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."

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The Long Decline in Australian House Values?

Morning Money, an investment website, has recently published an article:  The Long Drawn Out Retreat in Australian Housing Prices.  It predicts, due to an ageing population, that Australia will not need more housing in the future, and that house prices will decline as baby boomers sell up or die.

Whether the prediction is correct or not, I don't know.  However, I believe that apartments are more suited to an ageing population than stand-alone houses.  That is one reason I prefer apartments to houses.

Prices to Recover in Brisbane?

According to BIS Shrapnel, Brisbane will have housing price growth of 3.9% in FY 2013, 7.8% in FY 2014, and 6.2% in FY 2015.

This is a very bullish prediction.  It is interesting to look back on past BIS Shrapnel predictions to see how accurate they are.  See e.g.:  Report from two years ago, that predicted 5.3% growth for July 2011 to June 2012 for Brisbane -- way out!

Below is an extract from the current report.

Many Property Clocks

"There are some signs of a recovery in the Brisbane property market, but it still remains firmly in a downswing , with investors seeking bargains in the unit market as new apartment projects are completed, says WBP Property Group. WBP places the Brisbane housing and unit market at five o’clock on the property clock.

“Many purchasers who have bought off the plan have seen prices come off from original date of contract. Investors still remain wary as to when the bottom will be and are on the lookout for a bargain buy,” says WBP

See Brisbane Downswing

So we have some commentators saying that Brisbane is at 12 noon (top of the market, and set to fall) and others saying it is "on the cusp of improvement", and now at five o'clock.  Who really knows?  These are all just guesses.  Your guess is as good as theirs.

Brisbane Apartments Prices to Fall

"The Brisbane inner-city apartment market is heading into a downswing due to the large numbers of off-the-plan projects currently being marketed in the Brisbane CBD and surrounding suburbs, according to property investment adviser Michael Yardney.

Yardney, the director of Metropole Property Investment Strategists, places the Brisbane unit market at two o'clock on the property clock – 12 o’clock indicates the property market has peaked while 3pm indicates the market is in a downswing.

Yardney expects there to be an oversupply of inner-CBD and near-CBD apartments in Brisbane for the next few years, causing prices to fall slightly.

Most recent data put out by the Real Estate Institute of Queensland has unit and townhouse prices in Brisbane up 3.8% over the June quarter to a median of $402,500 – but down 1.5% year-on-year.

Yardney says many of the Brisbane projects being currently marketed will remain unsold and this oversupply of properties will put downward pressure on prices and rentals.

“Many of the apartments that have been sold off the plan are coming on stream in the next few years and have been purchased by investors.  Some will have difficulty getting finance and settling their purchase. Others will be disappointed to see the end value of their properties is less than their purchase price,” he says.

Yardney assesses the Brisbane detached house market to be between four o’clock and five o’clock – still in a downturn but on the way to bottoming out.

“House prices have dropped for the last two years in Brisbane.  Brisbane buyers are lacking confidence to re-enter the market and are sitting on the sidelines waiting for signs that the market has bottomed before they make a purchase. Many were waiting for the resources boom to reignite their property market, but recent negative media has again dampened confidence,” says Yardney.

According to Yardney there are signs that the inner and middle-ring Brisbane home market is picking up, with more buyers returning and many properties now selling under a multi-offer scenario.

“Brisbane is entering the stabilisation phase of its property cycle, but prices are unlikely to start rising until 2013.”

Full Story on Property Observer

Housing Market Slumpy?

There are many negative stories at present about the housing market.  For example, "Gloom Returns to Housing Market" (but is Queensland the only bright spot?) and "no housing shortage".

Many pundits say employment growth drives property growth, and unemployment causes property prices to fall.  If that is the case, then Brisbane is heading for a property slump, due to massive Queensland government lay-offs.

Talking to taxi drivers and shopkeepers in Brisbane, in a very unscientific survey, it seems that business is very bad, and when good, is patchy.

It will be interesting to see what happens in September.

