What is now normal?

"But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?"

See http://nyti.ms/I0oEw2

What if low interest rates continue for a number of years.  What if there is little employment growth or wage growth for a number of years?  Rents will not increase. Capital growth will be less than past averages.

Those negatively gear and making losses will continue to make losses. And so housing prices will gradually decrease.  Is this possible?

Property Losses

Taking into account inflation, property has performed badly in recent times.  See article by RP Data.  Brisbane is down about 17%.  Taking into account transaction costs (e.g., duty) and holding costs (rates, body corporate fees, maintenance and repairs), the situation is very grim for property investors.  And I suspect that inflation is actually higher in Brisbane than the official figures show.

Buying of the Plan

At present, it seems that off-the-plan apartment developments are overpriced, and buying off the plan carries significant risks.  A series of commentaries in Property Observer discusses this issue.  See also this Kindle Book for more detail.  My recommendation is to look at existing apartments, rather than off-the-plan apartments.  The off-the-plan market appears to be fuelled by foreign investors, who are required to buy new properties under FIRB rules.

Will property growth come to Brisbane?

The release yesterday of the RP Data and Rismark International October housing market results confirmed a 1.3 per cent rise across the combined capital cities index over the month with the rolling 12 month combined capital cities index growth rate recording its fastest pace in three years.

Rismark CEO, Ben Skilbeck, added that while Sydney has eclipsed its previous cyclical high and Melbourne is near its peak, Brisbane remains 8.4% below its highs. “There is, however, evidence that growth conditions may be spreading to Brisbane."

Brisbane apartment prices (to 31 October 2013):

October 2013 - up 0.6%

Quarter - up 2.3%
Year on Year - up 1%
Year to Date - up 1.6%
Median price based on settled sales of Brisbane apartments over the quarter - $375,000.

Recent Brisbane City Apartment Sales

A list of some recent reported apartment sales in Brisbane CBD area, since June 2013.

Admiralty One

- Apt 93, 2 bedrooms, 2 bathrooms, direct river views, large 132 sqm - $880,000

- Apt 125, 2 bedrooms, side river views - $600,000

Admiralty Towers Two

- Apt 132 - 2 bedrooms, direct river views, 116 sqm - $760,000

- Apt 26 - 2 bedrooms, direct river views - $662,000

- Apt 124 - 2 bedrooms, direct river views - $705,000

Admiralty Quays

- Apt 104 - 3 bedrooms - $960,000

Riverplace

- Apt 146, 1 bedroom - $370,000

- Apt 82 - 2 bedrooms - $750,000

- Apt 165 - 1 bedroom - $500,000

- Apt 31 - 2 bedrooms - $650,000

Metro 21

- Apt 283, 1 bedroom on level 28, no carpark - $307,000

- Apt 301, 2 bedroom on level 30 - $553,500

Felix

- Apt 312, 2 bedrooms, 2 bathrooms - $555,000

- Apt 294, 2 bedrooms, 1 bathroom - $485,000

- Apt 324, 2 bedrooms, 1 bathroom - $475,000

Quay West - construction starting next door, and disharmony in building

- Apt 86, 2 bedrooms - $655,000

- Apt 129, 3 bedrooms - $1M

Saville South Bank - reports of two bedroom apartments selling above $900,000.

It appears that pricing is picking up.  In some instances, apartments are selling for record highs.  In other instances, prices are still below the 2007/2008 peak.  Volumes of sales in the period June to September do not appear to be high, although in recent weeks, this may have changed.  The high end sales appear to be to owner occupiers.

Avoid Areas where Chinese Buyers are buying

"There’s only one aspect of this that’s in any way outrageous – and that is the way Australian developers and their marketers are peddling bad real estate at inflated prices to distant investors.  There’s nothing new in this. 

Developers have always targeted distant investors to, firstly, get rid of unsold dwellings for which there are no genuine local buyers – and, secondly, to go a step further and create new stock specifically to sell to distant investors, notwithstanding the local over-supply or depressed market.  In the past, the victims have been found interstate, out west or in New Zealand. Now Asia is being targeted, especially China.

