High-rise Brisbane

A newspaper article by Matusik in the Courier Mail today reflected on potential changes to the Brisbane inner city apartment market:

"Brisbane is set for an increase in the supply of new inner-city digs.  Brisbane could well face an oversupply of downtown apartment stock.  And that increase in stock might more resemble a tsunami in terms of its impart on the market and potential investment outcomes.

For the past five years, the Brisbane market has been undersupplied, with an underlying demand of about 9000 new dwellings across Brisbane.  However, when we break down future demand by market segment, going rental demand (those who occupy a significant percentage of inner-city apartments) appears likely to fall.  And Brisbane's future demand will more likely be deriven by the increasing downs and retirement markets.  Those folk are, for the main, not enticed by large, high-rise complexes.

Rents are down, the vacancy rate is increasing and some resales in recently completed inner-city apartment buildings are already selling for losses.

Currently, the vacancy rate in Brisbane city is 4.2%.  Two years ago it was 1.2%.

And there are now 276 properties (as at June) for rent in Brisbane/Spring Hill, compared with just 48 two years ago.  For the first time in five years, rents have fallen."

Matusik touts 38 High Street development

An interesting video regarding the 38 High Street apartment development in Toowong, next door to the RE pub.  Look here.  One bedroom apartments from $339,000.

Car Spaces

According to Matusik in the Courier Mail today:  "The premium for a car space within a new inner Brisbane development ranges in prince depending on the location, but the average cost is close to $75,000."  He said that apartments without carparks are harder to sell.

Rising Market?

Matusik says that the Brisbane property market is on the upswing.  See presentation and blog post.

"The astute investor – and contrary to what the mass media says – knows that the property market cycles and that it turned the corner around the middle of last year.  The table below outlines the past eleven residential cycles in Australia.  Things might be slow, but they are looking up."

Median Price Reports Not Always What They Seem

Often, newspapers report on the growth or decline in property values, or identify certain areas as hotspots, or have articles such as "What is your home worth?"  This articles are often based on changes in median price over a period of time.  However, care must be taken when looking a median price reports.  First, the data set may be small.  For example, it is not uncommon for the median price for a suburb to be calculated on less than 20 sales.  Second, there may be a change in the mix of what is sold.   For example, if in one year, many 1 bedroom apartments are sold, and in the next year, many 2 bedroom apartments are sold, then the median price will show growth, when in fact, the values of 2 bedroom apartments may have declined.  Another example is if a large new apartment building completes.  This happened a few years ago in West End -- the newspapers reported dramatic price growth in West End; the change in median price was in fact due to the completion of more than 150 apartments in 2 developments, not due to property values increasing.

It is easy to identify "hotspots" on this basis -- just look to where a number of new apartments buildings or subdivisions are nearing completion.  But this is really misleading.  

The Courier Mail, that often publishes such reports, identifies the risk of looking a median prices:

"A change in median price, more often than not, reflects what has been sold during the two time periods rather than actual price growth.  The only real way to test price growth is to look at resales - the same dwelling resold over time."  Courier Mail Real Estate Section, page 2, 5 January 2013, by Matusik.

Realty Times makes the same point in this article.

As Matusik states "You can't always believe what you read."  [I guess he is referring to the Courier Mail here?]

The Chelsea - an analysis

Matusik has done a very interesting analysis of The Chelsea development in Bowen Hills, that recently completed.  It is worth studying this analysis.  See The Chelsea.

Some points from the Matusik study:

• More than half the sales were "rebated sales", making it hard to determine the actual sales price.  Most rebates were given early in the sales process.
• It took about 2 years to sell the 177 apartments in the complex.
• Only six apartments have been purchased by owner occupiers.  This is a very low percentage.  (My rule is to purchase only in buildings where there is a high percentage of owner residents in the building.)
• 70% of the buyers appear to be Chinese, either from the Sunnybank area, Southern States, Singapore or elsewhere.
• A number of apartments are now listed for resale, at about 10% below the recorded purchase price (before any rebates are taken into account).

"Too often the last dwellings in a new project are discounted [by the developer].  This undermines the project’s overall value; is very unfair to those who bought early in the piece (regardless of what incentives were offered) and also reduces the developer’s profit (assuming there is any!)"

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.

