Luxury Apartment Supply

"The number of three-bedroom luxury apartments to be built in prime suburbs over the next three years is rising in Brisbane" according to the AFR (13 Feb 2020, p 34).

Luxury three bedroom apartments will make up 21% of new apartments built by 2022 "amid growing demand from downsizers and retirees."

Bulimda, Ascot and Hawthorne are areas which will are predicted to get the lion's share of these apartments.

Maybe the demand for 1 bedroom and student accommodation is falling in Brisbane, particularly with the sluggish student demand due to coronavirus.  That makes sense, because small badly designed one bedrooms have a limited market appeal.

I have seen good one bedrooms sold off the plan a few years back now selling for $100,000 less than the off the plan price.  Some developers have unsold stock that they have held for over a year.

Glut of one bedroom apartments?

Many of the new apartment buildings have a large number of small one bedroom apartments, that have been sold to investors.  These investors are hoping to rent them.  In the past, a one bedroom apartment gives a good rental return relative to purchase price.

However, at present, there is a problem.  There are too many one bedroom apartments.  Owner-occupiers prefer two bedroom  (or larger) apartments or houses.  There is less demand for short term rentals at present, where a one bedroom apartment was a good alternative to a hotel room.  And most young Brisbane renters prefer to share and rent large apartments or houses.

Some one bedrooms are sold without a car park, making them even less attractive.  In my view, a one bed with no car that is 60sqm or less in size is worth about $310,000.

If rents go down, which they will, then capital values will fall.

There may be one exception here.  Some of the riverfront older apartments, which have larger apartments (e.g. a one bedroom over 70sqm) seem to be holding up well.  See for example this apartment and this apartment in Admiralty Towers

Buyers Retuning to the Market?

Real estate agents are reporting that buyers are coming back to the market in Brisbane, and that prices achieved are increasing.  For example, two bedroom apartments in higher quality city apartments that, at the height of the boom achieved above $800,000, and then dropped to the mid $600,000 range, are now selling in the $700,000 plus range, and sometimes more.  This includes a two bedroom apartment in Quay West, sold for about $700,000; a two bedroom in Admiralty Towers Two sold above $750,000 and a two bedroom in Saville at Southbank for more than $800,000.  In fact, another two bedroom at Saville is now listed for sale in the $900,000 range.

Investors appear to be returning to the market, due to lower interest rates.  Owner-occuppiers are looking for larger apartments, and there are not many high quality larger apartments available for sale (partly because developers have been focusing on building very small apartments that have been sold to foreign investors).  With interest rates low, many investors who currently own property are not selling, because these properties are now becoming positively geared -- why sell, unless the price offered is high?  There is a shortage of apartments for sale for owner-occuppiers; and a shortage of existing apartments (compared with off-the-plan apartments) for investors.

Towers like Infinity, aimed at Chinese investors, do not provide what local Brisbane buyers want in my view.

Photo of Infinity, under construction on the right.  Evolution Apartments is the smaller building in the middle of the photo.  The Supreme Court building is on the right in the foreground; the Magistrates Court building on the left in the foreground.  400 George St is the taller building on the left.

BOQ warns about one bedroom apartments

"Bank of Queensland is worried about a surge in people borrowing money to invest in small apartments, citing Brisbane and Melbourne as concerning spots.

Of particular concern was self-managed super funds (SMSF) engaging in the tactic, BOQ CEO Stuart Grimshaw said.  He said the assumption was these one-bedroom apartments would appreciate in value, but it was  a "risky part of the market" for heavily borrowed SMSF funds.

"I don't think it's long before ASIC will start looking at some of the sales methodology," he said."

Source:  Courier Mail, page 77, 8 June 2013.

Be warned!

Matusik's views on apartment bedrooms

You see, we undertake between 40 and 50 Project Definitions every year – this is a service which helps make a new residential project work better – and we have found that in almost every case, one-bedroom apartments show a better gross rental return than larger ones.  This is particularly the case when you include a quality furniture pack.  Now before I get a bunch of emails outlining this and that, keep in mind I am talking about rental return here and not capital gain; although the statistics regarding one-bed resale performance versus larger apartments are pretty good too.

