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

Recent Sales - Admiralty Towers One and Two

Recent sales in Admiralty Towers One (35 Howard Street)

• Apt 145, 2 bed, 2 bath, river views from side (not direct riverfront) 105 sqm - $600,000 in January 2015
• Apt 101, 2 bed, 2 bath, no river views - 104 sqm - $577,000 in January 2015
• Apt 146, level 24, 2 bed, 2 bath, no river views (same floor plan as Apt 101) - 104 sqm - $575,000 in September 2014
• Apt 54, level 8, 1 bed, 1 bath, 1 car - no river views - 74 sqm - $426,300 in September 2014
• Apt 44, level 6, 2 bed, 2 bath, 1 car - full river views - 132 sqm - $810,000 in June 2014

Recent sales in Admiralty Towers Two (501 Queen Street)

• Apt 72, 3 bed, 2 bath, 2 car - full view views - 151 sqm - $1,050,000 in October 2014
• Aprt 133, 3 bed, 2 bath, 2 car - full view views - 175 sqm - $1,250,000 in October 2014
• Apt 95, 3 bed, 2 bath, 2 car - full view views - 151 sqm - $1,048,000 in August 2014

Austin Apartment Sale

Aria developed a property at 77 Grey Street, South Brisbane, overlooking the Queensland Museum, called Austin.

Apartment 1807 is currently listed for sale at just less than $700,000.  The apartment has a nice view of the roof of the museum (which is not so attractive) as well as the river and city skyline.  This part of Grey Street is busy, often with traffic jams.  The location is a very short walk to downtown Brisbane.

The apartment has two bedrooms, two bathrooms, and is 80 sqm internal, with a small 9 sqm balcony.    So this works out to be over $7,850 a sqm.  To me, that is very expensive.

If you are considering buying an apartment off-the-plan, it is worth looking at this apartment to see what an 80 sqm apartment is like.  For example, look at the photo below -- there is no place to put a TV, unless you put the TV or the couch in front of a window, and the coffee table has been pushed up against the couch to make the room seem bigger.  The kitchen is not really a room, but a row of floor tiles.  The bedrooms are tiny, at 3m by 3.1m; or 3.05m by 3.3m.  Typically, you would not want a bedroom less than 3m x 4m.

Keep in mind that two bedroom apartments with good views can be as large as 130 sqm, so remember to compare apples with apples when looking at apartments.  That is why price per square metre is a good comparison measure.

Rental Yields Decreasing as Prices Increase

From RP Data CoreLogic:

"CoreLogic RP Data February Home Value Index results released today showed that Australia’s combined capital cities have seen dwelling values rise by a further 0.3 per cent in February taking home values 8.3 per cent higher over the past twelve months.

According to CoreLogic RP Data head of research Tim Lawless, dwelling values continued their upwards trajectory over the month of February by recording a 0.3 per cent gain over the month. This now takes combined capital city dwelling values 2.5 per cent higher over the rolling quarter and 8.3 per cent higher over the twelve months to the end of February.

Over the past twelve months the CoreLogic RP Data Index shows dwelling values across the eight capital city aggregate index are up 8.3 per cent. Sydney is once again the clear standout with dwelling values 13.7 per cent higher while Melbourne values are 7.4 per cent higher. Australia’s third largest city, Brisbane, recorded the third highest rate of annual capital gain with dwelling values up 5.9 per cent. In contrast, dwelling values have increased by less than four per cent in every other capital city over the year.

Evidence of compressed rental yields is continuing across each of the capital city markets. A year ago the gross rental yield for a capital city dwelling was averaging 4.3 per cent; by the end of February the typical gross yield has been eroded down to just 3.7 per cent - due largely to the consistent high rate of dwelling value growth relative to rental growth."

