New or Resale?

I am often asked whether it is better to buy a new or resale apartment?  A new apartment can be unsold developer stock in a new building or an off-the-plan apartment for a building not yet built.  A resale is a sale from someone other than the original developer.

There is a price difference between a new and resale apartment in Brisbane.  Sometimes, this is because a new apartment is new, with no wear and tear (e.g., freshly painted, new carpet, new kitchen, new appliances, etc).  But often, the price difference is not explained by newness.  Sometimes, the price difference is due to developer profit and marketing costs.

For example, Sunland is currently marketing Abian.  A large number of people I know have received a fancy brochure mailed to them, unsolicited, by Sunland.  There is an expensive display office onsite in Alice Street, where the landscaping alone would have cost a small fortune.  There is a video of a lost rich girl wandering around Brisbane, that does a good job not showing the neighbouring Quay West building.  Buyers are paying for all these marketing costs, plus the developers profits.

Another example is Infinity, by Meriton.  2 bedrooms, 2 bathrooms, 89 sqm in total, no balcony, 7 apartments per floor, short stay and hotel guests, for $647,000 and up!

Or you can buy an apartment in Metro 21, on level 25, with river views, a large balcony, 2 bedrooms, 3 bathrooms, 113 sqm total floor area, 4 apartments per floor, no short term rentals or hotel guests.  For a price less than a Meriton apartment.   Metro 21 is a boutique residential building, with good facility, and a low ratio of residents to facilities.  Seems like an obvious decision to me.

That is $7,269 per sqm compared with less than $5,700 per sqm.

Botanica South Brisbane

From information provided by Aria:

Botanica will be located in a prime location at 2-4 Edmondstone Street, South Brisbane which is opposite Coles and adjacent to the renowned Boundary street retail precinct.   The building will consist of 1 and 2 bedroom units, indicatively priced as follows;

• 1 bed 1 bath with parking (50sqm internally & 7sqm balconies): high $300’s - mid $400’s
• 2 bed 1 bath with parking (65sqm internally & 10sqm balconies): high $400’s – mid $500’s
• 2 bed 2 bath with parking (80sqm internally & 10sqm balconies): high $500’s - mid $600’s

That pricing seems high to me.  I can buy a great two bedroom two bathroom apartment in a good inner city building, that is more than 85 sqm internal and more than 12 sqm external, for less than these prices.

Aria's South Brisbane Bet

The AFR on Thursday (30/01/14, p.38) had a full page story about Brisbane apartment developer, Aria.  Some highlights:

• Aria has sold 188 apartments in three residential towers it has completed in South Brisbane since mid-2012.
• It has a 20 storey tower under construction on Grey Street.
• It is about to start another 20 storey tower of the corner of Edmondstone and Boundary Streets.
• Aria owns a dozen more sites in South Brisbane.
• South Brisbane is catching up to Bowen Hills and The Valley for residential apartment development.
• The change is due to construction of office towers, bring 10,000 workers to the area.
• Residential building approvals have jumped from 151 in 2010/11 to 744 in 2012/13.
• Gross rental yields are said to be 6%.
• Prices for Aria's apartments are $7,500 to $8,000 a sqm, and are likely to rise.
• Aria has lodged a DA for a 26 storey tower on Hope Street that will have over 180 apartments.
• Aria pays interest on deposits for off-the-plan apartments.
• 75% of Aria's clients are investors, with fewer than 10% being SMSFs.
• Half the buyers are from SE Queensland.
• There are more than 4000 apartments under construction in inner Brisbane.  The biggest supply potential is in Brisbane's North Eastern area, around Bowen Hills and The Valley - this is seen as a risk.

Brisbane off the plan apartment prices expected to soften in 2015/2016

In an article in Property Observer, BIS Shrapnel is forecasting further strengthening of the off the plan apartment market in Brisbane over 2014 and 2015 before a period of softening.

"Senior project manager and report author, Angie Zigomanis, said that the inner Brisbane apartments are increasingly attractive with yields in many of these projects around the 5% mark and above.

“However, with many expecting that the Brisbane market has now bottomed out and the risk of further price declines is dissipating, the impetus to enter the market has increased,” said Zigomanis.

Price growth up until the 2015/2016 peak is expected to be around 5% per annum.

Interstate Property Buyers

The AFR had a story on page 3 on Wednesday this week: "Interstate property buyers see value in northern exposure."  Some extracts:

• Investors from Sydney and Melbourne are flocking to Brisbane's apartment market seeking better value for money after being pushed out of increasingly expensive southern cities.
• Brisbane developer Silverstone Developments reports that 72% of off-the-plan sales in its Vertice project at Dutton Park were sold in interstate buyers.
• Other developers are all reporting surging interest from interstate buyers.
• Mirvac's chief executive for residential said there was an upswing in sales of quality Brisbane properties to interstate investors due to the low rental vacancy rates and increasing rental yields in prime locations across Brisbane, as well as the price differential between Brisbane and those in southern states.
• Since 2007, the gap in prices between Brisbane and Melbourne/Sydney has slowly opened up again.
• Further interest in Brisbane will be contingent upon how may jobs the south-east of the state creates.
• There is a lot more value for money in the Brisbane market, according to Metro Property Group.