Prices Up? But sales volumes are down

""Real estate is a confidence thing and confidence gets zapped by uncertainty and all the information we've been getting from overseas and at home has certainly zapped confidence."  Mr Kardash also noted the median house price provided a limited snapshot of the property field, because the figure could often be skewed by an inordinate number of sales at either the low or top end of the market in a given time period.  Like Mr Matusik, he said the 4.7 per cent drop in the median house price in the 12 months to June this year reflected the majority of activity which occurred at the lower end of the market.

Mr Kardash said the Brisbane market was on the "cusp of improvement", although he noted the middle price range remained relatively stagnate.

"Just recently the market's seen a little bit of a pick-up in the very top end ... but for us, we'd be looking at all three price ranges to be showing an improvement before you could call that the industry was on the way up," he said.

Brisbane Times

Matusik Says Brisbane on the upswing

There is an interesting story in Property Observer by Matusik.  In it, he says:

"Market watchers will have their own theories on milestones that signal a change in the fortunes of the real estate market.  I, for one, think that Brisbane has turned a corner and is well-positioned on the property clock.  ... Too early to call an upturn?  Maybe, but the signs are definitely there.  Of course, the proof in the pudding is a sustained rise in generic property prices."

I think Matusik is slightly optimistic about Brisbane at present, but that is just my view.

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.

A Reader's Response

Here is a note from a reader:

I read with interest your article “Positive sign for Brisbane Property market.”. When an individual or some organisation with an interest in selling real estate starts telling the world (or anyone else that will listen for that matter), that race is on again and property sales are going just short of gangbusters, you can bet they are not.  

The sellers and marketers of real estate need to understand that the market of potential buyers has changed and we are not fools this time round. We’ve all seen someone close by with mortgage stress trying to pay for something they paid an inflated price for in the first place.  And those properties that have now become liabilities as they continue to fall in value. Just go and ask your bank for a loan to buy “off the plan”, you won’t even get an interview. What does that tell you?

About 24 months ago, a New Farm/Valley real estate agent told me he expected 2006 prices by Jan 2012.  Now he’s revised that to saying year 2000 prices and dropping. That’s no gain in 12 years.  A really good investment isn’t it.  

Take a drive around at night to any of the big new apartment complexes now on the market. Either they can’t afford electricity or they are empty, take your pick – the lights are out on half the block or more, every night. To say the rental market is tight  - well I disagree.  Down Teneriffe and Newstead way, the signs are out day and night offering 1, 2 and 3 brm apartments to rent.  There’s no shortage and dozens to choose from.

Your writer may indeed have seven positive signs to offer from a seller perspective.  Let me offer rule Number One in commerce: The smart money is made upfront during the purchase process, not at sale time 30 years later (if one is lucky enough to be able to keep up the payments with interest for all that time and, by sheer luck, the market is up at the time one wishes to sell).  

In simple terms, it’s made upfront buying at below market value. Real estate in Australia is grossly overpriced and regardless of the spin put by real estate marketers, developers the Treasurer et al, let me say to you all, stop wasting your breath, we know the joke.  Money in the bank on-call earning interest with no risk and renting beats buying at inflated prices and a life time of serfdom paying off a mortgage for an overpriced piece of real estate.  When prices fall by at least another 40%, then perhaps a property may be a consideration. Now that’s a more positive outlook.  

Please don’t come back with “investment” property with rental income or negative gearing.  Rents are already at their peak, the ability to pay will set the market, not the owner’s idea of what rent should be.  It doesn’t take too many weeks of no income to ruin an investment.  Rent is insufficient to fund an investment property. I’ve done the sums dozens of times recently. It doesn’t stack up unless you can exclude the ATO’s share of the deal, and that’s not recommended. And let’s not forget CGT later on. Need I continue.  

As mentioned, when prices fall by at least another 40%, then perhaps a property may be a consideration. The smart money unloaded in 2008 and now rent. We’re laughing at the property market now days.

Positive Signs For Brisbane Property Market

Matusik has written a note "Seven positive signs for Australia's property market".   A focus of the note is the Brisbane apartment market.  Contrary to the blog entry below, Matusik believes that Hamilton Harbour is settling well.

Busting Bubble?

According to contrarian economist Professor Steve Keen, it was accelerating debt that drove house prices up and it is decelerating debt that is causing the fall.

Keen has argued the significance of private debt in the economy - something which mainstream economists largely ignore. In a recent post on his blog, debtdeflation.com, Keen reveals the debt to disposable income ratio for Australian households has been rising until recently. Now Australians are saving and paying off debt rather than spending and this has a negative impact on house prices.