Ray White's view

This from a Ray White agent's newsletter, about the Brisbane inner-city apartment market:

"Large amounts of buyers enquiring on our properties. I have not seen this level of enquiry since the peaks of 2007. We are expecting price movement in the second half of 2012, on the back of large amounts of property selling."

I guess times must be good.  I have emailed a number of agents about apartments listed for sale in Brisbane, and many have not returned my emails.  I have inspected a few, and asked to put in an offer, but no reply.  I guess there are too many buyers out there, over-running the agents!  Or maybe, too many agents have quit the business during the past lean years?

Which Way Is The Market Going?

In trying to work out which way the market is heading, I decided to call a number of Brisbane real estate agents who sell apartments.  Last week, I call about 10 agents and said that I wanted to sell an apartment that I owned.  Eight out of ten said now is a good time to sell, because the market is likely to get tougher or stay flat for a long time.  Some said that it would be best if I could hold and not sell, provided that I was prepared to hold for some time.  But if I needed to sell in the next few years, then I should sell today.

This week, I called the same agents, and asked if it was a good time to buy, and that I was interested in an apartment that they had listed for sale.  I did not tell them it was the same person who called them last week.  Eight out of ten said it was an excellent time to buy, as the market was at the bottom, and prices were sharp.

Two real estate agents each time said that they did not know, or did not want to offer an opinion.

So I guess asking real estate agents is not the way to go.  But many people seem to rely upon real estate agents when making buying or selling decisions, which is probably not the best thing to do.

The real answer to the question of whether it is a good time to buy or sell is that no one really knows.  Another answer is that property is a long term investment, so if you a looking to buy for a short term gain, or need to sell in the near future, then the answer for you may be different than a general, abstract answer.

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.

Prediction: Market to Keep Falling in Brisbane

My prediction for the next four months -- the Brisbane property market will continue to decline.  My reasons - (a) There is much uncertainty as to what new taxes and increased taxes Newman will hit property owners with.  We will not know until September.  (b) There will be many Queensland government employees and contractors who will suddenly become unemployed.  This has started to happen, and they are selling their investment properties in distressed situations, and few government workers are buying investments at present due to the uncertainty.  It is uncertain whether foreign buyers will be less interested due to the doubling of capital gains tax for non-residents.  I am seeing many Brisbane apartments being sold for 10% below recent sales price.  Gloomy times ahead.

Brisbane Apartment at Bottom?

Valuers HTW say in their recent report that the Brisbane apartment market has bottomed out.  They also say this about residential property in Brisbane:
"The reality on the ground is this – most agents are stating with certainty that there has been an improvements in the number of buyers under $500,000 with the vast majority being investors. Most agents who speak openly and honestly will tell you that this is a good sign but let’s not start popping the corks just yet. We would also say that many who have made the positive the call on the sub half million property turnaround will just as quickly remind you that over $500,000 property is still a ghost town."
HTW June 2012 Month in Review

Slow Growth For Property Values

Some extracts from a recent SMH article (and the SMH is usually pro-property, because its biggest advertisers are real estate agents):

''Realistically, anybody looking to build up wealth and equity in their property needs to have a long-term view. They're not going to be accumulating equity in their property in the current conditions, or over the next couple of years, very quickly,'' Mr Lawless said.

Christopher Joye, an executive director of Yellow Brick Road Funds Management, predicted that over the next 10 years, house price growth would be about half what it had been in recent decades.

''For the last 20 years or so house prices grew by nearly 8 per cent a year, however over the last four years they've only grown by 2 per cent per annum,'' Mr Joye said. ''Over the next 10 years we only expect house prices to track household incomes and we project that disposable household income should grow by about 4 to 5 per cent per annum.''
 See SMH

Brisbane Not Yet At Bottom

For Apartments:

The Brisbane apartment market fared worse than the house market in the last six months of 2011 and faces an oversupply of this type of property.  REIQ figures for the December quarter 2011 show that rental vacancies in inner Brisbane – where most of the stock is apartments – increased from 1.4% in the September 2011 quarter to 1.9% in the December 2011 quarter while the overall city vacancy rate remained unchanged at 2.3%  

In addition, valuation firm LandMark White is warning that a combination of too many projects and historically low demand could result in an oversupply of new apartments in inner-city Brisbane suburbs like Fortitude Valley and Bowen Hills.

