Trouble In Paradise - Soul

The Soul apartment development in Surfers Paradise went into receivership today, most likely due to a large number of unsold apartments, pre-completion off the plan contracts that did not settle, and a falling Gold Coast market.  This is not a surprise.  The Oracle development at Broadbeach went into receivership last year.  At Soul, receivers were appointed over a number of Juniper companies.  Graeme Juniper, who developed a number of apartment complexes on the Sunshine Coast, bit off more than he could chew and got his timing wrong.  See Soul in Receivership

Gold Coast Down

HOUSE and apartment sales levels on the Gold Coast have dropped to the lowest level in more than two decades. The city's residential property market continues to endure "a relentless downturn" in the wake of the global financial crisis, according to a 30-year market review by PRD Nationwide.

See Gold Coast Bulliten

Soul's Last Legs?

Juniper agents are doing the ring around, with the "price has dropped" call for Soul at Surfers Paradise. Sounds like signs of desperation.  How long until Soul goes the way of Hilton and Oracle, and heads into receivership?

Hilton Surfers Paradise Price Slice

Hilton Surfers Paradise Apartments advised "up to 34% off":

• Level 29, 2 bedroom, 119 sqm, was $1,185,000, now $840,000
• Level 38, 3 bedroom, 147 sqm, was $1,750,000, now $1,300,000
• Level 30, 2 bedroom, 100 sqm, was $1,000,000, now $685,000

According to Ray White Surfers Paradise, "the Chinese and Singaporeans have saved the Gold Coast property market" because "Australians have stopped buying over the last three years" in projects such as The Hilton and The Oracle.

Gold Coast less than $300,000

From the HTW Month in Review for September 2012:

"In Surfers paradise there are plenty of options for purchasers with $300,000 to spend, including older style units starting in the low $100,000’s and 1- bedroom, 1- bathroom units in modern highrises ($250,000 to $320,000). An example is Unit 709 in Wings residential which is a 7th floor 1- bedroom plus study with 2- bathrooms in a circa 2004 building that sold on 28 June 2012 for $250,000.

Just south of our tourism mecca, a semi-modern unit in a three storey walk-up in 2-bedroom, 1-bathroom configuration in Mermaid Beach/Broadbeach falls under the $300,000 category. An example is Unit 43 in Diamond beach South in Mermaid Beach which sold on 2 March 2012 for $300,000 - a 1994 2-bedroom, 2-bathroom lowrise unit with a floor area of 105 square metres."

Holiday Letting Agent Investigation

An interesting article in the AFR on 9 August (page 45) about StayMint (or Mint?) real estate letting agent, and how (it is alleged) they were renting out apartments on a short term basis, but not paying the owners for the rentals.  It seems that the government is investigating.  This is not a rare problem -- I have heard similar stories in the past about apartment buildings in Brisbane that are rented out on a short term basis, and holiday apartments on the Gold and Sunshine Coasts where the real estate agent or onsite agent pockets the money and tells the owner that the apartment is vacant.  This same business manages Skyline in Brisbane.

See "Stay Mint Faces Complaint"

"The Queensland Office of Fair Trading is investigating holiday letting company StayMint, a wholly-owned subsidiary of listed property group Ariadne, following complaints from owners of a Gold Coast apartment block about financial irregularities. Fair Trading officers raided the StayMint office at a Broadbeach apartment complex, Carmel by the Sea, last Thursday and seized financial documents.... The owners said they had discovered people had stayed in their apartment but the stay was not recorded in the monthly statement to the owner, and the rent not paid."

Gold Coast Prices Have Further to Fall

THE Gold Coast housing market is about six months off the bottom, according to analysts.  Two separate housing indexes showed a rise in capital city house values in June, indicating the slump in house prices appears to have bottomed and the market is about to improve again, underpinned by recent interest rate cuts.

But the Gold Coast recorded one of the largest falls of any region in the country and still has some way to go, according to RP Data research director Tim Lawless. "I don't think it has reached the bottom yet but the Gold Coast is probably approaching that mark and in the next six months should bottom out and start turning around," he said.

Story Here

Hilton Gold Coast - Huge Number of Crashed Contracts

A number of years ago, I "awarded" the Hilton Residents on the Gold Coast as one of the worst apartment investments in SE Queensland.  See prior posts.  A number of years ago, there were many press releases about how successful the development was, and how many sales were made off the plan to investors.  I could not figure out who was buying these apartments, or why, as this development was not in a prime location, and surrounded by vacant shops and topless bars.

Now it has come to light that many of the investors were from outside Australia, and more than 100 purchasers have failed to settle (or about 25% of buyers).  Values have dropped dramatically, with apartments sold off the plan for $1.4M now valued at about $800,000.  (This book would have been helpful to these buyers.)

A number of purchasers who did settle have not put their apartments into the onsite rental pool with Hilton, and offsite agents are making under the name "H Residences".  This shows that rental returns are likely to be poor.

Many apartments on the Gold and Sunshine Coasts have decreased in value since 2008.  I know of a recent Juniper beachfront apartment that was sold off the plan for over $1.4M, that remains unsold today at $800,000.