Marketing teams are taking roadshows to China and using deception to induce investors there to buy highrise apartments or house and land packages in poorly-performing markets.  There’s no crisis here, but one might emerge if Australian investors follow the advice that’s starting to emerge – namely, that they should be buying where the Chinese are buying.

I would suggest Australian buyers do the opposite. Avoid like the plague any markets being pitched to the Chinese. They’re being sold product in oversupplied markets, usually at prices above true market value. They’re not markets a sensible investor would want to be in."

See article in Property Observer

Based on this advice, one would want to carefully consider buying in any Meriton or Metro Property off-the-plan development in Brisbane.

Volume of Brisbane Apartment Sales

Soda Apartments, South Brisbane

A new development at South Brisbane is in pre-sale, Soda Apartments.  Lifestyle video here.

The building is 20 storeys, with 131 apartments.  It is behind Fish Lane Apartments, and is located at 27 Cordelia Street, which is a busy street leading on to the Go Between Bridge.  (Soda will impact the apartments on the northern side of new Fish Lane apartment building, which can be seen on the left in the rendering below.)

• 19th Floor, 2 bed, 1 bath, 71 sqm, apt 1906 = $510,000
• Apartment 608, 2 bed, 2 bath, 90 sqm, no view = $595,000
• Apartment 602, 1 bed, 1 bath, no view = $375,000
• Apt 604, 1 bed, 1 bath, no car, no view, 64 sqm = $340,000
• Apt 1908, 3 bed, 2 bath, 190 sqm = $1,650,000

This pricing looks expensive to me!

Iglu Student Accommodation on Mary Street

At 65 Mary Street, Iglu Student Accommodation is planning to build a 23 storey building, with over 400 rooms (not really apartments).  It is a skinny block, with not much road frontage, and is right next to a government building on Mary Street.  The new development will be opposite M on Mary, which can be seen in the right on the photo below.  Details at BrisbaneDevelopment.

Rental Yields

Brisbane rental yields have increased dramatically over the past five years.  At least one commentator is suggesting that this means Brisbane real estate prices have room to increase.

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.

Is there a property bubble

Property Observer had a series of comments yesterday, as to whether there is a property bubble in Australia at present.  Queensland's market is not as hot as Sydney and Melbourne.  In fact, a Gold Coast real estate agent told me today that he is waiting 12 months for the Gold Coast to follow Sydney and start to pick up -- until then, no price increases.  And there are no off-the-plan apartment projects being marketed in Surfers or Broadbeach, and no cranes on the Gold Coast skyline at present.  If anything, real estate prices and cost of living is already high in Queensland, and job growth looks uncertain.  So unless there is a sudden rush of investors from the Southern states or from Asia, or massive migration into Queensland, I can't see property prices increasing in Queensland any time soon.

Brisbane Apartment Rents Fall

According to RP Data, rents for Brisbane apartments decreased by 1.5% over the past quarter.  From what I can tell, it is harder for landlords in Brisbane to find tenants, and rents are decreasing.

Australand’s Watermarque

From an email from a PR consultant for a developer:

I thought you might be interested in this sales update for Australand’s Watermarque precinct within its $500 million Hamilton Reach development.

More than $120 million in sales have been achieved to date and only three two bedroom apartments remain for sale in the boutique precinct.  The apartments have proven popular with downsizers looking to sell their existing homes and relocate to an inner city, riverside luxury address.  The trend has been backed by Place Advisory’s Market Report on Inner Brisbane Apartments, which reported downsizers were beginning to influence the off-the-plan market for the first time since the GFC, demanding larger and higher quality stock.

The report showed two bedroom apartments accounted for the highest amount of inner Brisbane apartment sales in the June 2013 Quarter, with 48 per cent of unconditional sales registered.  Place Advisory’s Lachlan Walker said the highest number of sales was recorded in the Inner North, which includes the suburbs of Hamilton, Fortitude Valley, Kelvin Grove, Bowen Hills, Newstead, Albion, Milton, Toowong, Bowen Hills, Tenerife and New Farm, which was a positive indication local confidence is returning to the Brisbane off-the-plan market.