The firm’s property valuers believe affordable “entry-level” apartments within five kilometres of the CBD will continue to appreciate in value but expect values in prestige units in new complexes to continue to fall.

“We have seen demand for prestige units decline again, with extended marketing periods or heavy price reductions,” says WBP.

On the other hand, “entry-level units are being purchased by single professionals who require affordable housing and access to the Brisbane CBD. We have recently seen volumes of sub-$400,000 unit sales increase.”

Michael Yardney is very bearish about Brisbane units, placing the market in the relatively early stages of a property downturn at three o’clock.

“There are a large number of off-the-plan apartments available in the Brisbane CBD and surrounding suburbs. Many of these remain unsold, and this oversupply of properties will put downward pressure on prices and rentals,” he says.  “Many of the apartments that have been sold off the plan are coming on stream in the next few years and have been purchased by investors.  Some will have difficulty getting finance and settling their purchase. Others will be disappointed to see the end value of their properties is less than their purchase price,” Yardney says.

“There will be an oversupply of inner-CBD and near-CBD apartments in Brisbane for a few years, causing prices to fall slightly.”

See Report Here

For houses:

As the house price growth figures from RP Data show, Brisbane’s housing market continues to fall.

House prices were flat over the final quarter of 2011, according to figures compiled the Real Estate Institute of Queensland, which says that one year on from the floods, the housing market is showing signs of stabilising.

Michael Yardney, Louis Christopher and Charles Tarbey all believe Brisbane has some way to go before it bottoms out.

“House prices in Brisbane have dropped for the last two years. Brisbane buyers are lacking confidence to re-enter the market and are sitting on the sidelines waiting for signs that the market has bottomed before they make a purchase,” says Yardney.  “This may occur later this year as Brisbane prices stabilise. Prices are unlikely to start rising until the second half of this year or 2013.”

See Report Here

Kickstart coming, or not?

Comment from a reader on a prior post and newspaper story from this week:

Referring to the extract from the AFR: Qld Property Due for Kick Start:

One contributor to that article states in para 4: Quote:  “Because of the huge influx from the resources companies in the office towers, I think what is going to happen within six months is people will have to pay three months’ to six months’ rent in advance to secure an apartment,” Woodley says. “There really aren’t many being built.” Unquote.

According to and as reported in Australian Property Investor Magazine, January 2012 issue, (page 109) there were 5,957 units on the market for sale in Brisbane as of October 2011, not Queensland, BRISBANE!   

Repeat Quote: “There really aren’t many being built.” Unquote.  I find that statement very puzzling.  In excess of one thousand apartments are in current construction in some form around the Brisbane CBD 2km circle.

Resource workers all already have a home or somewhere to live and if have families, have an existing home, rented or under mortgage or owned outright.  They all know the story of their friends who invested their hard earned cash into Gold Coast Units and lost and the resource unions are already warning  their members about a repeat of this scenario of the 90’s fore-seeing harder times to come in that industry as China winds back just as the Japanese did in the early 90’s despite the upbeat talk about the mining “boom”.  And the contributor has also over-looked this: Resource workers are all on “contract labour” employed by labour hire companies, not the mining companies themselves. They have no full time job and are employed essentially by the hour only. They can be and are, dismissed with no notice or reason.  The banks will not lend to people in this employment situation.   They are not bankable in this economy.