See also this article.

Luxury Apartments

• New York apartment on Central Park South sold for $70 million.
• Soul Penthouse at Surfers Paradise, in final stages of completion, hoping to sell for $20M.
• Waterfront Newstead for $8,750,000
• Riparian, Brisbane City, for more than $3M

Demand strengthens in unit market: REIQ

Press Release from REIQ today:  Queensland’s unit and townhouse market experienced strengthening demand over the March quarter, according to the latest Real Estate Institute of Queensland (REIQ) figures.

The REIQ’s quarterly Queensland Market Monitor found the numbers of preliminary unit and townhouse sales across the State were up 11 per cent compared to the December quarter last year.  Over the period, there was also a dramatic increase in the numbers of units sold between $250,000 and $350,000 with sales in this price bracket increasing 22 per cent.

"This increase in more affordable unit and townhouse sales is being driven by demand from first home buyers and investors, who often target properties at the lower end of the market," REIQ CEO Anton Kardash said. "About 19 per cent of homes financed in Queensland are now being bought by first home buyers, which is the highest level of activity from first-time property buyers since 2009 when the First Home Owners Boost was available. Investors too are making a long-awaited return to the market with more than 4,500 properties bought by investors in March this year. The 10-year average is 5,000 dwellings per month so this is also the strongest level of activity from investors since early 2010".

Over the March quarter, median unit and townhouse prices softened in a number of areas due to this shift in demand for more affordable properties. Median prices reflect the types of properties that sell over a particular timeframe so if more affordable properties sell the median will be dragged lower.

Brisbane’s median unit and townhouse price softened 3.1 per cent to $387,750, however sales activity was up more than 20 per cent compared to the previous quarter.

On the Gold Coast, the beachside suburbs recorded the greatest increase in activity, with Surfers Paradise and Broadbeach topping the list.

The Sunshine Coast saw a similar trend with Mooloolaba and Noosaville recording the top increases in sales activity over the quarter. The Sunshine Coast was also the only major region for Southeast Queensland to record an increase in its median, up 2.2 per cent to $332,250.

Although a strong result for the house market was recorded over the quarter, Cairns’ unit market continues to struggle, with sales down 30 per cent. Comments from various regional zone chairs, Cairns included, say that units are proving difficult to sell, as buyers are put off by the increased costs associated with owning a unit, such as body corporate fees, insurance levies and council rates. As such, buyers end up seeing more value in buying a house, with the ongoing servicing costs equalling that of a unit.

The chart below, from REIQ, is for apartments and townhouses only, not houses.  Click on chart to make bigger.

Notes for chart 
* Medians affected by varying quantities of new properties sold 
f Medians affected by varying numbers of waterfront properties sold 
- Due to the nature of properties in this suburb, some group titled property sales have been omitted

CBRE - Brisbane improving

The Brisbane housing market is starting to experience the benefits of the resources boom but the Gold Coast remains one of the “worse performing markets,” says CBRE in its second quarter south-east Queensland market view report. 

The report notes that the Sunshine Coast housing market continues to struggle – though not to the same extent as the Gold Coast market – with both coastal markets not seeing much benefit from the mining boom in central and northern Queensland.

See Property Observer

Genworth Says Queensland is a Problem

U.S. mortgage insurer, Genworth, that has operations in Australia, released a report yesterday to Wall Street regarding its Australian residential mortgage insurance business.  See report here.  The report says that its overall performance by geography is solid, with the exception being Queensland.

Coastal Queensland is particularly pressured.  Delinquency development in coastal Queensland has risen to 1.13%, compared with 0.8% for Queensland and 0.54% across its loan insurance portfolio.  The peak to trough decline in values is 17% for FN Qld, 12% for Sunshine Coast, 15% for the Gold Coast and 8% for the rest of Queensland.  The average mortgage insurance claim in coastal Queensland has risen to over $120,000.  This is significant enough to report to Wall Street.  See article here.  And note this article.

Surfers Paradise

I visited Surfers Paradise this weekend to look at the Hilton and Soul apartment buildings.  The local area was no paradise.  The beach was great, but the built environment was horrid.  Closed or run down shops.  Poor quality shopping.  Fast food restaurants.  Topless bars.  Bad street-cape.  Not a nice place to visit with the family or for a romantic vacation.  No wonder prices have fallen, and according to Matusik, they still have a way to go to reach bottom.  Hilton tower illustrated above.

Gold Coast Hilton

The Gold Coast Hilton development (originally developed by Rapits, a company that went bankrupt during construction) still has unsold apartments.  They are advertised as starting at $475,000, with two bedroom apartments with ocean views for sale at $565,000 and three bedrooms with ocean views for $765,000.

Home Equity

A summary from the recent September 2011 Quarter RP Data home equity report.

