Brisbane Apartment Glut, then Crash

Queensland University of Technology property economist, Professor Chris Eves, has warned a glut in apartments in Brisbane's CBD, South Brisbane and West End would cause a price crash for apartments in 2016.

"I know of one construction company [Hutchinson] that currently has contracts out for 3000 units in those locations and basically when you are looking at those sorts of numbers, you are looking at a serious oversupply, he said.

Professor Eves said research showed there had been a 9% increase in the number of approvals for apartments in inner-city Brisbane in the past year.

"But we are not seeing the same sort of increase in the population," he said.

The crash will hurt major developers, off-the-plan buyers and some banks, but deliver a bonanza for renters and buyers.

"If we see those approval numbers continue, we are looking at the potential of another Gold Coast/Sunshine Coast glut in the unit market."  

He said the glut in Brisbane CBD, South Brisbane and West End apartments would peak in 2016, causing prices to drop sharply.

See Brisbane Times

Developments in Brisbane

A good website to look for future developments in Brisbane is the Brisbane Development website.  It demonstrates that there are many large apartment buildings in the pipeline for Brisbane.  Some examples:

• CavCorp's proposal for 366 apartments at Newstead Gasworks.
• Walker Corporation has plans for 433 apartments on Ann Street in the Valley.
• Aria plans for 84 apartments in Vulture Street in the South Brisbane
• Plans for 353 apartments on Brunswick Street in the Valley

Before buying, it is worth looking to see if your views will be blocked by any proposed new development.  And keep in mind that there is likely to be an oversupply of new apartments in Brisbane in the next 2 years.  Maybe wait until these buildings all settle, and you may then get a better price.

The Brisbane Development website has a good interactive map showing developments.

Brisbane Skytower

Pre-marketing has commenced for Brisbane Skytower, said to be the tallest residential tower in Brisbane when it is completed.

It is being developed by Billbergia on the old Vision tower site (now called 111 + 222).

It has four sections, a downtown section, an uptown section, a skycity section and a skyrise section.  The starting price for what I guess is a one bedroom apartment starts at $425,000 in the downtown section and increases to a minimum of $595,000 in the skyrise section.

In less than a city block, there are more than 2,000 apartments coming online.  There are three towers, Skytower (at 222 Margaret Street), Abian (on the corner of Alice and Albert) and Camelot (on the corner of Albert and Margaret).  Seems like a glut to me.

Another South Brisbane Apartment Complex

Opera, another apartment complex is South Brisbane, is being marketed off the plan.

One bedrooms from $385,000 and two bedrooms from $580,000.

Spire at 550 Queen Street

After it failed to sell the land, Consolidated Properties has announced that it will be developing a 39 level tower at 550 Queen Street, called Spire.  It will have 340 apartments, which appear to be small one and two bed apartments.

Previously, an office building was planned for the site.  See SMH.

Large number of off-the-plan apartments being marketed in Brisbane

There are a large number of new apartments being marketed by developers in Brisbane at present.  Buyers beware!  Here is a list of just some of them.

Cinque at Kelvin Grove
FV in the Valley (Flatiron Valley?)
Light and Co at West End
CP Residences at Indooroopilly (Central Park Residences)
Arbor at West End
The Highgate at Highgate Hill
Mode at Newstead
Unison at Newstead
Rivers Edge at Breakfast Creek
Habitat West End
Citro at West End
Abian Skyhomes on Alice Street
Spire in the City
Grace on Coronation at Toowong
Boggo Road
The Hudson, at Albion
Spice Apartments, South Brisbane
The Milton
Skyring at Newstead
Newstead Towers
Broadway on Ann in the Valley
Central Village, the Valley
New World Towers in South Brisbane
Riverview Towers at Kangaroo Point
South Point in South Brisbane
Liberte, Kangaroo Point
Yungaba, Kangaroo Point
Hamilton Reach
Proximity Hamilton
Canopy at Bardon
Circa at Nundah
Basse at South Brisbane
Hope Street at South Brisbane
Soda at South Brisbane
Botanica at South Brisbane
Jade at Albion
OneBrisbane at Bowen Hills
The Yards at Bowen Hills
Keynote at West End
River Le at West End
Art House at South Brisbane
Opera at South Brisbane
Hercules at Hamilton

Spice Apartments at South Brisbane

The Spice Apartments development at South Brisbane is currently being sold off-the-plan.  According to the agents selling these apartments, most have sold.