Brisbane apartment prices (to 28 February 2015):

February 2015 - up 0.5%

Quarter - down 2.3%

Year to Date - up 0.3%
Year on Year - up 0.5%
Median price based on settled sales of Brisbane apartments over the quarter - $385,000

So, Brisbane apartment prices over the past year have barely increased, and increased much less than detached houses in Brisbane.  Brisbane is still under performing compared with Sydney and Melbourne.  And if you purchased at the peak of the market in about 2008, you would still be well underwater.

Quay West Brisbane Resales

Recent sales for Quay West in Brisbane, at 132 Alice Street

• Apt 37, 1 bed, 1 bath, 1 car - 72 sqm - $456,000 in October 2014
• Apt 134, 3 bed, 2 bath, 3 car - 172 sqm - $1,350,000 in September 2014 sold to a QC
• Apt 68, 2 bed, 2 bath, 1 car - 126 sqm - $695,000 in September 2014
• Apt 43, 1 bed, 1 bath, 1 car - 72 sqm - $440,000 in August 2014
• Apt 47,  1 bed, 1 bath, 1 car - 72 sqm - $440,000 in July 2014

Rumour has it that Ken Woodley, who lives in this building, recently purchased a 1 bedroom apartment (402) in Quay West for himself or a family member, at $435,000.  Mr Woodley is an owner and managing director of developer Metro Property Group.  I wonder why Mr Woodley is not purchasing in a Metro building, but is buy an older apartment in a Mirvac building?  Does that tell you something about the market?

Admiralty Towers 2 sales

Some recent sales in Admiralty Two, a tower on the Brisbane riverfront, at 501 Queen Street.  One of the better buildings in the city, which large apartments all with riverfront views that cannot be built out.  The building has two swimming pools, and direct access to the river boardwalk.

Reported sales since January 2014, with most recent sales listed first.

Apt 166, about level 29, 3 bedrooms, $979,900
Apt 58, 2 bedrooms, 2 bathrooms (116 sqm) - $785,000
Apt 19, 2 bedrooms, 2 bathrooms (116 sqm) - $770,000
Apt 115, 2 bedrooms, 2 bathrooms (116 sqm) - $755,000
Apt 127, 2 bedrooms, 2 bathrooms (116 sqm) - $750,000

The average price so far this year for the larger two bedroom apartment in this building is $765,000, or $6,594 a sqm.  If you are buying off the plan, you may wish to measure against this sqm price for comparison.

What does the future hold for Brisbane apartments?

My advice to those considering buying in a high-rise apartment block in Brisbane -- don't buy off the plan and don't buy for two years.  Why -- prices are likely to fall.  My reasoning:

• There are a very large number of new apartments being built, which will settle in about two years.
• Interest rates are likely to increase by then.
• Rental vacancies will increase and rents will decrease as these new apartments come on to the market.
• Banks will make it hard to get a loan.  My guess is that they will only fund 70% of the valuation.
• The valuations are likely to be less than contract price.
• Many people will be unable to settle.
• Prices will therefore decrease, at least from the prices that new off-the-plan apartments are currently being sold for.
• Second tier second hand apartments will be impacted as a result.  Why buy a old apartment in Charlotte Towers or Festival Towers, that have few redeeming features, when you can buy a similar sized apartment with a similar view in a new building for a similar price?
• Apartments in some locations, and in some buildings (e.g., direct riverfront, larger apartments),  will suffer less negative impact.

Ray White Market Update for Brisbane City apartments

From Ray White CBD:

"The third quarter has seen prices remain stable after the growth of the first two quarters on 2014. Falling rents across the inner city in the last two months have halted price growth as large developments in nearby suburbs such as South Brisbane, Bowen Hills and Fortitude Valley have been completed. This has resulted in an over supply of rental accommodation causing rents to plunge.  With over 8,000 apartments approved for the city's inner suburbs rents look certain to remain soft for the next few years.

