When should I buy? When should I sell?

The Brisbane inner city apartment market is somewhat strange at present.  Some points to note:

• I mentioned in a recent post that there were fewer apartments listed for sale than in recent times.  That is the case for resales of existing apartments.
• There is a large potential increase in the number of inner city apartments, due to a large number of high rise apartments being developed.
• With spring, more apartment owners are likely to list their apartments for sale.
• Rents are down, vacancy rates are up.
• Sydney and Melbourne are or have boomed.  Brisbane has not.  It is still behind its peak 5 years ago.
• Future capital growth is uncertain, but apartments are currently selling at good prices due to lack of stock available and low interest rates.
• My prediction is that in 3 months time, prices will decrease slightly.  So now may be a good time to sell, but an uncertain time to buy.

Property Clock

"However I like Brisbane at the moment; it’s the capital city with the strongest potential for capital growth. It’s at about 7.30 on the clock, with plenty of well-priced stock around if you know where to look."

See MRD Partners

McGrath's View of Brisbane

Chief executive of McGrath Estate Agents and founder of the Australasian Real Estate Conference, John McGrath, said residential property in southeast Queensland had years of price increases ahead of it.

“Sydney and Melbourne have a couple of years to go (with price growth) and I think the market here (in Queensland) has three to four years to go of price growth,” he said.

Chinese property investment was also set to become increasingly important to southeast Queensland.

“It hasn’t yet hit southeast Queensland anywhere near the degree I expect it to,” Mr McGrath said. “At this point southeast Queensland has not been explored thoroughly and I think you’ll find huge Chinese buying coming into the Gold Coast and Queensland over the next few years as well.”

Full Story Here.

Brisbane Shows Promise?

From HTW's Month in Review:

Brisbane’s revival continues and the ongoing confidence in property will be one key economic driver as this year progresses. As a capital, we have fed off the regional mining boom. Anyone with major mineral digs out in the nether reaches on the state invariably had a head office based in the big smoke. As this sector of the economy finds itself weakening, there are quite a few property participants touting construction as the saviour.

At a recent presentation in Brisbane, demographer, Bernard Salt, was pushing some big population growth for major cities around the nation in 2014, and Brisbane was firmly amongst his favourites. If we see this goodwill translate into actual gains, then the rest of the year should firm up nicely for those in property.

Time to Buy or Sell in Brisbane?

A Brisbane real estate agent, Brad Munro from Position Property, has released a newsletter that states that the Brisbane market is booming.  He specialises in inner ring apartments.  He states "From 6th January of this year, we have seen the market explode!"  Brad then goes on to say that 5000 new apartments located within a 5km radius of the Brisbane CBD are expected to be completed in the next two years, and so there may be an oversupply of apartments, and more sellers than buyers.  Then, he concludes:  "Overall, the long term outlook for the property market in Brisbane looks good, however if you were looking at selling your property over the next 2 or 3 years, the next 3 to 4 months is, in my opinion, the best time to be doing this.  The less competition (other properties for sale) you have, the better the sale price will be, without question."

What this means to me is that now is not a good time to be buying, but wait a little while, and you may do better.

Or another view is that agents always tell property owners that now is the time to sell.

Rising Market

Valuer, HTW, reports that both the Brisbane and Sunshine Coast apartment markets are currently "rising markets".

See March 2014 Month in Review.

A valuer's view of Brisbane

From the HTW Month in Review for February 2014:

"... Brisbane is often touted as the next most likely to move after Sydney and Melbourne, and there’s no denying that some of these southern states saw a boom run on many suburban market as 2013 drew to a close.  In the field, agents are telling us that things are looking good. There have been multiple lookers at open homes and some auctions are jagging prices above vendor expectation. The pick locations are, and have always been, close to the CBD. The old story of limited supply and good quality stock plus comparatively high demand mean that as long as you’re appropriately priced, there is definitely a buyer or two out there for your property."

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.

Brisbane property marker simmers

"Brisbane’s market continues to simmer as we look to the southern states and wonder why they are

running so hot right about now. Our Brisbane buyers and sellers are feeling a touch more confident

about the year ahead, so we may well see some strengthening in pricing, but a definite price trend

hasn’t fully emerged as yet. ...

Units can also provide a great way to crack into the inner city market and shore up your equity. Walking distance to a community hub really is a must though. Tenants and residents alike don’t want to spend too much time within the walls of their unit. A café strip allows for a getaway from the home and a stroll in the sunshine."

Valuers HTW has an excellent monthly publication, Month in Reivew.  It is worth reading each month.   The above is from the October edition.