It is a 14 level development, with two towers sharing a common podium.  The complex overlooks the onramp and tolling infrastructure for the Go-Between Bridge.  It is river front, sort of, with trees and and bikeway between the apartments and the river.  Many of the apartments will have no views, or will only have views of a busy road or industrial buildings (that will probably get redeveloped into apartment or office towers.)  Any city views are likely to be built out.

Example prices:

• One bedroom on level 2 with car space, 54 sqm internal, with balcony and court yard, so total 78 sqm.  No view.  $429,000.
• One bed, one bath, level 2, 49 sqm internal, with balcony and court yard, total 77 sqm, $420,000.
• Two bed, one bath, 1 car, level 12, internal - 63 sqm, total 76 sqm, one bedroom is internal with no windows (so this is really a one bed plus study) - $526,000
• Two bed, two bath, 1 car, level 3, internal - 83 sqm, total 101 sqm - $585,000

In my opinion, these are expensive prices for small apartments that are in a poor location.  Even though only 15 minutes walk to the city, there is not much currently in this area.  It is a long walk to South Bank, even though the sale brochure for the development has lots of South Bank photos.

The body corp fees for the first year are low, around the $3,000 a year mark.  My guess is that these are likely to increase substantially in subsequent years.

Rents for unfurnished apartments are provided by the developer:

• 1 bed - $410 to $480 a week
• 2 bed, 2 bath - $550 to $640 a week
• 3 bed, 2 bath - $850 to $950 a week.

It will be interesting to see if these rents are actually achieved.  You can rent a 110 sqm two bed, two bath apartment at South Bank, with river and park views, fully furnished for $690, so it is hard to see how these rents are possible.

Before buying, I would suggest looking at Vue Apartments, which are diagonally opposite the bridge and river.  Compare actual sales prices and actual rents for similar apartments, and look at this building's financial performance.

Project Aparment

The Australian newspaper has a lift out regarding buying and investing in new apartments.  See ProjectApartment.

The Highgate in Highgate Hill

Pointcorp is marketing The Highgate located in Highgate Hill, next door to the famous Torbreck building.  Looks like it will have great views north to the city.  The complex will have 42 apartments starting at $1.5M.  The developer says that is sees a demand for premium apartments in Brisbane, in the $1M to $2M range.  The AFR below reports 108 sales in Sunland's Abian on Alice Street and good results for SouthPoint and Pinnacle presales.

Meriton Soleil Resales - Some up, some down

It is interesting to see how resales have gone for off-the-plan purchasers in Meriton's Soleil (501 Adelaide St, Brisbane).  Some original buyers have profited, and some have lost.  I am not convinced that the risk in buying off-the-plan, when you can't see the view or quality or feel of the apartment, is worth it, when it seems that there is a good chance that you can buy the same apartment when complete for less.

Apt 5304 - Sold off-the plan in June 2009 for $543,000, resold in June 2014 for the same price.  This is a loss, because of stamp duty and agent's selling fees.

Apt 2403 - Sold off-the plan in August 2012 for $493,725, resold in April 2014 for $525,000.

Apt 5505 - Sold off-the plan in August 2009 for $669,240, resold in April 2014 for $600,000.

Apt 5604 - Sold off-the plan in November 11 for $586,000, resold in April 2014 for $565,000.

Apt 4404 - Sold off-the plan in April 2012 for $485,000, resold in April 2014 for $572,000.

