The Rental Market in Brisbane

This is an extract from a real estate agent's newsletter who sells inner city apartments:

"Where does that leave the rental market??

Going up, up, up – as many people are forced to wait much longer than they had hoped or expected for rebuilding to commence and renovations to be completed. Almost 8,000 homes were inundated by the January floods, and another 10,000 homes were partially affected. This means that the homes of almost 40,000 people would have been somehow affected!

“The increasing demand (for rental properties) us likely to create upward pressure on rental rates as those displaced persons look for temporary accommodation over the next 6-12 months”, according to recent RPData report on the effects of the floods on the housing market. “The issue is that rental houses will be in short supply and many may have to opt for a unit instead.”

Tennyson Prices

It is interesting to see the current pricing for apartments being resold at Tennyson Reach. This is a Mirvac development in the middle of nowhere, and three more buildings are planned.

This complex was badly impacted by the floods. The Mirvac website says:

"Thank you for your enquiry through the Tennyson Reach website. Mirvac does not have any apartments for sale at Tennyson Reach but anticipates that apartments will be made available in the near future. "

They have put their sales program on hold -- they still have many unsold apartments in building three.

Currently, you can buy a prestige riverfront 3 bedroom apartment for $998,000, on the 6th floor. This is about $600,000 less than the original sales price. Beware, body corporate levies are high. The original purchaser would have lost a significant sum of money on this apartment. No guarantee that the next purchaser will not loose too.

From the USA

"Developers say that renters do not make the same price-per-square-foot calculation as buyers, and that smaller apartments — with some studios less than 500 square feet and larger one-bedrooms barely topping 1,000 square feet — will not discourage the target audience. "

See "Why Buy? You can spend tons renting"

Note that 1000 square feet is 92 sqm. You can't find many one bedrooms in Brisbane at 92 sqm. Brisbane apartments are small, and overpriced.

So buy in Florida

Trilogy Definitely Not Going Ahead - One less hotel for Brisbane

The Trilogy building, which was to be a mix of apartments, offices and a Mirvac hotel, is officially dead.

Despite reportedly good off-the-plan sales, it is now reported that the current owners of the land are selling to a Melbourne developer who will build an office tower on the site. This may impact some of the views from Aurora?

See Brisbane Times

Recent Sales

Some recent Brisbane apartment sales and auction results:

• Quay West, apartment 1506, 2 bedroom, sold last week, reportedly very close to listing price of $775,000
• Quay West, apartment 1505, 1 bedroom, sold last week, listing price $465,000
• Arbour on Grey, apartment 2302, 2 bedrooms, sold at auction yesterday for $611,000 according to APM
• Parklands Pinnacle, apartment 6017, 3 bedrooms, failed to sell at auction, sold after for $1.3M

Buyers Market

Even the most positive commentators say it is a buyers' market for residential property. And it seems that the Queensland property market is in worse shape than NSW and Victoria. And in Queensland, Port Douglas, Cairns, the Gold Coast and the Sunshine Coasts are in dire straights. I agree with the commentators. Some evidence:

• The Courier Mail makes money from property advertisements and thus tries to have positive stories about the property market and its advertisers (i.e., real estate agents). This Saturday's Courier Mail had no stories about residential real estate at all.
• Real estate agents are returning my calls when I say that I am looking to buy. I even have agents offering to be a buyers agent for me.
• In relation to sales in apartment buildings that I follow, for sales this month, the prices are flat or going backwards (10% to 20% declines in sales prices for comparable apartment property sales, compared with sales prices from six months ago). There are some exceptions to this.

It looks like the Brisbane apartment market is going to go backwards before it goes forward.

Flat

"Today, in the absence of (extra) government stimulus, the number of homes on the market has been steadily increasing again – in fact it’s up 47.5 percent year on year. There are currently 356,600 properties advertised online, and the trend suggests there are more coming onto the market (this week we found out that home loan approvals had its biggest fall in 14 years). ...

Even the most ardent property bulls are suggesting flat growth for the medium term. There’s an old investment adage that says you make your profits when you buy; property investors who buy today may have a long wait ahead of them."

Source: Barefoot Investor

Only Modest Gains

Australia’s housing market is likely to see only “modest” gains in prices as unusually wet weather and floods in Queensland slowed demand and first-home buyers remained on the sidelines, Moody’s Analytics said.

Full story here.

Rate Your Agent

Here is an interesting website, that allows buyers and sellers to rate the real estate agent. I hope it gathers traction. www.propertyscope.com.au

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."

Admiralty Two and Mosaic management rights for sale

Interestingly, the onsite letting pool consists of 79 out of 191 apartments, or 41% of apartments in the building. This suggests a very high level of owner occupiers in this building, which increases the value of these apartments.

Also for sale in an unrelated transaction are the management rights for Mosaic in the Valley, currently in off-the-plan sales stage. There are 212 apartments in this building, and it is expected that 180 will be in the onsite rental pool, which is 85% of apartments. Buyers beware!