Pradella developments

Pradella has a number of apartment developments in Brisbane that are currently being marketed.  These include:

Riverside, West End
1 bedrooms from $400,000
2 bedrooms from $540,000
3 bedrooms from $929,000
These apartments will be located behind the Waters Edge complex.  Project website.

Skyview, Kelvin Grove
1 bedrooms from $335,000
2 bedrooms from $524,000
3 bedrooms from $789,000
Settlement expected late 2014.

Canvas, South Brisbane
1 bedrooms from $346,000
2 bedrooms from $575,000
Settlement expected mid 2014.

Urban Edge, Kelvin Grove -- development completed
1 bedrooms from $429,000
2 bedrooms from $539,000

Waters Edge, West End -- development completed
2 bedrooms from $600,000
3 bedrooms from $889,000

Parklands at Sherwood - development completed
from $395,000

The Glass Factory Apartments in West End - Sold Out

CBRE was marketing The Glass Factory at West End.  It is reported as being sold out.  The current website states:

"West End’s fastest selling boutique development is now 100% SOLD.  After an incredible response from the market, the limited opportunity to purchase an apartment within The Glass Factory has passed."

Here is a price list from August 2013:

38 High Street

A new apartment development is currently being marketed off-the-plan in Toowong.  It is 38 High Street, overlooking the R.E. Hotel.  It even has a floor plan painted on the side of the sales suite.  the sign says that 2 bedroom apartments are available for under $500,000.  There are a number of sites in central Toowong earmarked for development.

Sunland's Abian ready for sale

Sunland has completed a very fancy display building for Abian, on site, on the corner of Alice Street and Albert Street.  See photo below.  There was an advertisement in the AFR magazine this weekend, inviting prospective purchasers to register.  I suspect that this building will be marketed as a high end building, at very high prices.  Sunland's apartment buildings on the Gold Coast are glitzy, and the apartments are large.  In my opinion, quality is average.  Q1 supposedly has a number of problems.  Sunland's honesty (or at least, that of a key executive/owner) has been questioned in a law suit in Melbourne -- see prior posts.  It will be interesting to see how successful Abian will be.

Buying of the Plan

At present, it seems that off-the-plan apartment developments are overpriced, and buying off the plan carries significant risks.  A series of commentaries in Property Observer discusses this issue.  See also this Kindle Book for more detail.  My recommendation is to look at existing apartments, rather than off-the-plan apartments.  The off-the-plan market appears to be fuelled by foreign investors, who are required to buy new properties under FIRB rules.

Avoid Areas where Chinese Buyers are buying

"There’s only one aspect of this that’s in any way outrageous – and that is the way Australian developers and their marketers are peddling bad real estate at inflated prices to distant investors.  There’s nothing new in this. 

Developers have always targeted distant investors to, firstly, get rid of unsold dwellings for which there are no genuine local buyers – and, secondly, to go a step further and create new stock specifically to sell to distant investors, notwithstanding the local over-supply or depressed market.  In the past, the victims have been found interstate, out west or in New Zealand. Now Asia is being targeted, especially China.

Marketing teams are taking roadshows to China and using deception to induce investors there to buy highrise apartments or house and land packages in poorly-performing markets.  There’s no crisis here, but one might emerge if Australian investors follow the advice that’s starting to emerge – namely, that they should be buying where the Chinese are buying.

I would suggest Australian buyers do the opposite. Avoid like the plague any markets being pitched to the Chinese. They’re being sold product in oversupplied markets, usually at prices above true market value. They’re not markets a sensible investor would want to be in."

See article in Property Observer

Based on this advice, one would want to carefully consider buying in any Meriton or Metro Property off-the-plan development in Brisbane.

Soda Apartments, South Brisbane

A new development at South Brisbane is in pre-sale, Soda Apartments.  Lifestyle video here.

The building is 20 storeys, with 131 apartments.  It is behind Fish Lane Apartments, and is located at 27 Cordelia Street, which is a busy street leading on to the Go Between Bridge.  (Soda will impact the apartments on the northern side of new Fish Lane apartment building, which can be seen on the left in the rendering below.)

• 19th Floor, 2 bed, 1 bath, 71 sqm, apt 1906 = $510,000
• Apartment 608, 2 bed, 2 bath, 90 sqm, no view = $595,000
• Apartment 602, 1 bed, 1 bath, no view = $375,000
• Apt 604, 1 bed, 1 bath, no car, no view, 64 sqm = $340,000
• Apt 1908, 3 bed, 2 bath, 190 sqm = $1,650,000

This pricing looks expensive to me!

Australand’s Watermarque

From an email from a PR consultant for a developer:

I thought you might be interested in this sales update for Australand’s Watermarque precinct within its $500 million Hamilton Reach development.

More than $120 million in sales have been achieved to date and only three two bedroom apartments remain for sale in the boutique precinct.  The apartments have proven popular with downsizers looking to sell their existing homes and relocate to an inner city, riverside luxury address.  The trend has been backed by Place Advisory’s Market Report on Inner Brisbane Apartments, which reported downsizers were beginning to influence the off-the-plan market for the first time since the GFC, demanding larger and higher quality stock.