Michael Matusik released an article on his Linkedin page this week on the rental situation that has seen the rents for 1 bedroom units drop by $60 a week in recent months and 2 bedroom units drop by over $100 a week. https://www.linkedin.com/today/post/article/20141019231540-170298265-brisbane-inner-city-apartments and following is a recent article in The Courier Mail http://www.couriermail.com.au/business/experts-say-outlook-is-not-pretty-as-fundamentals-in-inner-city-apartment-market-are-weakening/story-fnihsps3-1227024827411 

With the outlook for rents continuing to fall next year as more and more buildings are completed, it is doubtful prices will remain at their current levels.  Should you be considering selling, now is the time to do so."

Sounds like Ray White is saying now is not a good time to buy a Brisbane apartment.  Prices to fall!

Oversupply of Brisbane Units

There have been a number of articles this year regarding an oversupply of apartments in Brisbane, especially new high-rise in areas close to the city.  A large number of apartment buildings have completed recently, but there are many more on the way.  Most of the new apartments are being sold to foreign investors, and will be rented.

At present, a higher than usual number of apartments are available for rent in Brisbane.  Agents are reporting that it is taking a long time to rent apartments, and that rents are falling.  For example, a very nice riverfront apartment was without a tenant for 4 weeks, and finally rented for $50 a week below the asking rent.  Some owners are offering 4 weeks free rent.  For third-tier apartments, the rents have dropped dramatically.  The situation is not likely to improve any time soon.

When the foreign investors come to sell, they will not be able to sell to other foreigners.  So the pool of potential buyers will be much smaller.  This will cause significant price decreases for resales of apartments.  Currently, many apartments that are not being sold by developers (i.e., not new apartments that have FIRB approval) are taking a long time to sell in Brisbane.

Some articles of note:
Bubble Deflating
Warning on Brisbane apartment boom
Not pretty
High-rise Oversupply?
Prices Down Due to Oversupply
Areas to Avoid
Yield Compression
Mixed Outlook
Prices Plunge

Recent Quay West Sales in Brisbane

Quay West is a great apartment building, overlooking the Botanical Gardens on Alice Street.  A one bedroom apartment in this building is over 70 sqm in total.

Recent sales of one bed apartments (some of these are fully furnished when sold):

Apt 803 - $440,000 Sold in July

Apt 405 - $460,000 Sold in June

Apt 504 - $460,000 Sold in April

Apt 1603 - $510,000 Sold in April

Apt 1705 - $510,000 Sold in April

Apt 605 is currently listed at $465,000, fully furnished, which looks like a good deal.

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.

Brisbane Apartment Prices Down Slightly in August

From RP Data's months report for August 2014:

According to today’s results, with rental rates rising at a slower pace than dwelling values RP Data expects to see a compression in rental yields across each of the capital cities. The only regions where yields have moved higher over the past 12 months have been across the Adelaide and Hobart apartment markets.

Across the combined capital cities, the typical gross yield on a house has reduced from 4.1 per cent to 3.7 per cent over the past twelve months. Mr Lawless said the most significant yield compression is taking place in Sydney and Melbourne.

Investors are currently comprising their largest proportion of new mortgage commitments since late 2003. In fact, investor loan commitments have accounted for more than 38 per cent of all mortgage lending for nine consecutive months, the longest period ever that investment lending has held above that level.

“Investors are mostly concentrated across the Sydney and Melbourne apartment markets where capital gains have been strong but yields have been pushed very low. Potentially there are better investment returns to be had in the smaller capital cities where the growth trend is less mature and yields are also healthier.” Mr Lawless said.

Brisbane apartment prices (to 31 August 2014):

August 2014 - down 0.5%

Quarter - up 1.6%

Year to Date - up 2.6%
Year on Year - up 5.6%
Median price based on settled sales of Brisbane apartments over the quarter - $389,250

Arbour on Grey

One of the better buildings in the South Bank / South Brisbane area is Arbour on Grey, located on Grey St and Little Stanley Street.  It was developed by Mirvac, and is a high quality complex.  It has views of South Bank, and apartments on the higher floors can see the river.  (It is only 4 floors high.)

The two bedroom apartments are typically about 90 sqm internally, with a large balcony of about 20 sqm.  So much larger than many off-the-plan two bedroom apartments currently being marketed.