Housing Flat in February - almost no growth over past year

From RP Data Press Release today:

"February's index result (0.0 per cent s.a.) suggests that Aussie home values continue to tread water despite robust household income growth. There was little revision to RP Data-Rismark's January estimates.

After a natural disaster-affected January (-1.5 per cent seasonally-adjusted or -0.7 per cent raw), RP Data-Rismark's Hedonic Index reports that Australian home values held ground during the month of February.

In the capital cities, RP Data-Rismark recorded flat dwelling values (0.0 per cent seasonally-adjusted or a slightly stronger +0.7 per cent in actual 'raw' terms). The 'rest of state' areas, which account for the 40 per cent of homes not located in the capitals, also displayed some improvement during February with house values rising by 0.5 per cent seasonally-adjusted (+0.3 per cent raw).

Over the 12 months to end February, Australia's capital city home values have hardly moved, rising by only 0.8 per cent. The story is the same in the rest of state regions, where home values remain unchanged (-0.2 per cent) over the last year.

In the property investment market, RP Data-Rismark estimate that gross apartment and detached house yields were 4.8 per cent and 4.2 per cent, respectively, in February. Darwin (5.7 per cent), Canberra (5.3 per cent), Sydney (5.1 per cent) and Brisbane (5.1 per cent) all offer reasonable rental yields in the apartment market. Melbourne is the laggard at 4.2 per cent. ...

A (near) double interest rate hike in November 2010 combined with numerous natural disasters has conspired to make the last three months difficult ones for Australia's housing market. ... While the weakness has been evidenced right across the nation, it has been especially acute in Darwin (-9.0 per cent) and the two resource-centric capitals, Brisbane (-3.3 per cent) and Perth (-1.9 per cent).

"Recent RBA analysis also shows that repossessions have been highest in Perth and South East Queensland, which helps explain the poor performance seen in these states. Indeed, Perth home values remain 0.7 per cent below their December 2007 levels", Mr Kusher added.

Over the 12 months to February, Sydney (+3.3. per cent), Melbourne (+2.5 per cent), Canberra (+0.7 per cent) and Adelaide (+0.6 per cent) have ground out modest capital gains. In contrast, Brisbane (-5.3 per cent) and Perth (-4.1 per cent) have experienced more material corrections. ...

According to RP Data's Mr Kusher, the key leading indicators indicate that capital growth is likely to remain very subdued for the time being, as Rismark and RP Data have previously forecast.

"Auction clearance rates have been a little weak, the number of homes advertised for sale is at the highest level it has been since we started collecting this data, and other lead indicators, such as the time it takes to sell a home, and the margin by which vendors have to discount their properties, are climbing again after reaching a plateau in recent months. Conditions are certainly in the favour of prospective investors. The large stock of homes available for sale should afford potential buyers increasing scope to negotiate on price and get the best possible deal," Mr Kusher said.

See Full Press Release

Yield

"Industry experts estimate a yield of at least 5 per cent is needed to attract investors into the market, though at this level it is unlikely to generate a positive cash flow.

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Given the past performance and recent volatility of the rental market, which has occurred despite low vacancy rates, investors should be factoring both negative and positive rental-growth scenarios when making purchasing decisions.

Prospective off-the-plan buyers should also consider what kind of apartment stock and how much is planned in their immediate area, which could affect demand and rental levels by the time their unit is put on the market."

From Domain

How Many Apartments for Sale in Brisbane?

There has been some press recently about the number of apartments for sale in Queensland, and the slow sales rate. This may be the case for the Gold Coast, and for overpriced off-the-plan developments. But if you look at the quality buildings in Brisbane, there are very few apartments for sale.

For example:

• Quay West: 4 apartments for sale (two 2 beds; two 1 beds).
• Admiralty Quays: two 2 beds
• Admiralty Towers: one 2 bed at rear
• Admiralty Two: one 2 bed; one three bed
• Arbour on Grey: 2 apartments for sale (one 2 bed; one 3 bed).
• Saville SouthBank: zero

Across these buildings, that is less than 2% of the total apartments in these buildings for sale.

Some buildings have a large number of apartments for sale: Skyline, Aurora, Macrossan, & Riparian all have a number of apartments for sale. Strangely, The Grosvenor, which usually has no apartments for sale, has about 3 for sale at present.

So there may be an oversupply in some areas and for some buildings, but for the quality buildings, there are not that many available to purchase, particularly below the $900,000 price point. And the flooding of Brisbane does not appear to have impacted pricing of these apartments at all.

Soul Settlements Coming Up

Soul off-the-plan purchasers in the low rise section are getting ready for settlement. Soul is located at Surfers Paradise, in a prime location. It is a very high end high rise. Photo from March showing progress.

Valuers and banks for purchasers are looking at contracts and doing valuations. I have heard of a situation where the apartment was valued at 70% of the contract price. That may not seem to bad, but if the contact price is $2M, then the purchaser needs to find an extra $600,000 to settle.