“The Inner North, which includes the suburb of Hamilton has again performed well in the latest quarter,” Mr Walker said.  “It’s a popular choice for inner Brisbane locals who are looking to downsize their homes but not compromise on a connected, inner-city lifestyle.  The sales results reflect there are a lot of good buying opportunities in the area but smart buyers know this stock is limited and are taking advantage.”

Watermarque will feature 78 apartments across two medium-rise five-storey buildings. The three remaining apartments are priced from $635,000 - $710,000.

Abian Apartments on Alice Street

Sunland has cleared their site on the corner of Alice Street and Albert Street.  The old apartment building there has been demolished.  Sunland is now building a fancy display suite, for Abian Apartments.  Rumours are that there will be few apartments in this building, with no one bedroom apartments.  Most apartments will be aimed at owner occupiers, and will be large.  The building is in a great location.  It will impact the two bedroom apartments in Quay West which overlook this site.

Photo from demolition

Recent photo of display suite being constructed, from same position.

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

Oracle Gold Coast Losses

Virtually every purchaser off-the-plan at The Oracle development (now branded Peppers) on the Gold Coast has lost money when reselling.  See article here.

Apartments as smart choice

RP Data has published a report comparing apartment prices to house prices in certain suburbs.  In my view, it is not particularly helpful.  For example, it compares houses in Chelmer (which are generally high quality houses on large blocks) with units in Chelmer (which are all 6 pack developments, mostly on a main road -- in fact, there are hardly any units in Chelmer).  Not a like for like comparison in my view, even in respect of location.

Prices Up, Rents Down?

Some real estate agents are telling me that sale prices for Brisbane apartments are increasing, with apartments selling faster, particularly those that suit owner/occupiers.  On the other hand, agents are having trouble renting apartments -- rents are decreasing and days vacant are increasing.  Thus, for investors, rental yields are getting worse, not better.

Casino Towers Large Apartment

Apartment 3501 in Casino Towers is for sale.  It looks like two apartments were combined, as this apartment has two kitchens.  This apartment is somewhat unique.

RP Data Weekly Report

RP Data has a weekly property report, that can be interesting reading.  Note that some of the information for Brisbane includes the Gold Coast.  This weeks report is here.

Impact of election

At least one person is saying that the change of government will trigger a housing boom.  I am not sure if I agree that Queensland will feel any positive signs, at least for a year.

I just don't understand

It seems to me that newer apartments are overpriced.  One example.
You can buy a year old apartment in Meriton's Soleil as follows:

• 93 sqm internal
• No balconey
• Air conditioning not ducted
• 2 bedrooms, 2 bathrooms
• Facing West, so hot in the summer
• General views of an ugly part of Brisbane
• Large, impersonal building, used as a hotel
• Your neighbour may be an Eastern European hooker or a football team on tour
• Price = $629,000 (apartment 4403) - $6,763 a sqm

Or you could buy an apartment in River Place:

• 113 sqm total
• Massive balconey
• Riverfront
• 2 bedrooms, 2 bathrooms
• Outdoor pool overlooking the river
• Price - $659,000 (apartment 54) - $5,831 a sqm

Or you could buy an apartment in Quay West:

• 130 sqm total
• Two balconies
• Ducted air-conditioning
• About 130 apartments in building
• Views of botanical gardens
• 2 bedrooms, 2 bathrooms
• Price - about $600,000 - $4,615 a sqm

It will be interesting to see what this apartment sells for in Admiralty One:

• 130 sqm in total
• Balconey
• Direct riverfront
• Ducted air-conditioning
• 2 bedrooms, 2 bathrooms, separate laundry room
• North Eastern view
• About 120 apartments in the building
• Auction -- there has not been a similar apartment sold in this building for years.

