US News

"LOOKING for a deal in a down market? As winter sets in, the fruits of desperation — foreclosure sales, short sales, auction sales and deep discounts — are appearing in bountiful number, if anyone out there is hungry for a bargain."

NYTimes

TWO-BEDROOM apartments have long been the workhorse of the New York City real estate market, accounting year after year for the largest percentage of apartments sold.

When the recession hit, buyers fled the market and prices fell across the board. After things stabilized in late 2009, the market share for two-bedrooms had dropped from a typical 40 percent to as low as 25 percent, because more people had found that they could afford three-bedrooms, which took sales away from two-bedrooms.

Now, after a lull that has lasted for more than a year, two-bedrooms are back.

NYTimes

Real Estate Investors Look to the Future, and See Signs to Buy Apartment Towers

NYTimes

FOR some New Yorkers on the hunt for an apartment, the must-have item in the search is nothing as prosaic as a walk-in closet or a second bathroom. It is a number — a lucky number.

NYTimes

Trying to Get Out of an Off-the-plan Contract

Here is a decision regarding an investor trying to get out of two off-the-plan contracts for apartments in The Oracle at Broadbeach. The judge decided that the case will have to go to trial. As purchasers at Tennyson Reach have found out, it is not easy to get out of off-the-plan contracts.

See South Sky Investments Pty Ltd v Prins & Anor [2010] QSC 438 (22/11/2010)

"Chinese love the Sunshine State"

Story from the AFR on Friday last week -- "Chinese love the Sunshine State". The article states: "Half a dozen significant high-rise properties on the Gold Coast and Brisbane, which are believed to have secured a significant proportion of foreign investors, are due to settle in the next 12 months."

See also Gold Coast Bulliten

How To Lose Money in Property Investing

Here is an interesting article, that discusses the risks of buying off-the-plan.

"Three surefire ways to lose money in property"

Landmark case sends a warning to investors

"Know how you should and shouldn't market your apartment, particularly when the onsite complex manager owns the building trademark."

From September 2010 edition of Australian Property Investor

Similar to issues raised in prior posts here.

Tax Reform and Property

The Henry Tax Review was released at 2.30pm today. It was expected to have an impact on property investment, but it appears that the impact will be minimal in the short term. See Summary of Report and Mr Swan's response: www.futuretax.gov.au

From the Report:

• Over a long transition period, a land tax should be introduced on all land on a more efficient and uniform basis linked to unit land values, removing disincentives for institutional investment in rental property and integrated over time with property rate assessments.
• Over a similar period, transfer taxes on property should be reduced, and ultimately removed, with revenues replaced by efficient taxes, preferably annual land tax.
• Subject to transitional provisions, and following action to improve the current shortfall in housing supply, a more neutral personal income tax treatment of private residential rental investment should be introduced, with less volatile market effects, through a 40 per cent discount on all net residential rental income and losses, and capital gains.

The structure of land taxes could be improved by broadening the land tax base to eventually include all land. Land tax rates should be based on the value of a given property, so that the tax does not discriminate between different owners or uses of land. A tax-free threshold based on the per-square-metre value of the land could be set such that there would be no tax liability on most agricultural and other low-value land. Higher-value land could be taxed at differentiated rates based on the per-square-metre value of the land.

Stamp duties on conveyances are inconsistent with the needs of a modern tax system. While a significant source of State tax revenue, they are volatile and highly inefficient and should be replaced with a more efficient means of raising revenue.

Conveyance stamp duty is highly inefficient and inequitable. It discourages transactions of commercial and residential property and, through this, its allocation to its most valuable use. Conveyance stamp duty can also discourage people from changing their place of residence as their personal circumstances change or discourage people from making lifestyle changes that involve a change in residence. It is also inequitable, as people who need to move more frequently bear more tax, irrespective of their income or wealth.

Reforming land tax and conveyance stamp duty arrangements, along with the proposed changes to the taxation of rental housing and Rent Assistance, will go some way toward improving housing affordability. However, to a significant extent housing affordability is a supply issue (see Box 6.1).