So in short – the smaller the apartment type, in concert with the inclusion of a single car park, the better the gross rental return.  This rule of thumb is even more evident when you add furniture.

See Gross

Smaller May Have Big Future

The headline in a story today in the Courier Mail property advertorial section:  "Smaller may have big future".  Some points made in this article:

• Buyer demand for new apartments in Brisbane is for smaller apartments
• Owner-occupiers prefer larger apartments
• But in the current market, most of the new apartment buyers are investors (about 85% of buyers) and investors are very price sensitive at present.
• "With no desire to live in the property they are buying, they are purely looking at the return, and the best returns can currently be found in one-bedroom apartments."
• In the current market, one bedroom apartments range from 45 sqm to 52 sqm and are priced from $345,000 to $425,000.
• "The ideal mix [for a new development] is 70% one bedroom apartments and 30% two bedroom apartment."

My strategy is never to buy an apartment that I would not live in myself.  I would not live in an apartment that was less than 70 sqm.  When owner occupiers decide to buy, there will be a shortage of larger two bedroom and three bedroom apartments in Brisbane.

In another article today, Matusik says that Brisbane's CBD has 24% few apartments on the market compared with this time last year.

Comparing Different Apartments

This note came from a real estate agent's newsletter (HS Brisbane Property):

This is, funnily, exactly what's happening in the Brisbane CBD with some reported and advertised property sales' prices - they are both CBD apartments, they both have 2bedrooms, so should they sell for the same price? Absolutely not. They may have different numbers of bathrooms, different views, different numbers of car spaces ... and more.

So when I read 'Highest achieved price for 2bed unit in building 'XYZ'  in 3 years!',  I think "Hmmm ... could be that they're comparing apples with tomatoes!". 

Without going into details it's interesting to note:

à       An additional car space will add approx. $60,000 (or in some cases more) to the price of an apartment. However, a tandem car space will not achieve the same price as a single carspace. Example: 2bed unit with 2 car spaces will sell for approx. $60,000 more than one with only 1 carspace.

à       Views mean $$$ ... sometimes. Apart from the direct riverfront views of some buildings and the eagle-soaring views from the top of 74-floor Soleil or 69-floor Aurora, views can be here today, gone tomorrow. Nice corridor views may remain while other better views may be built out in a few years. Check Brisbane City Council Development Approvals before spending extra money on a view.

à       Apartment size and no. bathrooms. For a 2bed apartment, 2bathrooms would normally achieve higher prices than 1bathroom, but this may also depend on other factors such as the overall apartment size. A larger, well-designed apartment would also be expected to sell for more than a smaller type. Compare the apartment sizes and floorplans.

 Be informed!!

Back to our advertised highest price. Always ask yourself : what types of apartment is this being compared to? What size, floorplan, level, outlook, no. bathrooms and carspaces, and what does it include?

It may still be the highest price in years, but it may be like comparing apples and tomatoes .. they are very different.

Shrinking Apartment Sizes

In Brisbane, apartment sizes are shrinking.  Newer apartments are smaller than older apartments.  Many two bedroom apartments are now less than 85 sqm in total size (including balcony), compared with about 100 sqm five years ago, or 120 sqm ten years ago.

For example, DoubleOne3, a Devine project, has two bedroom, two bathroom apartments that have a total size of 74 sqm including balcony.  The "Superior" two bedrooms, on the corners of the building are 105 sqm in total size.

As another example, the size of two bedroom apartments in Mirvac's Park development at Newstead range from 96sqm to 112 sqm.  Mirvac builds larger than most developers, to a higher quality.  But compare Mirvac's Quay West development in Brisbane from more than 10 years ago.  There, the two bedroom apartments were 126 sqm.  In Mirvac's Arbour on Grey, from about ten years ago, most of the the two bedrooms were around 109 sqm.

In NYC, the size of new rental apartments is also decreasing, but the size of owner-occupied condos is increasing.  See NY Times.  I think that a similar distinction will arise in Brisbane, where two bedroom apartments less than 95 sqm in total size will be relegated as investor only product.  Moreover, care should be taken when comparing apartments.  Often the smaller newer apartments are more expensive than the older, larger apartments.

