A soaring apartment market in Toronto ignites fears of a crash

An interesting recent article in the NY Times about apartments in Toronto: A Dizzying Condo Market in Toronto.  How similar is this to Brisbane?  An extract:

"Median condo prices have risen 25 percent since 2009. Two-bedroom condos of about 850 to 900 square feet in Liberty Village sell for about $500,000.  For Toronto, this is crazy.

“There is no question that the housing market in Canada is overshooting,” said Benjamin Tal, deputy chief economist of CIBC World Markets. “Now the cocktail party conversation in Canada is: ‘Will this lead to a U.S. style crash?"

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.

Postcode 4000

Source:  RP Data: Brisbane City and Spring Hill Postcode 4000

Leaving Brisbane

Many young adults live in apartments in Brisbane.  But many want to leave.  Brisbane is expensive, and is not yet a first tier city.  I like Campbell Newman's new motto for Brisbane that sums things up:  "Brisbane -- It could be worse!"  As recently reported in England:

"But the Queensland capital’s younger residents are voting with their feet, seemingly unconvinced it is worthy of global renown."  See The Guardian

Risks of Investing in Mining Towns

An article from the AFR on Thursday, 13 June 2013 is a good reminder why investing in boom towns is more like gambling than investing:

Boom town burns investors:  John Briggs of Port Hedland Real Estate predicts tough times ahead. 'Sales are few and far between.  Anybody who invested in the last 18 months is in for a torrid time.'  A banking source said lenders require potential buyers to have about 50% equity to buy into the former mining hot spot.  'Anyone looking to buy into towns like Port Hedland is buying at the wrong end of the market cycle,' said Gavin Hegney, a valuer.

Capital City Home Values

Capital city home values are up or down, depending on which RP Data chart you look at.

I bet no real estate agent in Brisbane will be distributing this RP Data chart.  Brisbane is more than 10% below the most recent peak, and has been a poor property performer.

Only Two Dollars!

This apartment looks like a bargain!  Only $2 for 5 bedrooms.

Fire at Cathedral Place

There was a fire this afternoon in an apartment on the top floor of Cathedral Place.  This building is located on the edge of Brisbane City, in the Valley. The building was developed by Devine, under the control of David Devine, now of Metro Property Group.

See http://www.abc.net.au/news/2013-06-09/residents-trapped-in-inner-brisbane-apartment-building-blaze/4742780 and Sun Herald

In my opinion, this is a very poor quality building, with small apartments, surrounded by main roads.  I would always be extremely careful before buying or renting any apartment that was built by Devine.

Some apartments for sale in Cathedral Place:  Apt 107, Apt 21, a one bedroom.

Skyview Apartments at Kelvin Grove

Pradella is marketing SkyView apartments at Kelvin Grove.  These are part of the Urban Edge development.  The other two buildings on this site have been completed.  SkyView is currently in the early stages of construction.

The building is 14 levels.  There are 174 apartments.  Of these, 100 have one bedroom; 60 have two bedrooms and 14 have three bedrooms.

As at late May 2013, about 20 apartments had sold.

Prices range as follows:

• One bedrooms -- $326,000 to $484,000
• Two bedrooms - $506,000 to $705,000
• Three bedrooms - $789,000 to $889,000

Examples of apartments for sale:

• Apt 31010, level 10, 1 bedroom, bedroom at rear of apartment with no views, 51 sqm internal, 70 sqm total - $466,000
• Apt 30709, level 7, 2 bed, 2 bath, second bedroom at rear with no views, 81 sqm internal, 103 sqm total - $654,000
• Apt 30501, level 5, 3 bed, 2 bath, 114 sqm internal, 137 sqm total - $829,000

These apartments seem to be larger than many of the other apartments being sold by developers at present.  They also seem to me to be expensive.  The location is good.  The views will be great from the higher floors.  The design of building is only one apartment wide, so that airflow can go from the front of the apartment to the back.  Again, it seems that Pradella is putting air conditioning compressors on the balconies, which I do not like.  The living room is narrow -- 3.6m in some two bedroom apartments -- my rule of thumb is that the living room should be 4m wide and 6 m deep a minimum.  Here, the size is 3.6 m wide and 4m deep.

Urban Edge Apartments at Kelvin Grove

Pradella has completed two of the three buildings in its Urban Edge complex at Kelvin Grove.  The "Horizons" building recently completed, and residents have moved in.  The Skyview building, the third of the buildings on the site, is in early stages of construction.

