No surprise - Brisbane apartments cheaper than Sydney

Sydney apartments are way more expensive than apartments in Brisbane.

Sydney’s median apartment value currently sits 98.3% higher than Brisbane’s median apartment value, which is the largest premium since late 2002.  The average premium for a Sydney apartment over Brisbane has been recorded at 54.1%.

Does this mean that Brisbane apartment values will rise as a result of this difference?  CoreLogic does not think so:

"We would expect the Sydney premium to reduce over the coming years as values decline however, we also believe that historical premiums for Sydney relative to other capital cities don’t reflect the likely differentials in the cost of housing going forward.  That is to say we expect that the cost of housing in Sydney and Melbourne will continue to be higher relative to other capital cities than it has been in the past."

See CoreLogic Report

Brisbane Still Going Backwards

According to RP Data CoreLogic, Brisbane apartments did badly in 2016.  See report here.

Brisbane apartment prices (to 31 January 2017):

January 2017 - down 0.1%

Quarter - up 0.2%

Year on Year - down 2.7% 
Median price based on settled sales of Brisbane apartments over the quarter - $380,000

The report says:

Mr Lawless cites the large number of high-rise units currently under construction as another factor that may slow overall housing market performance. He said, “Dwelling approvals have already peaked across the high rise sector, as have construction commencements. However, the unit supply pipeline remains at unprecedented levels with a large proportion of these high rise units located within the inner city regions.”
“As these units flow through to settlement, the risk of buyers receiving a finance shock is becoming heightened.”
”Metadata flowing across CoreLogic valuation platforms is showing more than 40% of off-the-plan settlement valuations are coming in under contract price across the Melbourne, Brisbane and Perth unit sectors. While the large majority of these ‘under valuations’ are not showing a significant gap between the contract price and settlement valuation, more significant differences can be seen in some projects and precincts. Buyers who receive a valuation lower than the original contract price will generally require a larger than expected deposit in order to meet the loan to valuation ratio required by the lender.” 

Valuer's view of Brisbane property

"Firstly, interstate migration is a long way off its heady peaks in 2003. It’s flat performance isn’t a total deal breaker for our state’s rising market, but certainly if these numbers were to pick up, you’d think good things are set to follow.

Recent sales evidence would indicate there has been a levelling of prices and values over the past quarter. There’s a little more urgency amongst buyers, which has led to growth in the 12 months to June 2014. Values are up around 10% for near-city detached housing, and entry level housing within 5 kilometres of the CBD remains a market that is outperforming other sectors.

We do seem to be entering a phase of upgrading – although this is taking form in increased sale numbers, and consequently values, for vacant land and renovating existing dwellings, not to mention the downsizers (but not downgraders) into the prestige unit market. The stagnation in the market during the 2010 to mid-2013 stalled the upgrader market – due mainly to them being unable to offload their existing residence before shooting for something a bit better.

Like the stone that drops in the pond, the ripple affect is real for Brisbane’s property market. Starting with inner/near city detached housing and extending from there, how far the wave travels is dependent upon the strength of the boom.

The only standout in the supply and demand equation remains the unit market. With a significant increase in supply on the way, coupled with low interstate migration along with existing tenants taking the opportunity to buy or enter the market, we believe this sector has potential for a rising vacancy rate in the short term."

Source:  HTW November 2014 Month in Review

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.

Off the Plan Valuations Not Holding Up

An article about Sydney off-the-plan apartments valuations coming in at settlement at 85% of the contract price.

See Property Observer

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."

Off-the-plan apartments overpriced

A story in the Courier Mail yesterday:  "Bank revaluations hit apartment buyers".  Some extracts:

• Buyers of off-the-plan apartments are reporting that banks are revaluing their properties once the buildings are completed and only lending a lesser amount.
• "The difference between the price paid by a property buyer and the bank valuation is often high, over 20%, and the differential is spreading.  Many off-the-plan purchases are made at prices significantly above true market price.  On completion, it is not uncommon for valuations to come in at least 10 to 15% below the contract price." said Michael Yardney.
• The problem arises in two ways:  the buyer initially pays too much and the property declines in value during the construction period.
• "As a general rule, off-the-plan will go down in value as soon as it's built." said Mr Roylance, director of iProperty Plan.
• In this situation, the lender will usually provide a loan at 80% of the valuation, not 80% of the contract price.

HTW Valuer's Month in Review Report

HTW Property Valuers say in their recent monthly report that, for apartments, the Brisbane market is improving, the Gold Coast market is declining, and the Sunshine Coast market has bottomed out.