Media Reports:

"Likewise the second part of the Henry Review’s two “key directions for efficient land and resource taxation”. The first part is the idea of a 40 per cent resource rent tax, which was first leaked in January. The response to the leak was obviously sufficiently mixed for the thing to become the centrepiece of Mr Swan’s tax reform.

The second part – and given equal weight in the review – is a national land tax of 1 per cent applying to all land regardless of use. Absolutely no mention of that in either leaks or today’s statement.

The Henry Review also recommends a 40 per cent discount to individuals for net interest income, residential rent, capital gains and interest related to listed shares. Also leaked, but rejected."

Business Spectator

The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.

These recommendations were widely flagged prior to today's announcement, with critics saying the current system doesn't give enough incentives for workers to put money in savings accounts.

Currently, interest earned on all savings accounts and term deposits is taxed at a worker's top marginal rate.

It is far less generous than the tax treatment of other investments such as shares and property, which the review says encourages investors to take on too much debt.

"The tax advantages from borrowing to invest in a rental property, also relevant for shares, leads to investors taking on too much debt and distorts the rental property market," the review says.

News Corp

Flat Market in Brisbane

In talking with people in the real estate industry in Brisbane recently, it seems to me that the market is relatively flat. At some open homes for houses in the $600,ooo price range, only 1 family will turn up for an inspection. Off the plan sales for apartments are, for the most part, slow. Prices are relatively stable for apartments. It is not a booming market at present. On the Sunshine and Gold Coasts, the market is very dead.

There are pending risks that may dramatically impact investment apartments in Queensland:

• higher interest rates
• risk of lower numbers of overseas students and tourists visiting Australia (including due to the higher Aussie Dollar)
• The review of the Australian Tax System, due within weeks, which will likely impact the treatment of capital gains for real estate, and probably recommend the removal of negatively gearing of losses from investment properties to offset income tax from income earned from other sources
• difficulties in obtaining investment loans, and the banks requiring a higher deposit for investment property loans
• increased school fees, which impacts the ability of many families wanting to invest in property
• increased body corporate fees and rates, making returns less
• poor performing vacation rentals and low vacation rental returns, often less than 2% net returns

Matusik On Rents

"The unfortunate news about rental growth for this year is that there probably won’t be any. In fact, not only do we foresee a dismal year in 2010 for rental growth, we anticipate limited investor interest in residential property to accompany it.

As we have said previously, our analysis shows that the Australian and Queensland rental market is adequately supplied overall, and recent predictions of rental growth exceeding double figures are unlikely to happen. Expect rent rises of 3% to 5% at best, and more realistically, 0% to 2%. ...

To begin with, existing landlords need to temper their expectations, and new investors should be somewhat conservative on a likely rental return. ...

Make sure your property is “share” friendly. The key here is to provide separate ensuites and bedrooms of equal size, positioned some distance away from each other. Adequate storage and off street parking also helps renters share in relative peace. Research shows that when choosing a property to rent, tenants look at the size and number of bedrooms first, followed by car accommodation and then the indoor/outdoor living space/s.

Location and views are important when it comes to capital growth, but are less important when it comes to renting out a property. Don’t expect a lot more rent for a property with a view or in a trendy spot.
Michael Matusik"

Timing the Market - Letter to the Editor

A good letter from yesterday's AFR:

"The latest APM report clearly shows that house prices are rising mainly because of resurgent interest in high-end properties; but many people will sadly delude themselves that this is a sure sign of capital growth in their own, low to mid-end houses or investment properties. They should understand that the property markets do not all move in the same way at the same time.

By selling and trading up to a more prestigious area now, there is the real risk of "buying into the rise" and paying a premium to do so. Time in the market , or timing the market? The time to buy into high-end property was when no one could service the debt or sell it - during the middle of the financial crisis. It is very difficult to do well in an asset class when everyone else is interested in it."

Chris Embery, South Australia.

The Bottom Has Passed?

"Australia's top institutional and private investors believe the nation is well and truly past the bottom of the property cycle and now heading towards upswing, according to new survey findings released by Colliers International.