Brisbane City Census Data

For the past few weeks, I have been looking at the 2011 census data.  It is very useful for property investors.  In my view, the best place to search is via an address search, and the results are then available in layers, from a few blocks, to suburb, post code area, and so on.  You can search here.

For Brisbane City downtown area, in 2011, here is some interesting data (full results here):

• population - 7,888 people
• median age - 29
• Most people are in the 25 to 29 age group (22% of the population)
• 1,526 families
• 32% married
• 37% have University qualifications (compared with 13.5% for Qld or 14.35 for Australia as a whole).
• 4,516 dwellings in total (of which, 98.7% are apartments)
• Average of 2 people per household
• 50.9% of dwellings had 2 bedrooms
• Median weekly household income - $1,828
• 54.5% of dwellings are rented
• Median rent - $530 per week
• 0.8 cars per dwelling
• Ancestry: "The most common ancestries in Brisbane City (State Suburbs) were English 18.0%, Australian 11.3%, Chinese 9.8%, Irish 7.0% and Korean 5.8%."
• Country of birth: "In Brisbane City (State Suburbs), 33.3% of people were born in Australia. The most common countries of birth were Korea, Republic of (South) 6.6%, England 4.4%, China (excludes SARs and Taiwan) 3.9%, Taiwan 3.3% and New Zealand 2.5%."
• 63.5% had both parents born outside of Australia

Falling prices

I have been looking at the listing and sale prices for two bedroom apartments in Brisbane. During the peak of the market, which was about 2008, good quality two bedroom apartments (which were more than 110 sqm in size, and often larger) were selling in the $800,000 range. Now, these same apartments are selling in the mid to low $600,000s. That is a decrease of about 20%. One wonders what would have happened to Vision and Empire Square buyers, where the contract price of two bedroom apartments exceeded $1 million.  These buildings did not go ahead, despite Colliers reporting strong presales.

Who is buying and what are they buying?

From the hsbrisbaneproperty.com.au newsletter from an agent that specialises in mid-priced inner city Brisbane apartments:

Usually buyers are hot-off-the-mark in January, however this year we’ve seen buyer interest only gradually increase in January with a marked jump in February. This also translated into sales and is a positive indication of the year to come. In fact, we recorded more buyers signing contracts than in any other month over the last two years.

What are people buying? The trend to properties up to $500,000 continues within the CBD. Although there is and always will be certain demand for top-end properties, $500,000 seems to be the upper limit for the majority of buyers, particularly investors, at present. One bed units were the ‘property of choice’ in February, probably due to their perceived more affordable price.

Who is buying? Both owner occupiers and investors were busy in February. Currently, the tightening CBD rental market is directing some tenants into property ownership as the most viable alternative. This is not only true for young professionals, but also for overseas students not able to find CBD rental accommodation. On the investor front, we recorded significant interest from overseas buyers, particular from China.

Oversupply of 1 Bedroom Apartments in Brisbane?

A number of real estate agents have told me that there is an oversupply of 1 bedroom apartments without car parking in Brisbane.  That oversupply is likely to get worse as there are many new 1 bedroom apartments about to settle in off-the-plan buildings nearing completion.

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

Two Bedrooms Are Back in NY

As the real estate market in New York City shuffles toward recovery, two-bedroom apartments have been the last to rejoin the party.

Sales of studios and one-bedrooms rebounded first after the market crashed in late 2008, followed by three-bedrooms, but it wasn’t until mid-2010 that the two-bedroom market started its comeback. Now, brokers say that the demand for smaller apartments has ebbed and that two-bedroom apartments are all the rage, especially those priced at the lower end of the market.

Alan Nickman, an executive vice president of Bellmarc Realty, says that more buyers have recently come to him looking for apartments between $750,000 and $1.2 million. “That’s basically your starter two-bedrooms,” Mr. Nickman said, adding that the pool of potential buyers included “first-time buyers who are going straight into a two-bedroom,” bypassing smaller units.

See NYT

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.