[Click chart to view]

Asset Price Inflation Coming?

"One important difference in 2001 was that Australia’s household debt-to-disposable income ratio was a substantially lower 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today.

In the early 2000s families could assume more leverage to bolster their purchasing power. They may not be able to do this again.  However, the signs of housing momentum are building. Australia’s largest mortgage broker processed more home loans last month than in any January previously.

RP Data’s CEO, Graham Mirabito, says that his valuation subsidiary, ValEx, which covers 80 to 90 per cent of all loan transactions,, last week mediated more valuation requests than ever before.

The RBA with its policy settings is certainly doing everything possible to fire up the embers. It says rates are not at “emergency lows” but they sure look like it.

During the GFC, the RBA pushed the average discounted home loan rate down to 5.4 per cent. Discount home loan rates today are only 30 basis points higher at 5.7 per cent.

Fixed-rate home loans are cheaper than ever. The average three-year fixed-rate loan in 2009 was 6.6 per cent. Today it is just 5.5 per cent. On Friday, Westpac announced a two-year fixed-rate product for just 4.99 per cent.

It is hard to imagine how these circumstances will not stimulate hearty asset price inflation."

See AFR:  Housing Values Maintain Build-up

Brisbane home values continue to fall

Two Queensland Buildings

From a recent article by Matusik: A Tale of Two Queensland Buildings

"Firstly, an investment dwelling’s worth should be determined by income – that means rent – just like it does for offices, shops and factories.  It shouldn’t be determined by a “comparable” resale.

Secondly, how and where the developer spends his or her money on a project shouldn’t affect the market’s (nor valuers’) perception of value.

• An investment’s value shouldn’t be determined by what a buyer once paid but by its income.
• The distribution of costs has no bearing on the end value of a product."

Full article here.

Price Guestimates

OnTheHouse is launching a "Guesstimates" service, to provide an educated guess of property values.  See OnTheHouse.  It will be interesting to see how accurate this service will be for Brisbane apartments.

Growth Slows in last 5 years

"Over the past ten years capital city home values have increased at an average annual rate of 6.8%, however it has been a tale of two distinct five year periods: the boom times during the first part of the decade and more subdued growth recently. ...

The recent superior performance of units as opposed to houses continues today and is reflective of changing lifestyle patterns. In particular, first home buyers and young professionals are likely to be much more attracted to an inner city unit rather than a house 20 plus kilometres from the city centre, especially if they work centrally and they also work long hours.

Overall the data highlights the impact of the property 2001-2004 ‘property boom’ which has well and truly lifted the annual growth rates across the first half of the decade. The two recent growth phases (ie 2007 calendar year and 2009/2010) were much more sublime compared to the meteoric rate of growth early in the new century. Looking to the future, with housing credit growth constrained and affordability a barrier to market entry, property values are likely to grow at a slower pace and the likelihood of large spikes in value growth over a 12-24 month period as witnessed at times during the past decade is less likely. Basically, property value growth fundamentals are largely returning to normal conditions after being abnormal for much of the last decade. "

Source: RP Data

Annual Change in House Values: USA v Australia

What Are Valuers Saying About Brisbane

A report from Herron Todd White this month, that is well worth reading. I have seen real estate agents email the positive parts of this to their mailing lists, leaving out the negatives! With that said, some extracts, but read the full report on the HTW.com.au website.

"So our broad brush call is: Over the past six to twelve months, most markets in SEQ have seen a 5% to 10% fall, or at best remained steady, depending on the sector.

The inner and near city semi prestige and prestige sectors have shown some pain. These are usually stalwart markets with little that can dampen buyer enthusiasm but there are some higher end vendors who are obviously smarting and willing to meet the market as a quickly as possible.

For example: 16 McDonald St Gordon Park – purchased Feb 2008 for $1.022M. Reported recent sale May 2011 $950,000.

It’s also worth noting that our people on the ground are reporting with regular and frightening monotony on a raft of other resales we can’t quote here. Most are showing the magic 5% to 10% fall although some are bucking the trend and dropping further.

For real hurt, look no further than the affordable investor/ first home owner market in areas such as the western corridor. This sector has taken a hit as interest rate rises put fear in the hearts of those who are borrowing on the edge. Inala and Redbank Plains are finding serious and regular falls of 20% on prices achieved twelve months to two years ago. One of our team believes we are back to the early 2007 market in some areas.

If you’re looking for something safe, your best bet right now is an inner suburb traditional cottage. Who would have thougth during the heady days of late 2007 and early 2008 you would be able to pick something up in prestige Paddington for well under $600,000 come mid 2011. This is blue chip real estate my friends, and its selling at prices not seen since early 2007.