Is there a property bubble

Property Observer had a series of comments yesterday, as to whether there is a property bubble in Australia at present.  Queensland's market is not as hot as Sydney and Melbourne.  In fact, a Gold Coast real estate agent told me today that he is waiting 12 months for the Gold Coast to follow Sydney and start to pick up -- until then, no price increases.  And there are no off-the-plan apartment projects being marketed in Surfers or Broadbeach, and no cranes on the Gold Coast skyline at present.  If anything, real estate prices and cost of living is already high in Queensland, and job growth looks uncertain.  So unless there is a sudden rush of investors from the Southern states or from Asia, or massive migration into Queensland, I can't see property prices increasing in Queensland any time soon.

Prices Up, Rents Down?

Some real estate agents are telling me that sale prices for Brisbane apartments are increasing, with apartments selling faster, particularly those that suit owner/occupiers.  On the other hand, agents are having trouble renting apartments -- rents are decreasing and days vacant are increasing.  Thus, for investors, rental yields are getting worse, not better.

Vendor activity steady

Property owners in Australia do not appear to be rushing to sell, according to RP Data.

Valuer's View

From the HTW Month in Review, recently published:

"Our valuers are reporting anecdotally that confidence is reasonably good around south east Queensland, but job security is the big concern. It’s hard to pay your mortgage or rent without dollars coming in the door. Some certainty in the economy would be nice with a few observers saying a post-federal election surge is on the cards. We wouldn’t be so bold as to make that prediction, but politics and instability have played a hand in making the population uneasy on a number of fronts.

While there is some confidence in our markets,buyers are uncertain where fair market value lays in plenty of cases. There has been an increase in the number of pre-purchase valuations being requested by buyers. This is a sign to some degree that buyers want to purchase rather than just tire kick or hope to jag an absolute steal.

The sector seeing the best performance is probably the trade up market. Family size homes in the $1 million to $2 million range are being keenly sought. Buyers want large blocks and sizable homes.  Location is important too. Competition is toughest within 8 kilometres of the CBD, but this should come as no surprise. This sort of real estate is generally blue-chip and will offer the best chance of capital growth in the coming years.

So our call is that sectors where fundamentals are good are the ones that will perform the best in the foreseeable future. It’s no longer fair to say every sector is a buyers’ market. Our expectation for the rest of this year is one of quiet confidence. Assuming there are no unforeseen shocks, everything is pointing towards a steady-asshe-goes time in the market with modest gains to be made for those willing to buy and wait."

Will Brisbane Apartment prices go up or down?

Brisbane apartment prices did worse that Brisbane house prices over the past financial year.  There was a fall of 1.8% in Brisbane apartment prices in 2012/13.  The number of apartment sales are 13% low than 12 months ago.  This does not sound like a booming or healthy real estate market.  Some predict that apartment prices will slowly deflate, year on year, for a number of years to come.  Others predict that with low interest rates and good population growth, then prices will start to increase.  RP Data says that Brisbane will be flat for the next year.  If that is the case, no rush to buy or to sell.  Not good news for real estate agents, who rely on sales volumes to make a living.

A Declining Market

For the month of May, dwelling values declined by -1.2 per cent across the RP Data-Rismark combined capital city index. The May fall was the second consecutive month-on-month decline, with values down -0.5 per cent in April following a 2.8 per cent rise in values over the first quarter of the year.

"Given the weak housing markets of 2011 and 2012 were followed by a very robust 2013 first quarter, we may well be seeing some natural market volatility associated with vendors acquiescing and taking the opportunity to sell."

Brisbane apartment prices (to 31 May 2013):

May 2013 - down 1.7%

Quarter - down 0.4%
Year on Year - up 1.5%
Year to Date - up 1.1%

Median price based on settled sales of Brisbane apartments over the quarter - $375,000.

With a number of businesses in Brisbane continuing to make employees redundant, or implementing a wage and hiring freeze, it is hard to see things getting better in Brisbane any time soon.

Buyer's Market says RP Data

"The survey was conducted across 1,030 respondents who were located across the capital city and ‘rest of state’ regions around the country.  The headline findings showed 80% of Australians think it’s a good time to buy a home but only 37% think it’s a good time to sell.  The results suggest, at least from a consumer perspective, that housing remains a buyers market."

See RP Data Blog

"There has been clear evidence of weaker housing market conditions over the second quarter of 2013. The housing market is highly seasonal and we anticipated a slowing of conditions over the current period however, it is likely that the magnitude of the slowdown and subsequent value falls has been heightened by falling consumer sentiment. Should this continue, it is reasonable to anticipate a less active housing market where value growth is lower than when confidence was much more buoyant."