Horizons is an 11 storey development, with about 133 apartments.  As at late May 2013, about 40 apartments were available for sale.  The majority of these apartments are on the Ramsgate Street side, facing west, and not with city views.  I counted 20 one bedroom apartments available for sale on this side of the building.

Some example apartments that remain for sale:

• Apt 20808, level 8, 1 bedroom, 52 sqm internal, 66 sqm total, $429,000
• Apt 20506, level 5, 2 bedrooms, 2 baths, 72 sqm internal, 85 sqm total, $550,000
• Apt 21105, level 11, 2 bedrooms, 2 baths, 76 sqm internal, 91 sqm total, $584,000
• See also REA listings

These apartments appear to be of good quality construction.  However, I don't like high-rise where the air-conditioning compressor is located on the balcony and where there are aircon headends on the walls.  For a number of apartments, the kitchen is just a row of benches on the wall, and the dining area is in this kitchen space.  (That is, no separate room or even an island bench-top for the kitchen.)  Some of the bedrooms have very small windows.

Top End Apartments

Some high end apartments for sale in Brisbane:

• The Refinery at New Farm, 4 bedrooms for $3.65M
• Pinnacle at Roma Street Parklands, 3 bedrooms, 291 sqm, auction
• Pinnacle at Roma Street Parklands, 3 bedrooms, 229 sqm, auction
• Hamilton Harbour, 2 bedrooms plus media room, auction
• The Grosvenor, 3 bedrooms, about $1.4M
• Riparian, 3 bedrooms, $7M.

TDD Peninsula at Kangaroo Point

Peninsula at Kangaroo Point is currently being marketed by TDD.  One bedroom plus study from $370,000; two bedrooms from $425,000 to $620,000.  Video here, that doesn't really say much.  This is being marketed as a "riverside" development.  Take care -- this is not a riverfront development.  In fact, it is much closer to the highway that goes across the Storey Bridge and the exit to the Clem7 tunnel than it is to the river.  See map here.

Matusik touts 38 High Street development

An interesting video regarding the 38 High Street apartment development in Toowong, next door to the RE pub.  Look here.  One bedroom apartments from $339,000.

FKP's Albion Project

FKP is promoting its The Hudson at Albion Hill project.  See www.themillalbion.com.au.

Quote from Courier Mail advertorial, 8 June 2013 from FKP's general manager of developments:

"Overwhelmingly pivotal in all deals has been the size of apartments...  This difference is real, it matters and its definitely a deal-maker.  People want space in an apartment."

The advertorial highlights a 2 bedroom, 1 bathroom apartment that is 67 sqm.  In my view, a 67 sqm two-bedroom apartment does not have space!  This is a tiny apartment.  One of these apartments is advertised at $399,000.

BOQ warns about one bedroom apartments

"Bank of Queensland is worried about a surge in people borrowing money to invest in small apartments, citing Brisbane and Melbourne as concerning spots.

Of particular concern was self-managed super funds (SMSF) engaging in the tactic, BOQ CEO Stuart Grimshaw said.  He said the assumption was these one-bedroom apartments would appreciate in value, but it was  a "risky part of the market" for heavily borrowed SMSF funds.

"I don't think it's long before ASIC will start looking at some of the sales methodology," he said."

Source:  Courier Mail, page 77, 8 June 2013.

Be warned!

Ryder says Brisbane apartment market is heating up

A commentator named Terry Ryder says that the Brisbane apartment market heats up.  See story on Property Observer website.  However, take care reading this.  The article is based primarily of sales of new and off-the-plan apartments.  What is not stated is that these sales often made to foreign investors, who cannot purchase existing apartments due to FIRB rules.  When looking at resales of existing (i.e., not new) apartments, the story is different.  For example, the REIQ report, mentioned in a post yesterday, shows that less than 1 apartment per day sold in the March 2013 quarter in downtown Brisbane.

Ryder also says that consumers (I suspect he means foreign investors) have a preference for 1 bedroom apartments over 2 bedroom apartments.  My guess is that this is because new two bedroom apartments being sold by developers are overpriced.

Brisbane Property Prices

RP Data reports that Brisbane property prices are increasing, but looking back five years, the annual change in capital values is still negative.  That means, on average, a person who purchased five years ago has made a capital loss in Brisbane.