Apt 4004 - Sold off-the plan in March 2009 for $502,000, resold in March 2014 for $570,000.

Interest Rates and Housing Bubble in Australia?

Interest rates for residential housing are at lifetime record lows.  Banks are awash in cheap cash that they want to lend.  Lending standards have deteriorated, and money is being loaned out willy nilly.  Good established properties in Brisbane are selling quickly at good prices.  Those wanting to invest are turning to off-the-plan apartment developments, where it is an easier process to sell and buy -- but at higher than market prices.  Is housing price growth solid and sustainable, or a bubble?

When buying, questions to consider:

• What will happen when quantitative easing ends in the USA?
• Will there be inflation?
• What is the risk of the Australian government removing negative gearing, and what impact will this have on property prices?
• What will happen if China property prices collapse?  What will happen if Chinese buyers stop buying in Australia?
• In a year, will all off-the-plan buyers be able to settle?
• Why are off-the-plan prices for apartments much higher than similar properties that the developers have sold, and the first owner is reselling?

An interesting article re the possible bubble is here.

Skyring Gasworks Newstead

Tom Dooley (TDD) is launching their Skyring development at the Gasworks site in Newstead (30 Festival Place).  This area is a popular development area at present, with FKP, Devine, Mirvac and Metro all with off-the-plan and completed developments in this area.

The development has 23 floors, with 11 apartments per floor.

TTD is has a chart on their website, representing what rents they believe will be achievable.  Some examples from the 10th floor:

• Two bedrooms - 82 sqm internal, 20 sqm balcony - $660 per week.
• Two bedrooms - 69 sqm internal, 18 sqm balcony - $590 per week.
• Two bedrooms - 105 sqm internal, 30 sqm balcony - $810 per week.
• One bedroom - 60 sqm internal, 17 sqm balcony - $525 per week.

Place Apartment Report

Place has published their "Current Market Report - Inner Brisbane Apartments - March Quarter 2014".  Link is here.

The report focuses on new, off-the-plan apartment developments, and is worth reading.  Many people say that there soon will be an oversupply of apartments in Brisbane.  At present, it is taking longer to rent out apartments, so maybe the glut is already here.  Maybe there will be an oversupply of smaller rental apartments and an undersupply of apartments for owner-occupiers?

Some highlights from the report:

• The three months to March 2014 recorded 639 unconditional sales. Although this is not to the same level of transactions as the record breaking December Quarter prior, this is still almost twice the 10 year average of 326 unconditional sales per quarter.
• A weighted average of $710,524 was recorded during the March 2014 quarter. This is a figure 30% above the December period previously and representative of a higher level of owner occupier sales recorded in Inner Brisbane as opposed to any genuine price growth.
• The increase in local buyers has seen 52% of transactions recorded as two bedroom configurations.
• Despite this weighted average price rise, the 12 month rolling average price remains under $600,000, reflecting an overall longer term demand for affordable inner city apartments.
• One bedroom sales represented a further 40% of the quarter’s transactions, again the bulk of which transacted within the $350,000 and $450,000 price point.
• The distribution by price point was more evenly spread through the first quarter of 2014. The $350,000 to $450,000 price point still however retained the market share with 26% of the quarter’s sales.
• There were 1,225 apartments remaining for sale in Inner Brisbane at the end of the March 2014 quarter – The lowest level in 4 years.
• Overall, two bedroom apartments maintain the majority of current supply within Brisbane equating to 58% of the apartments remaining on the market. One bedroom apartments total only 29% of the available apartments for sale, and 3 beds represent only 9%.
• There were six new projects which recorded unconditional sales during the March 2014 quarter. These included Abian (CBD), Proximity (Hamilton), 38 High Street (Toowong).
• The best performing projects in Brisbane during the quarter were Abian (108 transactions), Broadway on Anne (58 transactions), Southpoint (46 transactions), Proximity (45 transactions), and 38 High Street (44 transactions).