See RP Data Report

National Property Trends

"Overall, the data highlights that although the housing market has started the year strongly in terms of capital growth nobody should expect the same rate of growth to be carried throughout the remainder of the year. This is already evident when you look at the results of the rpdata-Rismark Daily Home Value Index. Home values across the five major capital cities have fallen by -0.1% over the first fifteen days of April despite the recent strong capital growth conditions. The housing market is likely to continue along a recovery path, however, we anticipate slower capital growth conditions throughout the remainder of 2013 than those which have been recorded over the first quarter of the year and the slowdown is already becoming evident in our daily index data."

See RP Data report on seasonal trends

Investing in Apartments

I have read a number of property books and property blogs recently relating to investing in apartments, and this is a summary of what I have read:

1.  The closer the apartment is to the GPO, the more desirable the apartment will be to renters and buyers.

2.  As a secondary factor, being located near to a rail station, bus way, ferry terminal, University or hospital is also desirable.

3.  The internal size of the apartment matters.  A larger apartment will be more desirable than a smaller apartment of the same configuration.

4.  The number of bathrooms has greater weight in determining value than the number of bedrooms.

5.  Internal layout and design is important.  Does the apartment have good natural light, significant external windows in all rooms, good storage and a good feel?

6. Property values go up and go down.  Property is not a risk free investment.  The whole market may change.  Or the value of property in a particular location may change differently to the market as a whole.  Or the value of a particular apartment may change in the opposite direction to the market (for example, if a building is built nearby that blocks out views.)

7. Employment has a greater weight in determining value and market movement than interest rate changes.

8.  A vacation property or short term rental property is a more risky investment than a CBD or near CBD apartment.  However,  pricing of vacation properties does not take into account this extra risk.

9.  Property investment should be for the long term.  Buying with the intention of owning for less than 5 years is risky.  Transactional costs are high, property is an illiquid investment, and capital gains are often small.  On average, over a period of less than 5 years, a property owner is likely to make a capital loss not a gain.

10.  Financially, for many people, renting is better than buying.  It is also easier to move to where jobs are located if you are not tied to a property.

11.  No one can predict the future.  Many predictions made in the past about property investment have been wrong.  Relying on the advice and predictions of "experts" does not guarantee success.  (Similarly, no one can predict future demand, future interest rates, future unemployment rates, etc.)

12.  Many "independent experts" are not in fact independent.  And many are not experts.  Many say the same thing each year, regardless of the market.  ("It is better to do something than nothing."  "Now is the time to sell."  "Now is the time to buy."  "The property market has bottomed and is on the rise.")

13.  Older apartments are often better value than new apartments. Older apartments are often in better locations and are larger.  When buying from a developer, you are paying for the developer's profit and marketing costs.

14.  There will be future demographic changes as baby boomers retire and die.  This may cause an oversupply of some types of properties or in some areas and an undersupply elsewhere.  But no one really knows what will happen.  (My prediction, for what it is worth, is that older people will prefer apartments to retirement villages where possible, thus creating a greater demand for well located apartments within walking distance of good facilities.  But as mentioned above, many predictions are wrong!)

Oversupply of Brisbane Apartments Coming?

BIS predicts an oversupply of apartments in Brisbane beyond 2014.  See article.  There was a similar story in the AFR on Monday, 11 February.   In my view, BIS' predictions often don't come true.  In March 2008, BIS predicted that the Brisbane market would perform the best.  Wrong.  In August 2008, BIS said there would not be a big decline in prices of Brisbane real estate.  Wrong.  So why should their most recent prediction be any better?  How can BIS accurately predict demand for apartments in Brisbane in 2015?  See also this prior post.

Macquarie Capital's View different to HTW's view

The AFR this week quoted Rod Cornish from Macquarie Capital.  "Mr Cornish expected prices to track sideways in Melbourne for longer, while he said Brisbane prices have not yet bottomed."

In contrast, Valuer Herron Todd White's recent report says that the Brisbane property market is at the beginning of recovery, and has passed bottom.

HTW's report also says:

"If you are a unit buyer we will flog the proverbially expired filly – second hand, good size, ready rentable units as close to the CBD as possible or with good transport links won’t hurt you. It’s exhausting to repeat this advice but they offer great value as long as there are no likely body corporate maintenance and repair surprises coming along.

For new unit buyers the value is in finding some quality mid-rise projects in good locations. The value comes in not just looking at the figure on the page but by actually gazing upon the bricks and mortar itself. Quality fittings, a reasonable living space, facilities close by and all the things that would make owner occupier want to live there as much as tenants. Don’t get too caught up in the hype – shop around! A 1- bedder in the heart of the city is still available for those in the $300,000 price point if you don’t have a car. If the luxury of a carspace is required, maybe $320,000 is all that’s needed after a good search around.

For those at the upper end of the market the joy is limited. The days of easy money are truly behind us so you need the cashflow to service the debt if you’re going to borrow. Quality property is tightly held and the number of buyers able to fork over big dollars appears limited."