The second Colliers International Investor Sentiment Survey, conducted late last month, has shown investors around the country believe that if the property cycle were a clock, with the top of the market at 12 o'clock and the bottom at 6 o'clock, Australia moved upwards to 7 o'clock in Q3-09, after the majority of investors believed the same clock sat at 5 o'clock when they were first surveyed in May for Q2-09. ...

The majority of investors, at 52 per cent, believe Australia is not only past the bottom of the property cycle, but 64% also believe the upswing will occur earlier than indicated in the first survey - by Q2/Q3 2010 or even earlier, instead of in Q4 2010. ...

When asked how they would describe their property investment strategy over the next 12 months, the majority of investors, almost half at 49 per cent, identified they were heading into growth mode, with 43 per cent in defend mode or holding steady. Only 8 per cent were expecting to contract holdings.

Investors also signalled the green light to purchase property is now definitely on. 69 per cent now expect to buy property in Australia over the next 12 months, up from 63 per cent in May. Investors also expect it will become easier to buy property with 47 per cent believing access to debt capital will become easier in the next 12 months, versus just 20 per cent in the May survey.

Most investors, at 45 per cent, are looking to buy office property, with the top 5 buy markets identified as Sydney Office (20 per cent), Melbourne Office (15 per cent), Sydney Residential (7 per cent), Melbourne Residential (6 per cent) and Sydney Industrial (6 per cent). ...

Residential was again the standout property sector with the majority of investors believing values had only declined by 1 to 10 per cent since the peak of the market, while 16 per cent believed residential values hadn't changed at all, or even witnessed some growth. The majority of investors believe there will be no further softening to residential values and 8 per cent believe there will now be growth."

http://www.colliers.com.au/site/page.cfm?c=1305

Questions

• What will happen to the inner city Brisbane apartment market if foreign students stop coming to Brisbane?
• When interest rates rise, will Brisbane apartment prices fall?
• Will Meriton build a building in Brisbane that is lesser quality than Devine? Is that possible?
• When will Felix have its river views blocked by development?
• Will rental returns to owners in Oaks buildings decrease this year?
• Will apartment prices in Brisbane continue to fall into 2010?
• When first home owners stop buying, will sellers who have not sold become desperate?
• Are the only investors buying at present the vultures and bottom-feeders?

Units Gain Market Share

"Instead, many prefer the cheaper priced units and apartments, which also often are closer to the CBD. The affordability is especially a growing factor this year, as that section of the market has become the dominant force in the property market. ...
With the growing market share, units have also shown a stronger capital growth than houses in nearly every capital of the country. In Sydney, Brisbane and Canberra, units showed positive 12 month growth in median value up to February this year, compared to negative growth for house median values. ...
Another key is to make sure there is a parking spot included, something that can make a huge difference in demand, especially if the unit is in an area with few street parking opportunities. “No matter where you buy an apartment, never ever buy it without allocated parking,” says Wakelin.

What not to buy

There are, however, areas where demand is not so strong. For one, stay away from high-rise apartments, particularly in areas of overdevelopment such as the Gold Coast, the Sydney CBD or the Docklands in Melbourne, say experts.

“We find for investment purposes, high-rise apartments do not work,” says Wakelin. “They are very generic, so there’s little scarcity value with them.” Ryder agrees, saying investors should not be swayed by the magnificent views from atop beachfront high-rises in the Gold Coast. Investors should remember they won’t be living in these properties, and in the long run, they don’t show as much capital growth.

“There’s a lot of glamour in buying a high rise, but history shows it’s generally a poor investment,” says Ryder. “Put aside the emotions, and just look at the sums. You’re better off not buying something with an ocean view like in Surfer’s Paradise.”

He also says buying a used apartment is better than buying a brand new one.

“There’s a huge price differential with a new product and equivalent second-hand product,” says Ryder. “That’s simply because the cost of development is so high. The research shows there’s commonly a price difference between 30-40% between new and old apartments.”

That ultimately means for an investor that it’s harder to get capital growth out of a newer product. It might look nicer, but it will cost you in the long run. There’s also little scarcity in some areas for new product, such as the Gold Coast, where new apartments have been built without abandon. And once its no longer new, you actually lose that tag and that value.