Property Sales in Brisbane

RP Data reports that the number of sales of houses and apartments in Brisbane is more than 15% below the rolling five year average.  The number of sales is slowing increasing.

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]

REIQ reports that apartment demand is increasing

Sales of units and townhouses across Queensland have strengthened further over the last year, according to the latest Real Estate Institute of Queensland (REIQ) data report.  Over the March quarter, the preliminary numbers of unit sales in Queensland increased by 2 per cent compared to the same period last year.

But it is sales in our major tourism centres of Cairns and the Gold and Sunshine coasts that are the real story with sales sky-rocketing over the past year in these areas.

“The popularity of units and townhouses in our major tourist precincts has returned,” REIQ CEO Anton Kardash said.  “These areas have experienced the highs and lows of the GFC, and the strength of the Aussie dollar, more than most over the past four years so it is heartening to see them stepping back into the light.  Many of these areas have also become more affordable, even those with unique seaside locations, so this is no doubt spurring buyers into action before the tide has turned to the positive completely.” 

In Brisbane, the median unit price was steady at $390,000 over the March quarter. Solid performers over the period were Upper Mount Gravatt and Kelvin Grove which posted price growth of 9.6 per cent and 8.8 per cent respectively. 

[Click on chart to enlarge]

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.

Pet Disputes

It is becoming common for owners to seek permission to have a pet, for the body corporate committee to refuse, and for the body corporate committee to be overruled.  See recent cases:

• Cat allowed in Eden by the Bay
• Cat allowed in Horton Apartments
• Decision not to allow dog by body corporate suspended for further review
• Dog allowed and bylaw prohibiting animals struck out

Car Spaces

According to Matusik in the Courier Mail today:  "The premium for a car space within a new inner Brisbane development ranges in prince depending on the location, but the average cost is close to $75,000."  He said that apartments without carparks are harder to sell.

Brisbane Rental Report

Brisbane Letting Agent RBCX has issued the following rental report for Brisbane City and inner Brisbane:

"The CBD market seems to be like no other.  Apart from short periods here and there, the demand for rental properties in the CBD is very strong.  There may not be the 20+ attendees at every ‘Open Inspection’, but there are generally eight to 10 interested parties.

The rental demand is strong for units up to $800 per week – and this includes furnished units.  Above that level, the market shrinks significantly and vacancy periods can be three to four weeks+, unless the property is new and/or modern, with fixtures, fittings and décor to match. River and City views are essential.

The CBD buildings that experience less demand are those that offer short-term letting, as well as long- term residential. These buildings can be very noisy with a pervasive party atmosphere.

The Inner-City market is not faring as well as the CBD market.

In the last quarter of 2012, the rental market tightened markedly with the first signs of the downturn in the Resources Sector. There has been further erosion to rents in 2013.  There are many reasons why the rental market is flat and rents have contracted: the gradual 2012 exodus of Corporate tenants, who were the bread-and-butter of Inner-City rentals, gained momentum. In some areas, they have almost disappeared from the rental landscape; the announcement of the Federal election almost six months out from 14 September 2013 has seen many businesses go into semi-hibernation; job shedding in the Public Service market; the fallout from a Resources Sector seemingly in increasing decline; job insecurity; rising unemployment due to a flat economy; and loss of consumer confidence.

Also, many people who were Inner-City tenants have moved to the suburbs. They are prepared to sacrifice proximity to the city for more affordable rents. This trend is increasing with properties, particularly houses within 10 kms of the CBD being in heavy demand.

Our experience is the Inner-city renter wants everything within walking distance: transport, shopping, entertainment. They do not want to have to drive to services, facilities, infrastructure and entertainment precincts.  There is also a great deal more competition from new developments in the Inner-City areas, including Kangaroo Point, Teneriffe and New Farm. New building stock with all the aforementioned criteria is offered at rents below those of older, established buildings. New buildings with trendy, contemporary interiors and more attractive rents are appealing to the sought-after Corporate market, as well as private renters."

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

U.S. Home Prices Rise

The U.S. is in a more positive mood.  See NY Times:

"Americans are in a buying mood, thanks largely to the housing recovery.  The latest sign emerged Tuesday as the Standard & Poor’s Case-Shiller home price index posted the biggest gains in seven years. Housing prices rose in every one of the 20 cities tracked, continuing a trend that began three months ago. Similar strength has appeared in new and existing home sales and in building permits, as rising home prices are encouraging construction firms to accelerate building and hiring."

