Showing posts with label rate of return. Show all posts
Showing posts with label rate of return. Show all posts

Sunday, October 9, 2016

Brisbane Rental Yields

The resale market for apartments in Brisbane at present is slow.  There are bargains if you are buying, and it is taking a long time to sell if you are a seller, and often the seller is disappointed with the sales price. 

At present, for apartments in Brisbane that are being sold resale (that is, not by the developer off the plan), the sales prices are decreasing.  Rents are also decreasing, as there is an oversupply.  This is a generalisation, and does not apply to all apartment types or all areas.

I have recently studied the Indooroopilly area.  The gross rental yields are good.  For reasonable quality 2 bedroom apartments, prices have dropped about 10 to 15%.  So apartment that were selling for $485K to $530K last year are now selling in the range of $425K to $500K, with most sales being about $450K to $465K.  Some vendors are selling for more than $100,000 less than what they paid.  The rents for these apartments have dropped from a range of $520 to $560 a week to $480 to $510 a week.  New developments with smaller but modern apartments are doing promotions such as 4 weeks free rent.  On an apartment that I own in Indooroopilly, I am getting a gross yield of 5.7% , where the lease was signed last week.  

Small city apartments are struggling, esp those that are rented in short term rental pools.  I have seen one apartment building in an Accor rental pool where net returns (after rates and body corporates etc) on large one bedroom furnished apartments have dropped from $13,000 a year to less than $5,000 a year. 

Saturday, August 10, 2013

Rental Returns

I have conducted a review across about 20 apartment rental properties in Brisbane and S.E. Queensland, comparing the 12/13 FY with the previous financial year.  The analysis is done before depreciation and tax is taken into account.  Some of my conclusions, from this limited review:
  • rent increases in the past year have been minimal, and I suspect below inflation
  • vacancy periods between tenants have increased slightly
  • body corporate fees have increased dramatically, and well more than rents and inflation
  • council charges and water rates are slightly higher
  • long term rental properties do much better than vacation or short term rental properties
  • net returns, before interest, have decreased compared to the previous financial year (mostly due to body corporate increases being more than rent increases)
  • fees and charges from rental agents are high, especially when considering the work done and value received -- self managed properties do better than agent managed properties for this reason,  even if the rent received is slightly below market rent
  • if interest rates had not decreased, then the overall picture would not have been rosy.  
  • because of decreases in interest rates, the overall cash position (not taking into account depreciation and tax) improved in the 12/13 FY compared with the previous financial year.

Saturday, September 1, 2012

Inner City Apartments For Sale

Some apartments for sale in Brisbane City.

River Place, 82 Boundary Street (riverfront)
Apt 253, 1 bed plus study, 1 car park, level 28, 83 sqm, $495,000
With stamp duty - $510,750
$6,153 sqm
Rates $1,300 a year; body corporate $6,300 a year
Assume rent of $570 a week ($520 a week after agent's fees)
Net return per year - $19,440 per year before interest (3.8% return).

Apt 275, 1 bed plus study, 1 car park, 83 sqm, $505,000
With stamp duty - $521,100
$6,278 per sqm
Rates $2,200 a year; body corporate $5,950 a year
Assume rent of $570 a week ($520 a week after agent's fees)
Net return per year - $18,890 per year before interest (3.6% return).

Apt 185, 1 bed plus study, 1 car park, 81 sqm, $489,000
With stamp duty - $504,540
$6,229 per sqm
Rates $2,200 a year; body corporate $5,950 a year
Assume rent of $530 a week ($485 a week after agent's fees)
Net return per year - $17,070 per year before interest (3.4% return).

Apt 123, 2 bed 2 bath, 1 car park, 110 sqm, $689,000
With stamp duty - $713,030
$6,482 per sqm
Rates $2,447 a year; body corporate $6,600 a year
Assume rent of $660 a week ($610 a week after agent's fees)
Net return per year - $22,673 per year before interest (3.2% return).

Meriton's Soleil - new apartments (not riverfront)
Apt 5301, 2 bed 2 bath, 1 car park, 87 sqm, level 53, list price $627,000, but may discount to $615,000
Stamp duty refunded by developer
$7,068 per sqm
Rates $2,400 a year; body corporate $5,200 a year
Assume rent of $700 a week ($665 a week after agent's fees)
Net return per year - $26,980 per year before interest (4.3% return).

Assume that you can lock in an interest rate of 5.55% for 3 years (e.g., with BOQ), then you will be making a loss on all these investments after interest payments.

The above also assumes that these apartments will sell at the list price, which is an incorrect assumption, so the returns will be slightly better than stated above.