Some recent sales:

Apt 1307, located on level 3 - 2 bedrooms, 2 bathrooms, 1 car, facing the river - $735,000
Apt 1215, located on level 2 - 2 bedrooms, 2 bathrooms, 1 car, facing Grey St - $620,000
Apt 2204, located on level 2 - 1 bedroom, 1 bathroom, 1 car, facing Grey St - $467,250

Some apartments currently for sale in the complex:

Apt 1110, located on level 1 - 1 bedroom, 1 bathroom, 1 car, large apartment facing Grey St
Apt 2218 - under contract
Apt 2312 - under contract
Apt 2214 - 3 bedroom floor-through apartment on level 2

Limited Stock Available for Sale

In Brisbane (and also the Sunshine Coast), there are a limited number of apartments listed for sale by owners (excluding off the plan and developer sales).  Some agents are saying (for the first time in years) that there are more buyers than sellers for apartments.  In some suburbs, there are very few apartments listed for sale, and in some larger buildings, there are no listings at all.  That being said, prices are up, but not dramatically.

One could conclude that:

• owners don't think it is a good time to sell
• owners believe that prices will rise soon, following on from the trends in Melbourne and Sydney
• owners are still underwater, and don't want to sell at a loss, and so are waiting for further price increases before selling
• interest rates are low, and so holding costs are low -- why sell a cash flow positive property?
• Brisbane is a good long term investment
• buyers believe that the Brisbane market will improve
• off the plan developments are overpriced, and so buyers are looking at existing apartments, which are better value

Brisbane Apartments outperforming Brisbane Houses

According to RP Data:

"Capital city dwelling values were 1.1 per cent higher over the three months ending July, taking the aggregate capital gain to 5.0 per cent for the year to date across the combined capital cities. The gain was mostly centred in Sydney, Melbourne and Canberra where dwelling values rose 2.0 per cent, 1.8 per cent and 2.1 per cent respectively over the rolling quarter to offset the falls recorded in other capital cities. The Darwin market also recorded a capital gain over the past three months (+0.8%) while the remaining capital cities all recorded a drop in values (Brisbane -0.4%, Adelaide -2.6%, Perth -0.1%, Hobart - 1.2%)."

However, looking at the breakdown of the statistics, Brisbane apartments are doing much better than Brisbane houses.

Brisbane apartment prices (to 31 July 2014):

July 2014 - up 1.3%

Quarter - up 0.8%

Year to Date - up 3%
Year on Year - up 7.4%
Median price based on settled sales of Brisbane apartments over the quarter - $390,000

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.

Values Fall!

From an RP Data Press Release today:

Dwelling values record first month-on-month fall since May 2013 

For the first time in 12 months, dwelling values across Australia’s capital cities showed a monthly fall by dropping 1.9 per cent in May.  Across most of the individual capital cities, dwelling values were also down over the month, led by Melbourne with a -3.6 per cent reduction in values. Over the past three months capital city dwelling values are up 0.7 per cent, the lowest rolling quarterly rate of dwelling value appreciation since the three months ending June 2013.

Over the growth cycle to date, which commenced in June 2012, capital city dwelling values are up 13.9 per cent. According to Mr Lawless, the surge in values has largely been driven by strong market conditions in Sydney (+21.1 per cent). 

“The month-on-month fall in capital city dwelling values is likely due in part to seasonal phenomenon, but may also be indicative of a broader trend towards cooler housing market conditions.   Historically, housing market conditions have softened in April and May as the market rebalances from what is typically a seasonally strong first quarter and also as a results of cooler climatic conditions during the autumn and winter months. Outside of the seasonality, we have been seeing signs that the housing market is at or approaching the peak of the growth cycle.  The rolling quarterly rate of growth peaked in August last year and we have been seeing weaker auction clearance rates since late February when the capital city clearance rate hit 76 per cent,” Mr Lawless said. 