Why would you buy in Soleil?  Or in some of the currently marketed off-the-plan developments, when some of the "older" apartments are cheaper on the price per sqm basis, and in better locations?

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Kelvin Grove Apartments

Another new apartment development in the Kelvin Grove Urban Village area.  It is Victoria Park Residences.  Currently in pre-sales.

Great Books about Brisbane Apartments

Try these great Kindle books (also available on iTunes store):

Investing in Brisbane Apartments - A Guide for Successful Investing (2nd Edition)

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

If you don't have a Kindle, you can download a free Kindle reader program, or:

Shop Amazon - All - New Kindle Paperwhite

RP Data sales report

Over the 2012/13 financial year, RP Data estimates that there were 328,903 houses and 122,282 units sold across the country. Based on these figures, sales volumes over the year were 13.1% higher for houses and 6.4% higher for units. The data indicates that at a national level the vast majority of transactions were for detached houses, at 72.9% of all sales.

Brisbane – house sales rose 20.9% over the year with Brisbane recording 14.8% of all capital city house sales. The lift in unit sales was more moderate at just 7.4% and unit sales across the city accounted for 13.5% of all capital city sales.

Full Report Here

REIQ Unit Report - June quarter 2013

The lobby group for Queensland Real Estate agents, the REIQ, issued the following press report and data today:

The sales of units and townhouses across Queensland have risen dramatically compared to last year, according to the latest data.  The Real Estate Institute of Queensland (REIQ) June quarter median unit and townhouse price report, released today, found the preliminary volume of sales increased nearly 40 per cent between the June quarter this year and the same period last year.  Sales of units and townhouses across the State have also grown by 15 per cent compared to the March quarter this year.

REIQ CEO Anton Kardash said the Queensland unit market was mirroring the burgeoning strength of the housing market.  “Both the unit and house markets are gathering steam with sales volumes much improved on the same periods in 2012,” he said.  “What is also interesting to note is that the preliminary numbers of unit sales this quarter were only marginally lower than during the strong spring selling season last year. That is, there were only 66 fewer sales this quarter than in the September quarter last year.  In fact, the June quarter is usually the weakest of the four quarters throughout the year. Over the last 12-month period, however, this quarter was actually the second strongest and very nearly wore the crown as the stand-out three-month period of unit sales activity.”

In Brisbane, the numbers of unit and townhouse sales increased 26 per cent compared to the June quarter last year and were up 21 per cent compared to the March quarter this year.  In Brisbane, the median price dipped by 1.3 per cent to $395,000, which is a result that can be classed as steady. Over the year ending June, its median price was down by 0.8 per cent.  Top Brisbane performers which posted median price growth over the quarter and the year included Kangaroo Point, Nundah and West End.

On the Sunshine Coast, there was a significant shift in demand for lower priced properties over the quarter which resulted in the region’s median unit price decreasing. The numbers of unit sales, however, increased significantly compared to the same period last year." 

[click chart to make bigger]

Hilton Gold Coast Capital Losses

"According to RP Data, since January last year 66 apartments have sold in the Boulevard Tower, with resales making up a small proportion of the total.  

Unit 10504 was bought off the plan for $850,000 in February 2008 and sold on May 30 this year for just $505,000, a 40.5 per cent drop in value.  In July this year, unit 10607 sold for $435,000, a 32 per cent dip in price from January 2011 when a buyer paid $647,000.  A unit on the 21st floor was purchased for $910,000 in January 2008 and sold in November last year for just $525,000."

See Courier Mail

An agent is quoted as saying losses of 30% on the Gold Coast are not unusual.  Take care when buying!

Zero Rental Growth in Brisbane

According to RP Data, Brisbane rents have remained flat for the past 12 months, and have fallen slightly in the past quarter.

Brisbane doing poorly

Despite what the newspapers may report, and what real estate agents may tell you, overall the Brisbane property market is doing poorly.  Have a look at these charts published this week by RP Data.  Brisbane is second-last on both charts.  If you purchased at the last peak, like many people did, and sold today, you will have lost about 10% (not including stamp duty and real estate agent selling fees).