Wednesday, July 25, 2012

Reader's Comment - Is there a boom?

A reader's view:
There seems to be a dramatic marketing shift going on in Brisbane at present in regard to marketing of apartments and units. The advertising has shifted to promoting the merits of “investing in apartments for rental return” rather than marketing to owner-occupiers. It appears the owner-occupier buyers have all dried up, perhaps they are among the 20,000 workers slated by the State Government for redundancies?

Or are potential owner-occupiers waiting for the release onto the market of thousands of houses and flats currently owned by State and Federal Government that are soon to be placed on the market as a result of the Government push for the private sector to provide (former) public housing by offering the tax-deduction carrot being offered to owners who place rental properties into the NRAS scheme?

One only has to attend the Home Show in Brisbane to see this over-night marketing shift or take a cursory glance at this Saturday’s Courier Mail Property insert. The marketing hype seems to have abandoned the (now) non-existent new owner-occupier buyers and switched to promoting the merits of “investing in units or apartments for rental return” since clearly, the notion of capital gain is now just a pipe dream, at least for the next 5-10 years.

Accompanying press releases and advertisements say how successful the developments are (or going to be – many haven’t even started building) and advertise the numerous sales that have already been made to “investors” for fabulous rental returns. Who is buying these apartments is the question.  For example, one in Milton advertises that it has sold $90 million in pre-sales with a vacancy rate of 0.7% and a rental return of 12.4% p.a (Courier Mail Sat 21/7/2012) yet not a sod has been turned on the vacant site. Puzzling indeed.

Others are advertising rental returns of $600-$850 per week around Newstead and Bowen Hills yet a newly completed complex at Bowen Hills, just 2 minutes from the CBD has huge placards visible from the ICB offering rentals at $300 per week. Quite a difference from the advertised rentals of $600-$800 per week available to “investors” less than a kilometre away. Recent data shows around 130 apartments available for lease or sale in the Teneriffe and Newstead area. So while alleged hundreds of units are being “snapped up” by savvy investors cashing in on the “rental boom” (remember the mining boom?) around Brisbane, a number of large unit and/or apartment complexes have been abandoned before they even turned a sod. Puzzling indeed?   Yet the marketers claim buyers are scrambling to line up and buy off the plan? More puzzling.

Thursday, April 21, 2011

Apartment Prices Level with Houses

Terry Ryder published an opinion piece in The Australian today. Some extracts:

"THE planets are falling into alignment for property investors at present. We not only have a buyers' market in many key locations, but the scenario for rents and yields looks positive.

Two reports from credible research sources record a revival in rental growth in most of our major cities and predict solid rises throughout the year. "Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first-home buyer market," said APM's senior economist Andrew Wilson. Units in particular have seen a major shift in demand, with low vacancy rates for inner-city residences in most capital cities intensifying competition.

It has long been a basic tenet that houses show better capital growth than apartments, but changing lifestyle choices and affordability issues mean more households are opting to live in attached dwellings.

Last year, units showed slightly better capital growth than houses in terms of average growth across the nation, according to RP Data figures. ...

The 4 per cent average growth for dwelling rents recorded by Matusik Property Insights in the past year is very moderate - about half the historic annual rise in rents - and inconsistent with notions of a chronic dwelling shortage (as claimed by the developer lobby).

Matusik says vacancy rates drive rental growth and a general increase in vacancy rates in 2009 and much of last year caused rental growth to stall. Rental growth is now starting to return, he says, with a recent drop in vacancies.

"A falling vacancy rate is likely to put further pressure on weekly rents," Matusik says. "Rises of between 5 and 8 per cent during calendar 2011 are not out of the question.

"This in turn should lead to an increase in property values."

Sunday, February 13, 2011

Investing in the Brisbane Property Market?

If you are planning on investing in the Brisbane property market, then take care! This blog focuses on apartments, primarily in inner city Brisbane. Some thoughts:

1. There are less overseas students wanting to rent apartments this year. This trend will continue.

2. There are less investors willing or able to purchase apartments, particularly high end apartments.

3. A number of people in their 50s and 60s, who may have considered purchasing an apartment to live in (downsizing) or as an investment are not buying at present. Either their super funds have less money than they hoped, they are more risk adverse, or banks will not lend. Also, people who were looking at riverfront apartments have paused buying decisions due to the floods.

4. There are a huge number of apartments on the way. At current sales rates, it will take years to sell these apartments. Many are small 1 or 2 bed apartments. Would you want to live in them? See list of apartments currently being built or being sold.

