Warning on Aussie Bank Bubble

From the NZ Herald News.

"However, following the significant leveraging of Australian and New Zealand households over the last 30 years they are now low growth and remain heavily exposed to housing, funding markets and unemployment risk."

RP Data April Index Report

Capital city home values fell by 0.5% in April however, they have increased by 2.3% so far in 2013

Capital city dwelling values increased fell -0.5% in April and on an annual basis, they have now increased by 2.7%.   Home values fell in April across every capital city except for Adelaide (2.8%) and Darwin (0.2%).  Over the three months to April 2013, home values increased by 1.1% across the combined capital cities with every capital city except Brisbane (-0.9%), Perth (0.0%) and Hobart (-1.6%) recording value growth, the largest of which occurred in Darwin (5.0%).  Home values remain -3.6% below their historic highs across the combined capitals with falls from the peak ranging from -11.5% in Hobart to Sydney where values are -0.4% lower than their previous peak.  Looking at value movements across broad price segments in the market to March 2013, the broad ‘middle market’ has been the strongest sector with values increasing by 1.9% over the year and the most expensive and most affordable suburbs have each recorded value increases of 0.8%.

Annual sales activity is higher than it was a year ago and trending higher

Estimated sales volumes for  the 12 months to February 2013 were -10.8% below the five year average nationally.   Compared to volumes over the 12 months to February 2012, sales volumes are 2.1% higher.  Sales activity has increased by 1.2% over the most recent six months compared to the previous six months.

Rents continue to edge higher across the combined capital cities however, value growth has been stronger than rental growth over the past quarter

Capital city unit rents have increased by 3% over the 12 months to April 2013.  Gross rental yields for units have remained at 4.9% over the year.

Pet Bylaws

A recent article about bylaws regarding keeping pets: Common Ground - Pets

New Apartment Developments in Brisbane

New developments:

• 38 High Street, Toowong
• Arena South Brisbane
• Riverpoint, West End
• Urban Edge, Kelvin Grove
• Park at Newstead
• Pinnacle at Hamilton
• Vida, West End
• Hamilton Reach
• Mowbray, East Brisbane
• Aspect on Benson, Toowong
• Savoir Faire, Milton

The above is only a partial list of new and off-the-plan apartment developments in Brisbane.  Take care when buying new and off the plan, as often the pricing is much higher than existing near-new apartments in a similar location.

It is also worth reading the following book, available on the Amazon Kindle and Apple stores.  

Buying An Apartment Off The Plan in Queensland - A Guide For Successful Buying

Recent Apartment Sales in Brisbane Suburbs

Ciana Indooroopilly (all sales from original developer)

• Apt 29, 2 bed, 2 bath, 2 cars, top floor, sold on 21 February 2013 for $555,000
• Apt 86, 2 bed, 2 bath, 2 cars, top floor, sold on 1 February 2013 for $560,000
• Apt 58, 3 bed, 2 bath,  top floor, sold on 1 February 2013 for $652,500
• Apt 49, 2 bed, 2 bath, 2 cars, top floor, sold on 1 February 2013 for $450,000

Riva Indooroopilly (Pradella development)

• Apt 5, 1 bedroom, ground floor, sold in February for $376,000 (seller had paid $245,000 in 2004)

Parklands Sherwood (Pradella development)

• Apt 202, 2 bed, 2 bath, large study, ground floor, sold for $370,000 (seller had paid $476,000 in 2009).

USA real estate - note from a reader

This is a note that I received from a regular reader of this blog:

I’m currently visiting USA again for another 3 months.  (You’ll recall my visit to USA and subsequent visit to China last year). I like to try and get a feel of the real estate market and the economy in the U.S. since Australia appears (at least to me) to follow the U.S by about 18-24 months. Things are considerably worse here on the ground, than last year, in my opinion.  Looking at housing and units, empty units are everywhere in every town city, state, just everywhere. I researched this and read here that according to the U.S. Goverment, there are now 18.7 million units vacant in the U.S. Ref: http://www.thefiscaltimes.com/Articles/2011/08/04/9-Worst-Recession-Ghost-Towns-in-America.aspx#page1