Brisbane improves in August?

Brisbane median sales prices increased in August, but are still down looking back one year.

From RP Data:

According to Mr Lawless, the most significant turnaround in market conditions can be found in Brisbane where the monthly rate of growth jumped to 1.5 per cent.

“Brisbane’s housing market has been underperforming since the onset of the GFC with home values still almost 10 per cent lower than their previous peak which was back in November 2009. The strong result for August was evident across both the detached housing and the unit markets and may potentially mark a positive turning point for Brisbane’s housing market.”

Brisbane apartment prices (to 31 August 2013):

August 2013 - up 1.2%

Quarter - down 0.6%
Year on Year - down 1.2%
Year to Date - up 0.5%
Median price based on settled sales of Brisbane apartments over the quarter - $369,250.

Finally, an Apple Store for downtown Brisbane?

There have been a number of reports that Apple will open an Apple store in MacArthur Chambers (corner of Queen St and Edward St) in Brisbane City.  About time!  Rumours that Apple will have a store in the Valley appear to be incorrect.

Targeting the Chinese

You know when a developer is targeting foreign buyers when they produce a brochure in Chinese.  Here is a very nice brochure for Botanica, a development by Aria, in South Brisbane.  It will be located on the corner of Boundary Street and Edmondstone Street.  One and two bedroom apartments.

Infinity Part Opened

The tall Infinity building has partly opened, even though it is still under construction with a crane on top.  Meriton has opened its serviced apartment section, on the lower floors.  There are 10 apartments per floor.  I looked at a one bedroom.  It has good storage space, and a reasonable finish.  No balcony.  But strange design, because the living room is triangular in shape.  With the kitchen space in the living room, you have a nice view of your kitchen sink when trying to watch TV.  I felt like I was in a prison cell for white collar criminals.

The Brisbane Market

There is a lot of talk about how well the Sydney property market is doing, and also the property market in general.  But this does not appear to apply to Brisbane.  From what I can tell, the Brisbane market is holding steady, and not rising, and definitely not booming.  Have a look at the charts here, and the information below.  Despite what is happening in Sydney, there is no property boom in Brisbane.

Cheapest Units within 10 km of Brisbane downtown

RP Data released a report today, showing the suburbs with the lowest median price for units within 10km of Brisbane's city centre.  The results are here and here.  The three cheapest suburbs were:

• Chelmer
• Zillmere
• Kedron

Different ways to measure size of apartments

"Apartment buyers in Victoria are routinely being led to believe by developers and agents that their purchases are more than 5 per cent larger than the same place is anywhere else in Australia, according to industry experts.

Different ways of measuring and allowing inclusion of balconies, car parks and storage cages has allowed marketing material to claim bigger sizes than appear on property titles, they claim.

"It creates a big risk for valuers that report to banks who use the information about how much to lend," warned Angela Schooneman, head of real estate for law company Minter Ellison. "In tough times valuations can be looked at quite closely – and these are tough times."

Concern that measurements are confusing the industry and misleading buyers has caused the Australian Property Institute to try and bring the state in line with the rest of the nation by urging the introduction of uniform standards within the next 12 months.

"When valuers check measurements of apartments the outcomes are often different to what buyers think they are getting," said David Way, API apartments spokesman and joint management director of Knight Frank Valuations."

Full Story in AFR

I have seem developers and real estate agents in Brisbane, when giving apartment sizes in sqm, include storage cages and even car parks.  So take care!

Foreign Investors

Foreign buyers snapped up one in every eight new properties built this year - up from one in 20 properties in 2011, National Australia Bank research reveals.

Australia's foreign investment rules ban foreigners from buying established homes, and developers can sell half their properties to foreign investors before they are built.

Colliers International's managing director of residential property in Australia, Peter Chittenden, yesterday said Asian buyers were purchasing 60 per cent of units being sold off-the-plan in big developments.