5. Many are predicting no capital growth this year; some a predicting 10% decrease in values, some predicting 35% decrease in values. This makes buyers nervous. Many are waiting. Maybe prices will not go down -- who knows? But there is no urgency in buying, and those who are making offers on investment properties are doing so at a significant discount to the list price. So sellers are not selling, and the number of apartments listed for sale is increasing. The only sellers who are selling are those who are dead, heading for bankruptcy, are bankrupt, are getting divorced or have lost their job. So it is hard to work out what the market price for a property (willing but not desperate seller; willing but not overly keen buyer) is actually doing at present. Maybe if salaries increase and unemployment does not decrease, then prices will go up? I hear that 25 year old storemen and labours in central Queensland are earning $150,000 a year plus overtime -- and are buying investment properties.

6. Rental returns on apartments are average. Interest rates, council rates, water charges and body corporate levies are increasing, thus decreasing net returns. This decreases property values.

7. The Gold Coast is dead dead dead. There are a huge number of unsold apartments in The Oracle. Juniper's Soul is coming up to settlement soon, and smart money is betting that it will end up like The Oracle. Juniper must be sweating. And Gold Coast apartment returns will take a dive, because fewer tourists are coming to the Gold Coast. What does this mean for Brisbane? Bad news about the Gold Coast impacts the mood of investors in Brisbane, and of interstate and international investors thinking about investing in Brisbane.

So not a good time to sell. And probably worth while waiting to buy. But if you listen to the real estate agents, who only make money if you buy, they will tell you otherwise.

Saturday, November 13, 2010

Rental Returns - from RP Data Property Pulse


"... During the five years to September 2010, the Australian residential property market has experienced a variety of conditions, modest growth conditions in 2005/06, rapid appreciation in 2007, falling values in 2008 followed by another strong growth phase in 2009/10. Despite the range of conditions over this five year period, overall property values have increased at the average rate of 7.1% year on year. ...

In dollar terms, house values have increased by a total of almost $140,000 over the last five years and unit values have increased by approximately $123,000. ...

Over the same period rental rates have also ramped up and, similar to the capital gain performance, the growth has not been uniform from year to year. Between September 2005 and the end of 2008, rental rates were typically trending upwards at the rate of almost 11% year on year. In 2009 capital city rents increased by just 0.9% and we are now seeing the first evidence of rental growth once again returning to the market. ...

For units, Darwin has again recorded the strongest value growth during the past five years (99.8%) followed by Adelaide (69.6%). Unit rental growth has well and truly lagged in Sydney (27.8%) and to a lesser extent also in Brisbane (44.8%).

Unit rental growth over the last five years has also recorded significant increases in Darwin (84.0%) and Perth (61.7%). The three largest cities have recorded the lowest levels of rental growth at 39.6% (Melbourne), 40.6% (Brisbane) and 42.8% (Sydney). ...

Overall the results highlight the virtues of having a long-term hold strategy in relation to property purchases with property values, rents and subsequently yields having historically proven to increase over time. Over the next 12 months we are anticipating fairly flat growth in property values however, we do expect that rents and yields will improve. With an insufficient supply of homes, upwards pressure will remain on housing prices over the long term, however price inflation will be offset by affordability constraints which will hamper prospective purchaser’s ability to enter the residential market.

As a result, competition for rental accommodation is likely to intensify and weekly rents will rise. These conditions highlight just how imperative it is that Government’s find a solution to housing supply issues, as the national graphs highlight, over the last five years conditions have been such that either property values have increased, rental rates have increased or both have been climbing. Supply is clearly a large contributor to these prevailing conditions."



Saturday, October 30, 2010

Pricing Trends


"... Australia’s housing market has flat-lined in the second half of 2010. The monthly RP Data-Rismark Hedonic Home Value Index was the first benchmark to report a big shift in housing conditions with a substantial fall in Australian dwelling values in the month of June. This followed annualised double-digit capital growth since the start of 2009. ...


In the month of September, this theme continued with RP Data-Rismark’s Capital City Home Value Index effectively unchanged (+0.1 per cent seasonally-adjusted / +0.4 per cent raw). Since the market started turning at the end of May, Australia’s capital city home values have declined by a total of 1.0 per cent seasonally-adjusted (-0.8 per cent raw) according to RP Data-Rismark. (The previous August month capital growth estimate of 0.0 per cent is largely unchanged at -0.1 per cent). ...

The rental market continues to offer solid cash-flows, with gross apartment yields rising in the month of September to 4.9 per cent while yields on houses remained unchanged at 4.0 per cent.