Talking with estate agents (if they’ll engage in a conversation - most are in denial) affordability seem to be the lead problem; people cannot afford or will not commit to buy, and people cannot afford to rent at any price. Mortgage rates here are 3.25-3.75% for a 30 year fixed mortgage!. Their parents are telling them not to commit to a mortgage since they themselves now owe more than they paid for their own property and have subsequently become the “near-retirement working poor”.  Some apartment managers (if that’s what they are) are advertsing $500 in cash to sign-up to a lease. Last time I mentioned large numbers of shopping centres and motels were empty and closed up. This time round it’s more motels, an abundance of empty apartments and, restaurants. Restaurants is new for this visit, they have been hit badly, every town/ city along the way has scores of empty closed down restaurants. These were the mid-range market restaurants that offered good meals in the $15-$30 range. They’re closed. For example, where I stayed a few minutes from the Old Downtown Scaramento area, five in the street were shut along with 3 motels. I got talking with the manager of the Motel6 I stayed at which had 7 cars in the carpark on a Saturday night for a complex of 56 rooms.  On asking him the question about the restaurants, he simply stated “No one will spend any money now, even if they’ve got it. They’re all spooked and shell-shocked by the GFC. I don’t know when this will end, if it does.” he said.

I wonder if what’s occurred here will find it’s way to Australia.

Time on Market in Brisbane

Brisbane still has a very high "time on market" for apartments.  On average, 80 days to sell from first listing.  This is about double what it should be, and shows that the market is still stuggling.  Chart from RP Data.

National Property Trends

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

See RP Data report on seasonal trends

Recent Apartment Sales in Brisbane City

• Charlotte Towers, Apt 1504, 1 bed, 1 car, sold on 9 April 2013 for $410,000
• Felix, Apt 116, 2 bedrooms, sold on 30 March 2013 for $515,000
• Aurora, Apt 234, 2 bedrooms, sold at auction on 24 March 2013 for $548,500
• Charlotte Towers, Apt 501, 1 bedroom, 1 car, sold on 21 March for $415,000
• Skyline, Apt 61, 3 bedrooms, sold on 13 March for $710,000

As safe as houses?

"If it's profitable and seems riskless, it's a business you don't understand."

Not Back to Boom Time

"AMP Capital’s head of investment strategy, Shane Oliver, also predicts “a year or two” of house price gains but “not a lot”.  “It’s not back to boom time,” he says. “House prices are high relative to income, lending is constrained and borrowers are cautious.

“Everyone knows the story of housing in the US, the UK and Spain. I think Australians are well aware that prices can go down. That realisation was not there pre-GFC.”

The global crisis has changed the psyche in other ways. No longer is buying and renovating a home the No. 1 ambition.

“We are a long way from the time when the The Block was the most popular show on TV,” Oliver says.

Of course, if mortgage rates fall much further, all bets are off. If the cash rate drops to 2 per cent, as one lead strategist predicts, the lure of cheap money and rising property prices will be hard to resist.  But it is unlikely. Most analysts predict one or two more cuts to the cash rate and some competitive offers on mortgages."

See AFR - Preparing for lift-off

More Sales in Brisbane

RP Data Reports

Information from RP Data

Two bed sale in Charlotte Towers - a record!?

A real estate agent is promoting a recent sale in Charlotte Towers:

"RECORD SALE OF THE YEAR! Being the only two bed, two bath apartment available in Charlotte Towers. This one went fast! Selling in less than a week, the high demand and professional approach allowed for another Record sale of $530,500 in this ever popular building.."  See here.

I guess it is only 8 weeks into the year, so it is probably not hard to get a records sale for the year in that period.

REIQ Reports that apartment activity grew at end of 2012

Queensland units and townhouses have followed the positive lead of the house market, according to the latest Real Estate Institute of Queensland (REIQ) data.

The REIQ’s December Queensland Market Monitor (QMM), released today, showed the numbers of unit and townhouse sales across the State continued the property market’s upward trend compared to the year before.  The numbers of unit and townhouse sales increased 8.9 per cent in the December quarter 2012 compared to the same period in 2011.

REIQ CEO Anton Kardash said the driving force behind the improving sales volumes was the southeast corner.  “Compared to the December quarter in 2011, the numbers of sales in Brisbane and the Gold and Sunshine coasts continues to trend upwards, which of course partly reflects the concentration of, and demand for, these types of properties in South East Queensland,” he said.

“Also this quarter, there has been an increase in the numbers of affordable unit sales across the State, especially for properties priced between $250,000 and $350,000, as buyers take advantage of some attractively-priced properties.  And Brisbane has posted its second quarter where the annual median price change has been in the positive, which is another sign that prices are heading in the right direction once more.”

According to the QMM, the numbers of sales in Brisbane was up 16 per cent compared to the December quarter in 2011; sales on the Gold Coast were up 8 per cent; and on the Sunshine Coast, the sales numbers increased an impressive 23 per cent over the same periods.

“The median price of units and townhouses on the Sunshine Coast also increased 1.1 per cent to $328,500 over the quarter with Noosa Heads and Noosaville also both recording price growth,” Mr Kardash said.