Gardens Riverside West End

Pradella is advertising apartments in its Gardens West End development (which is located behind Flow and Waters Edge) at the following prices:

• 1 bed, 70 sqm - from $399,000
• 2 bed, 2 bath, 93 sqm - $565,000
• 3 bed and student - $929,000

Pradella's apartments are often well-designed, and are often a decent size and quality.  I am not thrilled with this location -- too far from the shops and restaurants in West End.  But it is less than 3 km from the Brisbane CBD.

Proximity Hamilton

Peloton is developing Proximity Hamilton.  This appears to be located at the back of the Portside development, and is not direct riverfront (although the river and cruise ship terminal is nearby).  One beds from $330,000 and two beds from $495,000.  A "free" furniture pack is offered.  Looking at the website, it appears to be targeted at people in their twenties who like to eat but don't actually eat that much.

The largest apartment is a corner two bedroom:  82 sqm internal, with a 13 sqm balcony.  See floor plan below.  This looks ok, but there are only 4 of these apartments.   Most of the other apartments are small -- 50 sqm internal for a 1 bedroom (where I would expect at least 60 sqm to be reasonable size.)

Basse South Brisbane

A new development in South Brisbane, Basse, is being sold off-the-plan.  It is located at 14 Merivale Street.  The complex appears to have 1 and 2 bedroom apartments only.  The one bedroom apartments start at $339,000.  A two bedroom apartment is advertised at $539,000.  Buyers should take care -- this development is on a very busy road -- the off ramp for the Go-between Bridge.

UniSon by Mirvac at Newstead

Mirvac has announced another apartment building in Newstead, called UniSon.  This will be located on the edge of the "Waterfront" development site.  It appears that there are a number of buildings to come on this site, so you will have plenty of time to select an apartment now or for many years in the future.

Soda Goes Soggy

It has been reported recently that the Soda apartment development in South Brisbane did not receive development approval from the Council.  Although 129 out of 131 have sold off-the-plan, the developer had not obtained development approval to build the building.

A newspaper report states that the apartments do not have sufficient ventilation, ceiling heights are too low, and there is not enough visitor car parking.  "The only outlook of many of the habitable room windows would be to a (future) adjoining development in very close proximity."

Well-known property law David Colenso said:  "Contracting 98% of apartments without a development approval contravenes all the basis risk parameters of property development.  Judging by the extent of councils refusal, this developer may need to redesign the development which puts at risk all contracts under Queensland's disclosure regime."

When I looked at this development in October, I thought that it was expensive.  It now looks to be very expensive, due to what appears to be poor quality design.

Investors buying off-the-plan should look at the checklists and information in this book.  Ceiling height, aspect and cross-ventilation are important to consider, and are often not disclosed in the glossy sales brochures.

Warren Buffet's view of buying in the resale market

Should I buy off-the-plan from a developer, or a resale apartment?  Warren Buffet has an interesting view in relation to IPOs and stocks, from his letter to shareholders in 1992, that I have adapted below for residential real estate:

"The secondary market which is periodically ruled by mass folly, is constantly setting a 'clearing' price.  No matter how foolish that price may be, it's what counts for the holder of property who needs or wishes to sell, of whom there are always going to be a few at any moment.  In may instances, properties worth $X in value have sold at 1/2 or less.

The new off-the-plan market, on the other hand, is ruled by developers, who can usually select the timing of offerings or, if the market looks unfavourable, avoid an offering altogether.  Understandably, these sellers are not going to offer any bargains; it is rare you'll find X for 1/2 X here."

Another Pradella West End Development

Pradella has started marketing a new development on the large parcel of land it has accumulated in West End.  This development is being promoted as Gardens Riverside West End (although it is not river front, and has a road and the Waters Edge buildings between it and the river, and it is a long walk from the main shopping and restaurant street in West End).

There appear to be many more Pradella buildings planned for this plot of land in West End.