Some of the highest yielding rental markets for apartments are Darwin (5.7 per cent), Canberra (5.3 per cent) Sydney (5.0 per cent) and Brisbane (5.0 per cent). The weakest apartment markets are Melbourne (4.1 per cent) followed by Perth (4.4 per cent).

RP Data’s senior research analyst, Cameron Kusher commented that with market conditions expected to be flat for the remainder of 2010, astute investors should now look for opportunities to enter into the market.

“Early signs suggest that rental rates are once again improving, listings are at above average levels, and leading indicators such as time on market and vendor discounting are creeping up.

“For those active in the market there is increasing scope for price negotiation and less competition amongst buyers with an above average number of properties for sale. These conditions are likely to afford opportunities to purchase property at more competitive prices,” Mr Kusher said.

See RP Data

Tuesday, August 24, 2010

Ponzi Borrowers

Extract from The Australian:
"LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist.

In a bearish note to clients this morning, Morgan Stanley strategist chief strategist Gerard Minack warned Australia's housing "bubble" could be pricked should banks tighten credit or "loss-making" middle-class landlords start to sell.

He argues owner-occupiers are in too much debt and investors are riskily relying on capital gains to repay their loans and interest repayments.

Compounding the problem is "ill-advised policy", such as the government's first home-buyers grant, which has combined to make Australian houses "40 per cent above fair value", Mr Minack says.

"Buying an asset that's over-priced never ends well," he said. "The real return on residential property over the next decade is likely to be negative, in my view."

On the positive side, Mr Minack said the most plausible trigger for a correction in the Australian housing market -- broad-based jobs losses -- doesn't appear likely in the near term. This means big price declines in the near term "seems low".

See The Australian for the full story

Saturday, May 1, 2010

Annual Rate of Return - Felix and Admiralty Two

Lot P-Price P-Date Sell Price Sell Date A RoR
Admiralty Two
20 $445,000 13/09/04 $725,000 11/05/09 11.03%
25 $369,000 24/02/94 $850,000 11/02/10 5.36%
47 $700,000 29/08/05 $945,000 1/09/09 7.77%
81 $720,000 23/11/07 $725,000 27/03/09 0.51%
94 $615,000 19/12/06 $730,000 7/05/09 7.45%
97 $340,000 20/02/98 $780,000 12/06/09 7.61%
106 $490,000 15/11/04 $750,000 24/06/09 9.67%
107 $485,000 1/02/02 $990,000 15/08/09 9.92%
124 $615,000 13/04/07 $750,000 19/10/09 8.20%
137 $432,000 22/03/97 $815,000 15/07/09 5.28%
Felix
63 $415,000 20/12/05 $445,000 24/09/09 1.87%
82 $305,000 10/08/01 $480,000 30/12/09 5.55%
137 $355,000 4/06/04 $494,000 14/12/09 6.16%
161 $214,900 16/05/03 $325,000 20/11/09 6.55%
195 $280,000 13/08/01 $428,000 7/09/09 5.40%
256 $522,000 6/08/08 $530,000 3/12/09 1.15%
258 $248,950 30/08/01 $351,000 23/09/09 4.35%
291 $264,450 28/04/04 $358,000 24/02/10 5.33%
302 $746,000 13/09/01 $500,000 23/12/09 -4.72%
371 $630,000 4/08/05 $670,000 17/02/10 1.36%

Sunday, April 18, 2010

Flat Market in Brisbane

In talking with people in the real estate industry in Brisbane recently, it seems to me that the market is relatively flat. At some open homes for houses in the $600,ooo price range, only 1 family will turn up for an inspection. Off the plan sales for apartments are, for the most part, slow. Prices are relatively stable for apartments. It is not a booming market at present. On the Sunshine and Gold Coasts, the market is very dead.

There are pending risks that may dramatically impact investment apartments in Queensland:
  • higher interest rates
  • risk of lower numbers of overseas students and tourists visiting Australia (including due to the higher Aussie Dollar)
  • The review of the Australian Tax System, due within weeks, which will likely impact the treatment of capital gains for real estate, and probably recommend the removal of negatively gearing of losses from investment properties to offset income tax from income earned from other sources
  • difficulties in obtaining investment loans, and the banks requiring a higher deposit for investment property loans
  • increased school fees, which impacts the ability of many families wanting to invest in property
  • increased body corporate fees and rates, making returns less
  • poor performing vacation rentals and low vacation rental returns, often less than 2% net returns

Friday, December 25, 2009

Annual Rate of Return for Apartments in Downtown Brisbane

Often, there are statistics that are published that set out the change in the medium house or apartment price. These statistics are often not helpful. For example, if in one quarter there are many low end properties that are sold, and in the next quarter, there are many top end properties sold, the medium price will increase. Similarly, if there are new apartments entering the marketplace, this will most often result in an increase in the medium price for the area. However, in both these cases, you cannot say that values have increased.