He said overseas buyers had snapped up two in every three of the 588 luxury apartments in the Singaporean-owned Tower Melbourne development - being constructed as the city's tallest building.

Foreign investors have bought 15 to 20 per cent of the 710 apartments being built by Pearls Australasia and Metro Property Development in three towers in the inner-Brisbane suburbs of Bowen Hills and Fortitude Valley.  Pearls Australasia executive director David Higgins said Asian buyers were more likely to buy the more expensive apartments - costing more than $600,000 - with extra space or views.

Source:  Courier Mail

"According to research from LandMark White, of the 27 apartment projects completed in the inner-city precinct between 2011 and 2012, the vast majority were rental properties.  "Anecdotal evidence reports circa 40% to 50% of these investors are Asian buyers," it reports.  "Current conditions indicate investment in the inner apartment market remains robust due to strong rental growth and tight vacancy."

Source:  Courier Mail, Saturday August 24, 2013, p.33

See also: Property Observer: Trends

Apartment Body Corporate Fees

"Apartment buyers should avoid paying for lifestyle amenities already on their doorstep.  Minimising strata fees is increasingly a priority for apartment buyers eager to make sure the quarterly payments for the upkeep of their buildings don't take too much of a chunk out of their income.  So where there's a public gym or pool near a block, developers will often avoid including them in their plans for the complex to keep costs down."
Source:  Domain Advertorial

Here are some example body corporate levies for a random selection of apartments in Brisbane and the Sunshine Coast:

• City, one bed - $5,200 a year
• South Bank, two bed - $6,000 a year
• City, two bed - $7,000 a year
• City, two bed - $5,800 a year
• Suburbs, one bed - $4,400 a year
• Suburbs, two bed - $4,000 a year
• Suburbs, two bed - $4,900 a year
• Noosa, one bed - $5,129 a year
• Mooloolaba, two bed - $11,820 a year

Rents and Vacancies

A number of onsite managers have reported to me that they are taking much longer than expected to fill vacancies, and that rents are going down, even when a tenant renews.

Property Owl

A new property website:  Property Owl.   This is aimed at buyers.

Guaranteed Losses if you pay too much

If you pay too much to a developer when buying off the plan, no matter how good the location, and how good the development, you will loose money.  Often, developers will show you beautiful brochures of the facilities in the location (all true) and tell you rents are higher in this location than others (again true) and that it is a popular, closely held area (true again), and then try to sell you an apartment that is 20% above market value.  If this happens, you will likely suffer a capital loss.  See this story for example about capital losses in a bullet proof area.  Investors looking at SouthPoint at SouthBank, which is a brilliant location and looks to be a quality development, should take notice of this warning, particularly when prices are more than $10,000 a square metre.

Rental Increases

In Australia, rental yields for apartments are 4.9%, according to RP Data.

Barangaroo Sydney receiving great interest

New harbour-side apartments in downtown Sydney, at Barangaroo, are generating great interest.  Lend Lease must be happy.

Alex Perry Residential Struggling?

Alex Perry Residential in the Valley launched with great hype, and, according to hits on this blog, was of great interest to people looking to buy an apartment.  The dreams and promises of 2011 may not come true.  According to Property Observer:

"... the much touted Alex Perry Residential development, which hit the market more than two years ago complete with supermodels and paparazzi, continues to struggle with developer Chrome Property providing no update on off-the-plan sales to Colliers International.  Colliers International records 40 apartments sold to date out of 143 for a project which was first marketed in May 2011 and is now being managed by property development services group Xede, after being re-jigged with three-bedroom apartments replaced with one bedroom apartments and more than half of the 143 apartments to be sold to investors as serviced apartments.

Xede managing director Rod Fiddler told Property Observer the project had received development approval with a builder appointed.

“Sales are continuing and we are progressing towards financiers’ pre-sales targets.  We are not in the business of publicly declaring sales results as these are too often manipulated or misinterpreted," he said.  “Construction is targeted to commence this side of Christmas with demolition as early as September 2013,” he said.