My reflections on the inner Brisbane apartment market

Here are my thoughts based on my non-scientific observations:

• Most of the apartments sold in inner-Brisbane in the past year have been one bedroom apartments.
• Thus, the medium price will be lower, because the kind of apartments selling are the smaller, cheaper apartments.
• However, many apartments are being sold below the previous sale price for that same apartment.
• In a number of buildings, the prices being achieved for apartments are equivalent to prices in 2007.
• Two bedroom apartments above $600,000 are not selling.  If they do sell, the contract often crashes.
• In some quality buildings, prices have not deceased, but there have been few sales.
• Vendors are discounting if they need to sell.
• Rents are increasing, but so are body corporate fees.
• Apartments being sold off-the-plan are being sold at prices that well exceed the price of similar existing apartments.

A sample of sales from a Ray White report is set out below.  (Double click on image to see larger version.)

Brisbane Property Strategy

Here is a story, where two Metropole agents have a discussion about the Brisbane property markets.  Listen here for what it is worth.  "A lot of segments of Queensland have hurt over the past 12 months."  Interestingly, they compare the decline in property values with declines in share prices -- but there are three additional factors to take into account here -- firstly, the income received from shares by way of franked dividends are much higher than net returns from property (good shares return about 3 times as much income as good property on average); secondly, most people who buy shares are not as highly leveraged as people who buy property, so a 6% decrease in value in property often is actually a 50% capital loss for a leveraged investor; and thirdly, shares a more liquid and have significantly less transaction costs compared with property.

Brisbane Apartment Capital Growth

Extract from a recent article by Tim Lawless from RP Data:

"Another recent trend has been the superior performance of the unit market relative to houses. Over the first five years [2001 to 2005] average annual growth was recorded at 8.7% for houses and 6.2% for units, over the last five years [2006 to 2011] the figures have been 4.4% pa and 5.5% pa respectively. The results reflect the fact that affordability has become an issue and people are focusing on cheaper housing options. The results also reflect changing lifestyle patterns and a greater acceptance of unit living, particularly within inner city areas of our major capital cities.

If recent market conditions are anything to go by, the residential housing market is likely to show lower levels of capital gains in the coming years compared to the longer-term historical trend. It is important to note that historically housing has been a long-term asset class which has appreciated at a slow pace over a long period of time. In recent years big spikes in growth rates have seen people more prepared to speculate on short-term value growth. Given the recent data it looks as if the housing market fundamentals are reverting to "normal" market conditions after a period of higher than normal growth rates."

Savill's view of Brisbane

"There is demand at the moment. There is going to be some rental growth, certainly in the CBD and fringe and I think the unknown is in the investment market what's going to happen there.

"The credit squeeze is still on, we know that. It's very tough to get finance. It's very tough to get funding for development. But I think there is some light at the end of the tunnel in that regard."

Courier Mail

RP Data December 2011 Index

"On the outlook for the year ahead, Rismark’s Ben Skilbeck commented, “We expect that the RBA’s interest rate cuts in the final two months of 2011 will lend further momentum to housing activity as transaction volumes pick up over February and March after the seasonally slow months of December and January. If financial market pricing for substantial additional RBA rate cuts proves accurate, we could see a stronger-than-expected bounce-back in housing conditions.”

“Housing affordability in Australia has experienced a striking improvement in recent times. While disposable household incomes on a per household basis rose by five per cent over the year to September 2011, Australian dwelling values have declined by 3.4 per cent since September 2010. As a result of the RBA’s rate cuts borrowers can now get fixed- and variable-rate home loans as low as 5.9 per cent and 6.14 per cent. Rismark’s research shows that disposable incomes per household have risen about 15 per cent further than Australian dwelling values since the end of 2003. This helps account for the decline in Rismark’s national dwelling price-to-income ratio, which is as low as its been since 2003” Mr Skilbeck said.

RP Data’s Tim Lawless added, “While global uncertainty and a stagnant local labour market could weigh on the consumer’s mindset, we are nevertheless observing improvements in monthly housing finance commitments. RP Data’s leading indicators on average selling times and vendor discounts are also starting to look healthier. There is no doubt that additional interest rate relief in 2012 would afford a very welcome cushion to the housing market.”"

See RP Data.  Chart above from RP Data, for Apartments only (not houses) for period ending December 2011.  It shows a decline in Brisbane apartment prices for all relevant periods.