The Brisbane median unit price decreased 4 per cent to $389,000 over the quarter but posted an increase of 0.3 per cent over the year ending December. Over the period there was also a marked rise in the numbers of sales between $250,000 and $350,000 which reduced the overall median price.

“Inner Brisbane suburbs continue to do well with median prices in New Farm and South Brisbane all posting solid price growth,” Mr Kardash said. 

Recovery?

"Australia’s housing recovery, which is seven months young, is solidifying. The question is how hard and long it will run. In January last year I wrote that if the Reserve Bank of Australia cut rates again, one could expect the rebound in this interest rate-sensitive sector to accelerate. ...

With banks dulling earlier policy easings, Australia’s housing market did not get any real relief until the RBA’s hefty 75 basis point cuts over May and June. The response was almost immediate: home values in most Australian cities began appreciating in June last year. Since then they have risen about 4 per cent across the five major capital cities, with better growth again in Sydney, Melbourne and Perth.  Additional cuts in October and December ensured that the cost of housing has accelerated more rapidly this year. Based on the latest data to March 7, Australian dwelling values have climbed more than 2 per cent already in 2013."

See Chris Joye in AFR:  Property Stuggles Back

Unemployment

Employment is a key factor impacting apartment prices.

"So what could trigger an overdue shift in rhetoric? Watch the jobless rate. Economists and the RBA forecast it will drift towards 6 per cent. While I think there is scope for it to soften in the near term, I suspect it could start falling again in 2013. This would be a game-changer. An unambiguous decline in the jobless rate, propelled by an ageing population that shrinks the pool of productive labour, will force the RBA to remove its extreme stimulus."  See AFR

Recent Brisbane City Apartment Sales

• Evolution Apartments, 18 Tank Street, Apt 225, 2 bedrooms, 2 bathrooms, sold for $500,000 (previous owner had paid $762,000 off-the-plan from Citimark)
• Skyline Apartments, 30 Macrossan Street, Apt 333, sold for $750,000 (previous owner had paid $810,000 off-the-plan)
• Midtown Apartments, 127 Charlotte Street, Apt 1203, sold by developer for $432,500
• Aurora, 420 Queen Street, Apt 376, 2 bedrooms, 2 bathrooms, 107 sqm, sold for $585,000
• Riverplace, 82 Boundary Street, Apt 275, 1 bedroom plus study, sold for $481,000 (previous owner had paid $525,000 in 2008).

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

The Past Year

RP Data reports that Brisbane property prices have increased at a rate of 2.3% over the past year.  This is not keeping up with inflation.

Bubble Trouble?

"In conclusion, the data presented should provide more than enough evidence to suggest that Australia’s residential property market (specifically land market) is vastly overvalued, driven by debt-financed speculation and the relative non-taxation of land rent. While land bubbles have been a continual feature of the Australian economy, what separates this cycle is the relative enormity of the boom in both land values and private debt. A smaller private debt to GDP ratio during the 1880s and 1920s was enough to produce two devastating depressions, including a number of recessions during the mid-1970s, early 1980s and early 1990s."

See The History of Australian Property Values

A response to this is on Property Observer, plus a debate here.

Echo looking for massive casino site in Brisbane

Echo Entertainment is looking for a massive casino, hotel and ballroom site in Brisbane.  See Seven News.  It will be interesting to see if the plan includes an apartment complex.  The current Treasury location is not big enough.  So the Casino Towers apartment complex may not end up being near the casino.

Arena South Brisbane

Arena at South Brisbane is currently being marketed off-the-plan.  It is located at 9 Edmondstone Street.  The two tower building has an interesting design.  Some pricing is being advertised:

• Apt 1012, 2 bed, 2 bath, level 2, 86 sqm internal, 27 sqm balcony -- $555,000 (which is $4,911 a sqm).
• Apt 1058, 2 bed, 1 bath, level 5, 77 sqm - $520,000

There is a nice video from the developer, but it mostly shows South Bank, not South Brisbane.  There is a difference in location, and these apartments are located at South Brisbane, not South Bank.

Mirvac's Park Apartments

Mirvac's Park building at Newstead is complete, and there are a number of new unsold apartments being marketed by Mirvac.  These include:

• Apt 97 on level 7, 2 bedrooms, 2 bathrooms, 107 sqm - $785,000.  
• Apt 51 on level 13, 3 bedrooms, 2 bathrooms, 148 sqm - $1,325,000

These apartments are $7,336 and $8,952 a sqm respectively.  This seems outrageously expensive to me.    For example, a larger two bedroom riverfront apartment in Admiralty Tower Two can be bought for around $5,600 a sqm metre.  By way of comparison, a four year old, good quality two bedroom in Indooroopilly sold recently for less than $4,200 a sqm.

