

Two reports from credible research sources record a revival in rental growth in most of our major cities and predict solid rises throughout the year. "Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first-home buyer market," said APM's senior economist Andrew Wilson. Units in particular have seen a major shift in demand, with low vacancy rates for inner-city residences in most capital cities intensifying competition.

It has long been a basic tenet that houses show better capital growth than apartments, but changing lifestyle choices and affordability issues mean more households are opting to live in attached dwellings.

Last year, units showed slightly better capital growth than houses in terms of average growth across the nation, according to RP Data figures. ...

The 4 per cent average growth for dwelling rents recorded by Matusik Property Insights in the past year is very moderate - about half the historic annual rise in rents - and inconsistent with notions of a chronic dwelling shortage (as claimed by the developer lobby).

Matusik says vacancy rates drive rental growth and a general increase in vacancy rates in 2009 and much of last year caused rental growth to stall. Rental growth is now starting to return, he says, with a recent drop in vacancies.

"A falling vacancy rate is likely to put further pressure on weekly rents," Matusik says. "Rises of between 5 and 8 per cent during calendar 2011 are not out of the question.

"This in turn should lead to an increase in property values."

Top End Brisbane Apartments

Here is a story about Scott Street Apartments and Aquila New Farm in The Australian. They do not seem to be selling fast.

REIQ Queensland Unit Report

"The Queensland unit and townhouse market held its ground over the December quarter last year, even as the number of investors and first home buyers remained relatively subdued.

Completing a trend throughout 2010, the last three months of the year were characterised by lower overall buyer demand, particularly from the type of buyers who typically target the unit market.

Similar to the house market over the December quarter, Real Estate Institute of Queensland (REIQ) figures show unit sales across the State easing over the quarter however some regions fared better than others.

“The unit and townhouse market at the end of last year was impacted by less overall demand from investors as well as the lower number of first home buyers in the market compared to the same period in 2009,” REIQ acting CEO Ian Murray said.

“Although we have experienced a number of natural disasters in Queensland in the beginning of 2011, it is hoped that the steady interest rate environment and the stable property pricing that now appear to be in play will result in a strengthening unit and townhouse market by year’s end.”

...

In Brisbane and surrounds broadly, a drop in the number of unit and townhouse sales occurred predominantly within the $350,000 to $500,000 price bracket which is the price range usually targeted by first-timers and investors.

The inner city continues to be the most sought after for units in Brisbane with Brisbane City recording 76 preliminary sales, New Farm recording 48 preliminary sales, and Fortitude Valley recording 33 over the period.

Over the December quarter on the Gold Coast it was the bottom and top end of the market that performed the best with preliminary sales increasing in the sub $250,000 price bracket and the $1 million-plus price bracket compared to the September quarter. Surfers Paradise and Broadbeach were the star performers with each recording 20 more preliminary sales than the previous quarter.

On the Sunshine Coast, Sunshine Beach and Caloundra recorded increases in preliminary sales numbers, while the region as a whole saw unit sales numbers hold steady."