Vida West End

PointCorp is developing an apartment complex at 101 Riverside Drive, West End.  This is next door to Pradella's Left Bank development, and near to Pradella's Tempo development.

This new development is being marketed as Vida.  It consists of two towers of about 10 floors each, with about 150 apartments.  Some apartments will look West across the river.  About half the apartments will look East towards West End.

The Courier Mail says that for the apartments on the riverside, 1 bedrooms will be from $460,000; 2 bedrooms from $660,000; and three bedrooms from $1.2 million.  It will be interesting to see how expensive the apartments on the higher floors will be.

Compare a recent listing in Left Bank next door -- two bedrooms on a lower floor with river views for $599,000.

Darkness on Alice Street

Sunland has obtained development approval for its apartment tower at 140 Alice Street, on the corner of Albert Street.  Recently, barricades went up around the existing unit block.  I suspect that demolition will start soon.

It appears that this skyscraper will contain 139 luxury apartments and will tower over and shade the Botanical Gardens.

"With apartments priced between $700,000 and $4 million, there would be a pool, gym, a 24-hour concierge for tenants, business centre and a Turkish hammam."

Sunland has branded this complex as Abian Apartments.  Have fun when dealing with Sunland:

"The Victorian Supreme Court dismissed Sunland's claims in June 2012 because their key witness was deemed untrustworthy."  Sun Herald

Investors Returning to the Market?

"With lower interest rates and home value growth remaining moderate we would expect that the basis point spread between official interest rates and gross rental yields on houses to increase further over the coming months which would subsequently make investing in housing potentially even more attractive for those investors focussed on yield."

See Why Are Investors Returning to the Housing Market?

Off-the-plan apartments and international buyers

Many apartments that are sold off-the-plan in Brisbane are marketed to buyers outside of Australia.  Examples include Meriton and Metro Property apartments.  A recent article points out the dangers of buying in such buildings:

"Overseas buyers can and often do pay too much for property because they do not fully understand the market they are entering. ...

The lesson here is developments where the sales are heavily skewed towards international buyers should set alarm bells ringing for local buyers."

See:  Hype

Bad real estate agents

I heard another story about real estate agents ripping off a client.  It is worth considering this story, especially if you are thinking of selling, as it is not uncommon.  The agent, who is well regarded, advised the seller of a potential sales price, lets say $900,000.  The agent then sold an advertising and promotional package to the seller, at a cost of more than $20,000.  The agent recommended an auction.  The highest bid at the auction was about $700,000.  The agent then bullied the seller to sell at that price.  The seller refused, and the property did not sell.  It is still on the market.  The agent over-estimated the sales price to get the listing, and made a good profit from the advertising package.  The seller is unhappy, as she would never have tried to sell the property if it was only worth $700,000.

Take care when an agent recommends an auction and an expensive advertising package.

Ask the agent to provide you with a CMA (Competitive Market Analysis) to justify the agent's view of the selling price, and get that in writing.  Study it careful.  And take care!

Recent quote from Warren Buffett:  "It is a lot easier to buy than to sell."

Infinity Tower

Nice story in the Sunday Mail regarding Infinity Tower, being built by Meriton.  I will not be buying in Infinity, but there are cool photos of the construction.

See Sunday Mail.

Real Estate Rort

The Courier Mail recently had a story regarding a real estate rort that is said to be ruining the lives of thousands.  An extract:

"Using cold calls, home visits and high-pressure seminars, marketing agents ramp up fear of an impoverished retirement to push gullible mum and dad investors into buying investment real estate.

They promise a low weekly cost to negatively gear properties, high rents and the certainty of strong capital growth in suburbs well outside of the Brisbane CBD.

But many of the units and townhouses' capital growth has been largely absent, with most buyers only learning the sad truth if they go to list the property for re-sale.

Investors have also found their weekly costs are higher than expected, putting pressure on household budgets. Rents are often far less than predicted and supposed waiting lists of tenants never materialise...."

Brisbane Under-performs

Recent charts from RP Data show that Brisbane is under performing compared to the other Australian capital cities.  Does this mean that a boom is coming for Brisbane houses and apartments?  Interest rates are currently low, but long term, there is a significant risk of inflation.  So what does that mean for Brisbane apartment prices?