The end result, Keen argues, is that house prices will fall 40 per cent over the next 10 or so years, or 5 per cent to 10 per cent for 2012.

See Courier Mail and Property Observer

But see a contrary story here and story by Matusik.  Chris Joye from Rismark takes the opposite view.

Risks of Buying Off the Plan

Property commentator Michael Matusik published some articles recently about the risks of buying of the plan.  See:
Risks 1 to 3
Follow Up Comments

For a more detailed analysis, see the recently published Kindle Book: Buying An Apartment Off The Plan in Queensland - A Guide For Successful Buying.  
This book can be downloaded to a Kindle, iPhone, iPad or computer.  The cost is less than $10, so good value if you are planning on spending money on an apartment in Queensland.

Two Queensland Buildings

From a recent article by Matusik: A Tale of Two Queensland Buildings

"Firstly, an investment dwelling’s worth should be determined by income – that means rent – just like it does for offices, shops and factories.  It shouldn’t be determined by a “comparable” resale.

Secondly, how and where the developer spends his or her money on a project shouldn’t affect the market’s (nor valuers’) perception of value.

• An investment’s value shouldn’t be determined by what a buyer once paid but by its income.
• The distribution of costs has no bearing on the end value of a product."

Full article here.

Inner Brisbane Vacancy Rates Under Pressure

Vacancy rates in Inner Brisbane are under pressure, as population increases and a shortage of new supply sees available properties dwindle, says leading property researcher Michael Matusik. Mr Matusik, director of Matusik Property Insights, said the tight vacancy rates could be attributed to a relative lack of new development in inner Brisbane, which is experiencing a resurgence in its popularity with new residents. “Inner Brisbane is attracting an average of around 5,000 new permanent residents per annum, and that is expected to continue over the next decade, whereas in the 1990s it was losing permanent residents,” he said. “The change can be credited to a shift in demographics, with an increase in lone person households and couples without children in the precinct, who are looking for a lifestyle of convenience close to amenities and transport to the CBD.”

Inner Brisbane suburbs Milton, Paddington and Rosalie are leading the charge, with figures from the Residential Tenancies Authority showing rent in these areas have risen by about 5.6 per cent over the past 24 months.

Mr Matusik said Milton was a prime example, where vacancy rates had plunged to just 0.7 per cent, with a vacancy rate under 3 per cent considered to be undersupplied. He said about two-thirds, or 62 per cent, of households in Milton were renting, which was representative of other inner city precincts. Mr Matusik said dwindling vacancy rates were not expected to improve in the short term, with the undersupply of new stock set to continue.

“For example, Milton has recorded the second highest population growth in Inner Brisbane at 4.4 per cent per annum over the past five years, just behind Kelvin Grove, which has led to its extremely low vacancy rate,” Mr Matusik said. “It is part of the Inner West precinct, which is one of the most undersupplied markets in Brisbane.

“Just 10 per cent of the current supply of new apartments for sale in Inner Brisbane are located in the Inner West, with FKP’s The Milton the only project currently selling off the plan.”

Property collapse talk is taken out of context

"RPData’s index suggests that maybe the worst is behind us, with the monthly and quarterly results starting to trend upwards. This recovery, however, is likely to be slower than those in the past, as many markets are now priced over $500,000, which presents an affordability barrier to many households and especially investors and first home buyers. It will take some time before wages grow enough to start pushing dwelling prices."

Source: Matusik

Matusik's Blog

Matusik's blog has a number of posts regarding the Brisbane apartment market. matusikmissive.wordpress.com

High in the High Rise

"Here's another misconception: if you're buying apartments, high-rise is best, and the higher the better. This one, too, has been shot down by the results of research.

Brisbane property analyst Simon Pressley, director of 6-Point Property, has found, contrary to popular belief, that apartments in small complexes outperformed those in high-rise buildings on capital growth.

Meanwhile, analyst Michael Matusik argues persuasively that the common belief that apartments in the higher levels are more valuable than those below is also a myth."

Full story in The Australian

It is hard to react to 6-Point Property's research, because they do not make it freely available. It can be purchased for $1,650. One reason for the better performance of small complexes compared to high rise is that many of the high rise apartments in Brisbane are relatively new, and a number of people (particularly non-Brisbane investors) purchased off the plan at inflated prices. If these buildings were removed from the survey, I wonder if the results would change?