The report showed two bedroom apartments accounted for the highest amount of inner Brisbane apartment sales in the June 2013 Quarter, with 48 per cent of unconditional sales registered.  Place Advisory’s Lachlan Walker said the highest number of sales was recorded in the Inner North, which includes the suburbs of Hamilton, Fortitude Valley, Kelvin Grove, Bowen Hills, Newstead, Albion, Milton, Toowong, Bowen Hills, Tenerife and New Farm, which was a positive indication local confidence is returning to the Brisbane off-the-plan market.

“The Inner North, which includes the suburb of Hamilton has again performed well in the latest quarter,” Mr Walker said.  “It’s a popular choice for inner Brisbane locals who are looking to downsize their homes but not compromise on a connected, inner-city lifestyle.  The sales results reflect there are a lot of good buying opportunities in the area but smart buyers know this stock is limited and are taking advantage.”

Watermarque will feature 78 apartments across two medium-rise five-storey buildings. The three remaining apartments are priced from $635,000 - $710,000.

Abian Apartments on Alice Street

Sunland has cleared their site on the corner of Alice Street and Albert Street.  The old apartment building there has been demolished.  Sunland is now building a fancy display suite, for Abian Apartments.  Rumours are that there will be few apartments in this building, with no one bedroom apartments.  Most apartments will be aimed at owner occupiers, and will be large.  The building is in a great location.  It will impact the two bedroom apartments in Quay West which overlook this site.

Photo from demolition

Recent photo of display suite being constructed, from same position.

Off the Plan Valuations Not Holding Up

An article about Sydney off-the-plan apartments valuations coming in at settlement at 85% of the contract price.

See Property Observer

Oracle Gold Coast Losses

Virtually every purchaser off-the-plan at The Oracle development (now branded Peppers) on the Gold Coast has lost money when reselling.  See article here.

Kelvin Grove Apartments

Another new apartment development in the Kelvin Grove Urban Village area.  It is Victoria Park Residences.  Currently in pre-sales.

Foreign Investors

Foreign buyers snapped up one in every eight new properties built this year - up from one in 20 properties in 2011, National Australia Bank research reveals.

Australia's foreign investment rules ban foreigners from buying established homes, and developers can sell half their properties to foreign investors before they are built.

Colliers International's managing director of residential property in Australia, Peter Chittenden, yesterday said Asian buyers were purchasing 60 per cent of units being sold off-the-plan in big developments.

He said overseas buyers had snapped up two in every three of the 588 luxury apartments in the Singaporean-owned Tower Melbourne development - being constructed as the city's tallest building.

Foreign investors have bought 15 to 20 per cent of the 710 apartments being built by Pearls Australasia and Metro Property Development in three towers in the inner-Brisbane suburbs of Bowen Hills and Fortitude Valley.  Pearls Australasia executive director David Higgins said Asian buyers were more likely to buy the more expensive apartments - costing more than $600,000 - with extra space or views.

Source:  Courier Mail

"According to research from LandMark White, of the 27 apartment projects completed in the inner-city precinct between 2011 and 2012, the vast majority were rental properties.  "Anecdotal evidence reports circa 40% to 50% of these investors are Asian buyers," it reports.  "Current conditions indicate investment in the inner apartment market remains robust due to strong rental growth and tight vacancy."

Source:  Courier Mail, Saturday August 24, 2013, p.33

See also: Property Observer: Trends

Guaranteed Losses if you pay too much

If you pay too much to a developer when buying off the plan, no matter how good the location, and how good the development, you will loose money.  Often, developers will show you beautiful brochures of the facilities in the location (all true) and tell you rents are higher in this location than others (again true) and that it is a popular, closely held area (true again), and then try to sell you an apartment that is 20% above market value.  If this happens, you will likely suffer a capital loss.  See this story for example about capital losses in a bullet proof area.  Investors looking at SouthPoint at SouthBank, which is a brilliant location and looks to be a quality development, should take notice of this warning, particularly when prices are more than $10,000 a square metre.

Alex Perry Residential Struggling?

Alex Perry Residential in the Valley launched with great hype, and, according to hits on this blog, was of great interest to people looking to buy an apartment.  The dreams and promises of 2011 may not come true.  According to Property Observer:

"... the much touted Alex Perry Residential development, which hit the market more than two years ago complete with supermodels and paparazzi, continues to struggle with developer Chrome Property providing no update on off-the-plan sales to Colliers International.  Colliers International records 40 apartments sold to date out of 143 for a project which was first marketed in May 2011 and is now being managed by property development services group Xede, after being re-jigged with three-bedroom apartments replaced with one bedroom apartments and more than half of the 143 apartments to be sold to investors as serviced apartments.

Xede managing director Rod Fiddler told Property Observer the project had received development approval with a builder appointed.

“Sales are continuing and we are progressing towards financiers’ pre-sales targets.  We are not in the business of publicly declaring sales results as these are too often manipulated or misinterpreted," he said.  “Construction is targeted to commence this side of Christmas with demolition as early as September 2013,” he said.