High end units in the city have also copped a hiding. A number of resales reported in the very desirable Riparian building for example are a testament to a slow slow market. There were a few buyers who bought off the plan here and looked to have made a handsome profit on completion of this landmark building. Unfortunately for those that held on and are now desperate to sell, the bad news is that they may have lost that upside and then some. As they say, no one ever made a loss selling at a profit.

The flat line performer in the CBD (i.e. read “winner”) seems to be the well located investor end one bedders. Whilst capital growth for this stock has never been glamorous, a ready and eager supply of tenants mostly in the form of overseas students means these properties have been relatively painless in the downswing.

Mid ring property has been having its ups and downs. Family homes here had, until recently, been fairly solid but a few recent sales are now showing buyers are less enthusiastic. Finally, large scale outer suburb projects are also on the wane. Two recent examples from north lakes in Brisbane’s north include:

1 Willandra Pde - Sold in May 2010 for $575,000. now under contract but not unconditional at the time of writing for $530,000. Interestingly the owners also put in a 36 sqm Bali Hut and timber deck since their original purchase.

20 Forrestal Cct - Sold in Feb 2009 for $780k, only to be resold April 2011 for $708k. A very nice house according to our man on the scene.

I know, I know, it all reads doom and gloom and it can be too easy to blame the examples on the conservative valuers peddling bad news, but this just isn’t the case. Our city has had a pretty good run in the property game since 2001 but the soft times are well and truly upon us. While some of our valuers are reporting a trickle of first home buyers back into the market, a serious trend has not yet emerged. On the plus side, our property market is presenting some seriously good opportunities for the cashed up buyer so Brisbane is well worth a look."

Valuer's View

Valuers Herron Todd White's recent report says that, for the apartment market, the Brisbane market and the Sunshine Coast markets are both at the bottom of the market, whereas the Gold Coast market is still declining.

RP Data - Rismark March Report

Table 3: Apartment Prices

While Australia’s capital city home values were flat in March (-0.2% seasonally adjusted and 0.0% raw), they softened by -2.1% (seasonally adjusted) over the March quarter (-0.4% in raw terms). In contrast to these results, weekly rental rates are up 4.6 per cent over the last six months.

The latest RP Data-Rismark Home Value Index results show capital city dwelling values were flat in the month of March (-0.2 per cent s.a. and 0.0 per cent raw). However, over the March quarter capital city home values softened noticeably (-2.1 per cent s.a. and -0.4 per cent raw).

Over the twelve months ending March 2011, Australian capital city dwelling values were broadly unchanged (-0.6 per cent).

According to RP Data research director Tim Lawless, while residential property owners may not have seen any capital growth over the past 12 months, many are realising robust increases in rental yields.

“In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9 per cent and 4.2 per cent, respectively, in March 2011 according to RP Data-Rismark’s estimates,” Mr Lawless said.

Ben Skilbeck, joint managing director with Rismark International, said this is consistent with the sprightly rental appreciation documented by the ABS in its inflation measure, with the dollar value (as opposed to the price yield) of the rental component of the ABS’s inflation benchmark rising by a striking 1.3 per cent over the March quarter alone.

According to Tim Lawless, Brisbane has recorded the weakest results over the quarter and the year.

“Unsurprisingly, the flooding that has occurred within South East Queensland has likely compounded Brisbane’s weak market conditions. Brisbane homes were the worst performers during the March quarter, with values tapering sharply by -4.6 per cent s.a. (-3.3 per cent raw). Brisbane values are down 6.8 per cent over the year to March 2011,” he said.

At the end of the March quarter, in the capital cities the national median dwelling price was $455,000. For all regions across Australia, the national median dwelling price substantially lower at $410,000.

The moderation in Australian housing valuations are likely to be warmly welcomed by prospective home buyers, particularly first timers who have been confronted with affordability barriers. RP Data’s research director, Tim Lawless said, “With household incomes growing at 6 per cent per annum, interest rates potentially approaching the peak of the tightening cycle, rents increasing, and house values going nowhere, buyers are seeing an improvement in their position. With first time buyers now representing a bit less than 15 per cent of all owner occupier housing finance commitments, it is likely that market activity in the first-time buyer market will increase in the medium term,” Mr Lawless said.

Rismark’s Ben Skilbeck, added, “Rismark forecast a soft-landing in the Aussie housing market in the second half of 2010, and projected that this would persist through 2011. These forecasts are coming to fruition. If the RBA does raise interest rates one or two more times this year, we expect to see further valuation improvements.”