The highlights of the report are:

• Over the five years to September 2011, capital city home values increased by around 28 per cent.
•  Australian housing markets recorded value declines recently with capital city home values down 3.3 per cent from their October 2010 peak to September 2011.
• Properties in Queensland and South Australia have higher turnover rates; therefore equity levels in these states tend to be lower than in other states.
• Far North Queensland & the Gold and Sunshine Coasts have the highest instances of negative equity at 20.2%, 14.0% and 13.5% respectively. 
• The highest proportion of homes that are now worth at least double their initial purchase price is typically either regional and non-coastal, or capital city markets. 
• Capital cities have enjoyed long-term value appreciation and have proven to be less susceptible to ongoing value falls than certain non-capital city markets.

Gold Coast Still Oversupplied

"The high-rise market on the Gold Coast is nothing like any other Australian market.

"It's a unique market and it's driven by speculation and not necessarily the fundamentals. But we just don't need any more high-rise developments for the moment.''

Mr Morris said his latest research indicated there were 625 new high-rise apartments for sale on the Coast. That represented a 2 1/2-year supply based on the average sales rate over the past two years.

"But the figure is a bit camouflaged by a rather big project in Southport - Philip Usher Constructions' $200 million H20 on Broadwater development, which is completed, but has not yet been put to the market.

"So there's another 350 apartments just sitting there which, when they get released for sale will add another year to supply, increasing it to 3 1/2 years.''

In the wake of the GFC, the Gold Coast high-rise apartment market has been hit by spiralling valuations and two high-profile victims of receivership, Southport Central and the twin-tower The Oracle Broadbeach.

It has led to heavy discounting of stock, with prices of some luxury apartments slashed by as much as 30 per cent.

But Mr Morris believed prices could fall even further throughout 2012.

"Most of the stock on the Gold Coast is held by receivers and the prices are not being driven by the market.

They're being driven by what the receivers have to do to get rid of the debt,'' he said. ``So it's quite possible the average price of new apartments could sink below the average price of resale stock.''

Research by the Oliver Hume Real Estate Group shows the Coast's total supply of available apartments - low, medium and high-rise - has reached 1626, down from its peak of more than 2000 over the past couple of years.  And the figure is expected to continue to fall with predictions of the strongest summer sales since the GFC. 

See Full Story

Distressed Sales

A recently Landmark White report states that about 31% of properties advertised for sale and coming onto the market recently are listings that are distressed sales.  Many of these would be Gold Coast apartments.  The report covers industrial and commercial properties as well as residential.

See full report here and this comment.

Photo above of one of the pools at The Oracle.

The Oracle Gold Coast

Oracle receivers have released a special new price list for local agents for Oracle apartments in Broadbeach.

Agents report that the new prices fit squarely into the current hi-rise market values of central Broadbeach at around $4200-4900sqm.

During the past week, it is reported that 12 Oracle properties changed hands on the new prices with around another dozen or so under offer.

Photos show an Ocean view from a one bedroom apartment in The Oracle.

Update from 15 December:  "During the past 24 hours, 6 out of the 59 receivers stock has sold and 18 are on hold."  [I suspect that the receiver has more than 59 apartments that are unsold, so this must be a trickled release.]

Gold Coast Apartments

"The supply of land, units and housing, as predicted was a problem in 2011. This was particularly evident in the unit sector. In spite of no new major projects commencing there is still an oversupply of new and near new unit stock washing around in the market. Unit values have continued to slide over the course of 2011 driven down by a combination of liquidators/receivers holding too much stock, a lack of confidence amongst buyers and a steady supply of mortgagee sales."

HTW Month in Review

By the way, The Oracle has a new fancy website.

Buying Off The Plan from Juniper

A number of people have asked me whether now is a good time to buy an apartment on the Gold Coast, particularly at Juniper's Soul building that is almost complete.

According to a number of property experts, the Gold Coast property market is still in decline, and further price falls are expected.

Let's look at Juniper's immediate prior luxury development, which is Oceans Mooloolaba.  Did buyers from Juniper do well or not?  It is sometimes hard to tell looking a public data, because Juniper gives under the table rebates to purchasers, so the exact initial purchase price from Juniper is not necessarily what is reported to the government.

Here is the evidence:

• Apt 704, sold by Juniper for $2,500,000 in 2005; resold in 2011 for $1,805,000.
• Apt 606, sold by Juniper for $1,580,000 in 2007; resold in 2011 for $1,650,000.
• Apt 503, sold by Juniper for $1,300,000 in 2007; resold in 2009 for $1,070,000.
• Apt 404, sold by Juniper for $1,380,000 in 2005; resold in 2007 for $1,200,000.
• Apt 404, sold by Juniper for $1,370,000 in 2003; resold in 2006 for $1,150,000; resold in 2010 for $1,115,000.
• Apt 401, sold by Juniper for $1,670,000 in 2003; resold in 2009 for $1,500,000.
• Apt 303, sold by Juniper for $1,320,000 in 2006; resold in 2007 for $1,025,000.
• Apt 301 sold by Juniper for $1,600,000 in 2003; resold in 2009 for $1,445,000.
• Apt 203, sold by Juniper for $1,750,000 in 2004; resold in 2010 for $1,800,000.

Taking into account stamp duty, everyone who has purchased from Juniper and then resold has lost money.  Some of the resales were before the market collapsed in 2008.  One suspects that it would be best to wait before buying in Soul or anywhere on the Gold Coast for that matter.