“There’s a lot of risk in committing to buy something now and paying two years later, whereas the market can go in the wrong direction in that time,” says Ryder. “Plus developers tend to build that (expected value growth) into today’s prices these days.”

REA

Time to Invest?

"One thing is for sure, the worst of the credit crunch is behind us now and this environment is very favourable to property investment. This will provide the ballast that keeps housing markets stable through these turbulent waters."
REA

RP Data - Rismark Index

"The falls in Brisbane property values witnessed during 2008 appear to be a thing of the past. On an annual basis dwelling values in Brisbane are still down by -3 per cent during the year with house values falling -2.9 per cent and unit values declining by -3.4 per cent. Over the first four months of 2009 Brisbane has begun to once again show positive growth. During the first four months of the year house values climbed 1.9 per cent whilst unit values fell by -0.2 per cent despite the fact Brisbane is home to mainland Australia's most affordable unit market. Rental returns for houses have softened slightly and currently sit at 4.6 per cent whilst unit rental yields continue to improve and are now recorded at 5.4 per cent."

Home values continue to recover, recording a healthy 2.8% increase over the first four months of 2009

The RP Data/Rismark Australian Home Value Index out today confirmed that housing values around Australia rose by a healthy 2.8 per cent over the first four months to April 09—virtually wiping out the price falls seen in 2008 according to RP Data National Research Director Tim Lawless.*

Unlike the Australian Bureau of Statistics House Price Index, which excludes terraces, semi-detached homes, and apartments, the RP Data/Rismark International hedonic methodology, which is reported by the Reserve Bank of Australia, includes all dwellings. In addition, RP Data benefits from the largest sample of early property sales and property attributes (such as number of bedrooms, bathrooms and land area) of any index provider in Australia.

Over the first four months to April 09, every mainland capital city apart from Perth recorded an increase in home values with the most significant gains in Darwin (+5.3 per cent), Melbourne (+4.4 per cent), and Sydney (+3.9 per cent).

According to Rismark International Managing Director Christopher Joye, “Our analysis demonstrates that home values are rising in around 80 per cent of all suburbs with only the top 20 per cent of suburbs ranked by price suffering material falls.”

The return to capital growth comes as weekly rental rates start to level. Mr Lawless said, “Rental rates across Australia have powered ahead over the last three years, providing the best gross rental yields investors have seen for a long time. We are now seeing growth rates for weekly rents start to level due to decreasing rental affordability which is causing many renters to consider buying a home instead of renting. Gross rental yields are likely to peak over the coming months suggesting that now is probably the best time for investors to roll up their sleeves and become active,” he said. In terms of housing stock, units are continuing to outperform houses where over the first four months of 2009 values increased by 3.3 per cent while house values increased by 2.7 per cent. In closing Mr Lawless said “The stronger performance of the unit market is due to a number of factors. Comparing median house and unit values nationally, the price gap between is just over $90,000, so the value proposition of a unit is very compelling. Additionally, units are generally located closer to the city and along transport spines which is very appealing to many Gen Y and Gen X buyers,” he said.

See www.rpdata.com/news/rp/20090529_media.html
and Tables

Real Estate Investment Books

List of real estate investing books (that can be shipped to Australia)

• What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures
• After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade
• The Complete Guide to Locating, Negotiating, and Buying Real Estate Foreclosures: What Smart Investors Need to Know - Explained Simply
• Short-Sale Pre-Foreclosure Investing: How to Buy "No-Equity" Properties Directly from the Bank -- at Huge Discounts

Visit the Real Estate Book Store

Investors Returning

"Increases in rents have seen yields for Brisbane houses and units (at 4.4% and 4.9% respectively) increase, and yields for houses are now back to levels last seen in 2002. This together with lower interest rates is starting to make a more compelling case for investors, and counter cyclical investors are starting to return to the market."

"Prices did not peak until early 2008 and have only come back 5% since then. Whilst there is potentially further downside in the short term, the market is likely to stabilise and the high levels of demand are expected to see growth return once the economy starts to pick up. Brisbane has generally had high demand for apartments and units, and this means that the fall in prices for other dwellings has not been as much as for houses.

MLG Property Report - March 2009