RP Data’s Mr Lawless said the tightness in the rental market combined with flat to negative change in home values is providing a boost to rental yields.

“Based on the RP Data-Rismark Total Return Index, we estimate that weekly asking rents are up 4.6 per cent over the last six months. While the highest yields are found in the Darwin apartment market (5.7 per cent), apartments in Hobart (5.4 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.1 per cent) also offer attractive yields,” Mr Lawless said.

He added that key leading indicators point towards a sedate capital growth environment for the remainder of the year.

“Clearance rates are bouncing around the low fifty percent mark each week, the number of homes being advertised for sale is almost 30 per cent higher than at the same time last year, and sellers are being forced to adjust down their price expectations. Before there is any real upwards pressure on home values there will need to be some absorption of effective supply and a return of sustained buyer confidence to the market,” he said.

What happens when property values correct

This is an extract from an RP Data newsletter article, titled "What Happens When Australian Property Values Correct":

"... Another more recent example is Brisbane where values have been consolidating since the start of the GFC. Prior to the GFC the market peaked during Feb-08 and between this time and Jan-11 property values in the city have fallen by a total of -0.8%. The market recorded a slight rally during 2009 and early 2010 however, this is likely the result of aggressive interest rate cuts and the First Home Owner’s Grant Boost. Since Apr-10 property values in Brisbane have fallen by -4.7%. (See chart)

...

The proponents of a massive property price crash will potentially point to the Noosa Heads market in Queensland. Much like Sydney, Brisbane and Perth, Noosa Heads in recent years has recorded periods of capital growth well in excess of national averages. Also the market is almost entirely reliant on retirees, ‘sea changers’ and the tourism sector, none of these sectors are currently particularly active. Median house prices in Noosa Heads as at Dec-10 were -16.2% below their peak recorded in Aug-08. The unit market has fared even worse, median prices as at Dec-10 were -24.4% below their Feb-07 peak.

Whether you believe property prices will continue to grow, tank or flat-line, it is clear that you must be cautious when buying into markets which have had periods of surging property values and have yet to see a period of subdued growth or price falls (a correction).

Due to factors such as an ongoing demand/supply imbalances, a strong banking sector, low unemployment and improving economic conditions we don’t anticipate collapsing prices., However it is clear, based on the above examples that growth phases are often followed by a consolidation in values. Over time the combination of inflation, rising wages, rental increases and little or no value growth is likely to result in the property market once again becoming an appealing purchasing prospect. As the examples highlight, in some instances this may take a number of years as wages and rental yields catch up with the surge in home values and confidence in the market gradually returns."

Gold Coast Sinking Under Apartments Glut

The front page of the AFR on Wednesday, 9 March 2011:

"Gold Coast Sinking in Units Glut"

Summary:

• 2000 apartments worth an estimated $2 billion listed for sale
• few buyers
• dire oversupply
• only 300 apartments are selling on average each year
• between 5 and 7 year supply of apartments
• high asking prices and a reluctance by banks to lend had compounded the oversupply problem
• NAB less likely to lend to the Gold Coast apartment market
• Mr Korda, receiver for The Oracle, estimates average apartment price for the past 10 years has been about $400,000, while the average price for an Oracle unit is $1.2M.
• Soul will add to the glut, where the average asking price for the top third of the 77 storey building is $3.87 million.
• "If you have a $1 million apartment, you could probably only get bank finance for $360,000" Mr Korda said.
• Its a price point and liquidity issue.

More on the flood and property prices

The SMH had this story:

Floods Tipped to Hit House Prices

"House prices in Queensland are likely to sink as the financial effects of state's devastating floods strain household budgets and dent banks’ willingness to lend, a ratings agency has warned. ...

LJ Hooker Indooroopilly principal real estate agent Scott Gemmell said it could be 10 to 15 years before some flooded suburbs regain their popularity. ‘‘In the short period it probably scares me a little; what the flood will do to house prices,’’ he said. ‘‘In some cases, houses will be unsellable."

He said he expected a surge in property for sale listings later this month. Mr Gemmell said his office had been inundated with rental inquiries and had compiled a priority list for those affected. ..."

And a similar story: Queensland Rents to Soar, House Prices to Plummet

"... The news is also bad for tenants, with rents expected to soar in line with the surge in demand from displaced residents needing temporary homes. ..."

But, according to another story, landlords will go bankrupt: "Landlords across Queensland are likely to go bankrupt in the next few months, an industry expert has warned."