I think that it is more useful to track the gains on resale of the same property over time. I have looked at three quality apartment buildings in Brisbane, namely Admiralty Towers, Admiralty Two and Quay West on Alice Street to see what capital gains owners have made. I have looked at all apartments that have been reported as sold this year (2009), and then looked back to see what the owner paid when first purchasing the apartment. In all but one case, the resale was the third or more resale of the same apartment. I have then calculated the Annual Rate of Return, using this calculator. The Rate of Return only looks at capital gains, and does not take into account rent received, expenses paid or transaction costs such as stamp duty or agents fees. Here are the results (with P-Price being the original purchase price on the P-Date; and Sell Price being what that owner received when reselling this year):

Lot P-Price P-Date Sell Price Sell Date A RoR
Admiralty Towers One
5 $282,500 2/08/01 $520,000 25/09/09 7.77%
73 $490,000 19/10/06 $600,000 30/06/09 7.79%
76 $498,000 15/05/03 $685,000 31/08/09 5.19%
92 $510,000 21/03/07 $545,000 7/08/09 2.83%
119 $810,000 1/02/06 $1,200,000 19/03/09 13.36%
Quay West
23 $230,000 6/12/02 $420,000 8/07/09 9.57%
24 $435,000 16/05/08 $450,000 18/04/09 3.74%
49 $256,000 4/11/95 $425,000 25/09/09 3.71%
55 $310,000 10/05/04 $440,000 25/02/09 7.58%
68 $585,000 4/03/05 $675,000 11/10/09 3.15%
99 $400,000 13/08/96 $700,000 25/09/09 4.35%
120 $275,000 28/04/97 $460,000 2/09/09 4.25%
Admiralty Two
20 $445,000 13/09/04 $725,000 11/05/09 11.03%
47 $700,000 29/08/05 $945,000 1/09/09 7.77%
81 $720,000 23/11/07 $725,000 27/03/09 0.51%
94 $615,000 19/12/06 $730,000 7/05/09 7.45%
97 $340,000 20/02/98 $780,000 12/06/09 7.61%
106 $490,000 15/11/04 $750,000 24/06/09 9.67%
107 $485,000 1/02/02 $990,000 15/08/09 9.92%
124 $615,000 13/04/07 $750,000 19/10/09 8.20%
137 $432,000 22/03/97 $815,000 15/07/09 5.28%

Annual Rate of Return for Brisbane Apartments

Often, there are statistics that are published that set out the change in the medium house or apartment price. These statistics are often not helpful. For example, if in one quarter there are many low end properties that are sold, and in the next quarter, there are many top end properties sold, the medium price will increase. Similarly, if there are new apartments entering the marketplace, this will most often result in an increase in the medium price for the area. However, in both these cases, you cannot say that values have increased.


I think that it is more useful to track the gains on resale of the same property over time. I have looked at three quality apartment buildings in Brisbane, namely Admiralty Towers, Admiralty Two and Quay West on Alice Street to see what capital gains owners have made. I have looked at all apartments that have been reported as sold this year (2009), and then looked back to see what the owner paid when first purchasing the apartment. In all but one case, the resale was the third or more resale of the same apartment. I have then calculated the Annual Rate of Return, using this calculator. The Rate of Return only looks at capital gains, and does not take into account rent received, expenses paid or transaction costs such as stamp duty or agents fees. Here are the results (with P-Price being the original purchase price on the P-Date; and Sell Price being what that owner received when reselling this year):

LotP-PriceP-DateSell PriceSell DateARoR
AD1
5282500200152000025/09/097.77%
73490000200660000030/06/097.79%
76498000200368500031/08/095.19%
9251000020075450007/08/092.83%
1198100002006120000019/03/0913.36%
QW
2323000020024200008/07/099.57%
24435000200845000018/04/093.74%
49256000199542500025/09/093.71%
55310000200444000025/02/097.58%
68585000200567500011/10/093.15%
99400000199670000025/09/094.35%
12027500019974600002/09/094.25%
AD2
20445000200472500011/05/0911.03%
4770000020059450001/09/097.77%
81720000200772500027/03/090.51%
9461500020067300007/05/097.45%
97340000199878000012/06/097.61%
106490000200475000024/06/099.67%
107485000200299000015/08/099.92%
124615000200775000019/10/098.20%
137432000199781500015/07/095.28%