By way of its cycle, Australia’s housing market has shown that a growth phase usually lasts around two years. Mr Lawless said that with affordability becoming more challenging and rental yields substantially compressed across Australia’s two largest cities, we wouldn’t be surprised if the growth trend moderated further over the year. 

A recent deterioration in consumer confidence reported in the Westpac/Melbourne Institute Consumer Sentiment Index shows that this factor may also be playing a role in the winding down of housing market conditions. 

According to the Index, consumer sentiment recently peaked in September last year and has since declined by 16.0 per cent. The May consumer sentiment results showed a significant fall away which can be attributed to the announcements made in the recent Federal Government Budget announcement.

Current investor risk is very much concentrated within the Sydney and Melbourne markets where investor activity has been the most concentrated,” Mr Lawless said. 

www.rpdata.com/indices 

The May RP Data - Rismark home value index results out today confirmed a fall in capital city dwelling values by 1.9% over the month which, according to RP Data research director Tim Lawless, can likely be attributed to both seasonality and more moderate housing market conditions. 

Brisbane apartment prices (to 31 May 2014):

May 2014 - down 1.2%

Quarter - down 0.1%

Year to Date - up 1%
Year on Year - up 3.4%
Median price based on settled sales of Brisbane apartments over the quarter - $385,000

April Index Results from RP Data

Brisbane apartment prices (to 30 April 2014):

April 2014 - up 1.9%

Quarter - up 1.4%
Year on Year - up 2.8%
Median price based on settled sales of Brisbane apartments over the quarter - $382,750.

Brisbane Apartment Prices Going Backwards

Don't let real estate agents or the News Corporation press (including realestate.com.au) hoodwink you.  The Brisbane apartment market is not booming.  In fact, it is going backwards.  Compared with inflation, not great capital gains.  If you bought at the peak, you are still 5% below, not taking into account stamp duty and real estate agent fees for selling.  So ignore the headlines and look at the detailed actual results (that is, Brisbane apartment prices, and not Australian housing in general or Brisbane house prices).

From RP Data:

"After a flat February result, the RP Data – Rismark Home Value Index finished the March quarter in a strong fashion with dwelling values rising 2.3 per cent over the month to post a 3.5 per cent capital gain over the first quarter of the year. Apart from Perth, every capital city recorded a rise in dwelling values over the past three months. Melbourne posted the highest level of growth at 5.4 per cent over the quarter with Sydney and Hobart also recording a strong result in the March quarter with values up 4.4 per cent and 4.7 per cent respectively.

According to RP Data research director Tim Lawless, half of all Australia’s capital cities are now posting record high dwelling values, with Sydney’s housing market showing the most substantial increase beyond its previous market high."

Brisbane apartment prices (to 31 March 2014):

March 2014 - down 0.7%

Quarter - up 0.3%
Year on Year - up 1.7%
Year to Date - up 0.3%
Median price based on settled sales of Brisbane apartments over the quarter - $368,000.

REIQ reports improving market for apartments in last quarter of 2013

The median price of units and townhouses across South East Queensland grew over the December quarter, according to the Real Estate Institute of Queensland (REIQ).

The REIQ’s latest Queensland Market Monitor (QMM), released 28 February 2014, also found the preliminary numbers of unit sales increased six per cent over the year.

REIQ CEO Anton Kardash said the unit market was continuing to improve in-line with the house sales market – albeit centred around the southeast corner.

“A key difference between the Queensland house and unit markets is that predominantly the lion’s share of these types of properties are located in the southeast as that is where demand for housing is the greatest,’ he said.

“In fact, demand for units in Brisbane has resulted in record numbers of off-the-plan sales lately. According to recently-released research, more than 1,000 new apartment sales were transacted in the December quarter – the highest level since 2002.”

Click on chart to make bigger:

The most sales where in the Brisbane CBD, followed by New Farm, Nundah and St Lucia.

The largest one year change to the median price were in Wynnum West, Highgate Hill, Windsor and Paddington.  The worst performing suburbs were Northgate and Kedron.