Pinnacle Portside

A riverfront apartment building at Portside Hamilton is coming soon it seems.  It is called Pinnacle Portside.

Investing in Apartments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REIQ is Upbeat

From an REIQ press release issued today regarding Queensland houses (not apartments):

The Queensland real estate market maintained its momentum during the last three months of 2012, according to the Real Estate Institute of Queensland (REIQ).

The REIQ December quarter median house price report, released today, showed sales activity was robust for the historically quieter December quarter.  Compared to the same quarter in 2011 the preliminary numbers of house sales in Queensland increased by 8 per cent in the December quarter last year.

REIQ CEO Anton Kardash said the latest quarterly result demonstrated that the second half of 2012 was one of improvement.  “This is the second consecutive quarter where the market has exceeded expectations.  Historically the December quarter is quieter than the September quarter - and we did have a very strong September quarter last year - but what these figures are showing us is that buyers continue to be more active than the year before.  There is no doubt that the Queensland market is improving due to the low interest rate environment, increasing confidence levels, an element of pent-up demand, as well as a more settled economic outlook here and overseas." 

The Brisbane median house price increased 0.4 per cent to $510,000 over the quarter – the second quarter of positive price growth. The numbers of house sales also increased 8 per cent compared to the same period the year before.

The Oracle Broadbeach

One trouble with off-the-plan marketing is that the apartments are often oversold.  The Oracle at Broadbeach was marketed as a beach apartment complex, but in fact, is not that close to the beach and many apartments do not have good beach views.  Even though the apartments are large, the values have dropped.  Dramatically.  Two examples:

Apt 2003, 2 bedrooms, now listed for $825,000, originally sold for $1,495,000 off the plan.
Apt 1605, 1 bedroom, sold off the plan for $710,000, resold in January 2012 for $530,000.

Here is another 2 bed listed for $800,000.

New Apartments

RealEstate.com.au has a section that lists new apartments being sold off the plan.  Here it is for The Valley in Brisbane.  Useful if you want a new, overpriced apartment.

Oversupply of Brisbane Apartments Coming?

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

No Capital Growth for Brisbane Property

As reported by RP Data, on an average annual basis over the past 5 years, Brisbane has not had capital growth in property values.   Taking into account stamp duties and other transactional costs, the losses would be even greater.  It would have been better of investors, on average, to put money in the bank.

Brisbane Real Estate Market Summary

The Brisbane real estate market is still about 10% below its peak.  And sales volumes are still down.  I guess that means that there is room for improvement.

Canvas South Brisbane

Pradella is selling Canvas in South Brisbane.  It is about to commence construction.  Some advertised pricing:

• Apt 1505, 2 bed 2 bath, 75 sqm internal - $710,000
• Apt 307, 2 bed 2 bath - $595,000
• Apt 508, 1 bed studio, no car, 44 sqm internal - $346,000

Sounds very expensive to me, for this quality product in this location.

For example, this 90 sqm internal apartment, a high quality Mirvac apartment, in a much better location is being sold for "$580,000 plus".

The Midtown

The Midtown, on 127 Charlotte Street, has opened, as a short stay "hotel".  See its "apartment hotel" website.  According to the Place Report, see post below, 47 of the 144 apartments have sold.  According to Booking.com, there are 142 apartments (so I guess two are being used for the onsite manager).  According to RP Data, 28 apartments have settled, but this is often a month or two out of date due to the government updating its records.  The unsold apartments are being marketed with a 5% rental guarantee for 2 years. The apartments are very small, so that may explain why there are a number of buyers from China.  A number of the apartments appear to have been purchased by owner occupiers, or at least the purchasers have given the apartment they purchased as their address.  As the comment for the Place Report notes, I also wonder how a hotel can operate with so few rooms?

Festival Towers

I visited Festival Towers recently for an open house.  The building and common facilities are looking tired, the apartment looked worn out, and there were a large crowd of tourists in the small lobby area.  The building is used as a "hotel" by Oaks.  It is a building that is popular for touring escorts.

Values are not holding up.  For example, apartment 3607, on a high floor, has 2 bedrooms 2 bathrooms.  It was sold off the plan in 2006 by Devine (now running Metro Property Group) for $530,000.  It was resold in late December 2012 for $455,000.

The apartment next door, apartment 3608, sold off the plan in 2006 for $546,000.  Two beds, two bathrooms, 2 cars, 103 sqm.  It resold in early December 2012 for $485,300.

Either a good building for bargains, or a building that has long term problems, depending on your view of the world.