And there has been no announcement of who will manage this complex.

Will Juniper survive, or head the same way as Raptis and Niecon?

One purchaser is trying to resell his 2 bed apartment for more than a 3 bed apartment is being valued at: www.soul-apartment.com/

Developments at Portside

The photo shows development sites by Devine, Citimark, Mirvac and Brookfield Multiplex. (Double click on photo for larger view.) An endless supply of apartments, which means values are unlikely to rise significantly.

Properties Advertised For Sale

From an RP Data newsletter, relating to Australian property advertised as for sale:

"The number of new properties advertised for sale increased by 2.8% last week. The number of newly advertised properties for sale is currently 20.5% above the 12 month average and 23.3% higher than it was at the same time last year. The total number of properties advertised for sale increased by 1.7% last week. Total advertisements are 13.1% higher than the 12 month average and are 23.6% higher than at the same time last year. With so many properties available for sale and few active buyers, vendors are going to have to offer competitive pricing if they wish to sell."

See Chart, that shows $41 billion of property for sale in Queensland. There are more properties listed for sale in Qld than in any other State.

Takeover Bid For Oaks

Oaks Hotels and Resorts has received a takeover bid from a Thai company, at 35 cents per share. This compares with the peak price of $2.40 a share. Boy, some investors have lost more money buying Oaks shares than people lost buying apartments that are managed by Oaks. Is it possible for the purchaser to clean up the mess? Oaks is a company that owns management rights, and even though has "hotel" in its name, does not really operate hotels.

See Smart Company & The Age & The Australian

Rough Ride For Property

"Falling sales volumes and higher stock levels suggest prospective buyers can hold off on making decisions, and are doing so. They're being more choosy, and using the change in circumstances to drive a harder bargain on price.

At the other end of the auctioneer's hammer, stubborn vendors are reluctant to reduce prices."

See Domain

Tennyson Reach - Legal Decisions

Mirvac and about 15 buyers have gone to court regarding Tennyson Reach, in a number of cases. For the most part, Mirvac has been successful in enforcing off-the-plan contracts against buyers. Here are some extracts from some of the decisions.

"As already noted, Mr Cox values the apartment at $1,500,000 and said that its value would have been $1,750,000 had the view been the equivalent of that from the display centre. " Mirvac v. Holland

"The defendant [Mirvac] is in possession of the apartment. After the flood, it removed the mud. The walls of the apartment consisted of Gyprock sheeting. The defendant removed the lower level of the Gyprock, which was flood affected. Wiring was disconnected; switches were removed and piled into a heap; appliances were disconnected. Dunworth v. Mirvac

"It is that the area of a part of the actual Lot varies by more than five per cent from the area depicted upon the drawing for that part. In this case the area of each of the balconies varies from what was shown within the original drawing by, in one case, 10.35 per cent and in the other by 15.30 per cent. Because clause 6.3(a) of the proposed (and actual) contract permitted a change up to five per cent to the “size of the Lot or any part of the Lot” it is argued that these changes made the actual Lot different from the proposed Lot as originally identified." Mirvac v. Beioley

Q1 Legal Decision - Purchaser Looses Large Deposit

"Losing a deposit on a property is tough, but when it's almost a million dollars a whole new world of pain can be felt." See Brisbane Times

Top End Brisbane Apartments

Here is a story about Scott Street Apartments and Aquila New Farm in The Australian. They do not seem to be selling fast.

Another Dog Decision

"The standard is one of reasonableness of course. Any dog will bark now and then."

Another decision allowing dogs in apartments and invalidating a by-law. See Vantage.

Riverpoint Flood Clean Up

"The building was inundated on 11th January 2011, taking out all the plant and equipment in the basement, and power to the building was cut. The pumps were inoperable and all motors were damaged. The body corporate has submitted a claim to its insurers but is not sure when or if it will be met.

The body corporate has prepared a damage report and a preliminary estimate of costs for the clean-up, hire of plant and equipment, purchases involved in the clean-up, temporary electrical power and supply, pump equipment, rubbish disposal, repairs to the electricity supply and switchboards, repairs to ducting and air-conditioning, replacement of pumps and sensors, repairs to sewer and stormwater pumps, repairs to 8 lifts and replacement of lift equipment, pool pumps, entry roller door, fire doors, painting and “miscellaneous.”

The total estimate is $551,341.35 including supervision and co-ordination of the repairs, exclusive of GST."

See decision regarding Riverpoint at West End.

Tennyson Reach Clean Up

At least four million dollars for flood clean up. See this decision.

"On 20 January 2011, Mirvac stated it will not charge any margin or for its time in relation to the rectification works. Its estimate includes prospective costs of up to $1,000,000 for priority works (completion of clean up works currently underway, preliminary electrical works to enable restoration of power and preliminary fire control equipment), and costs of $2,950,000 (including priority works) to complete clean up works, to rectify damage to ground floor lobbies, lifts and the completion of works including electrical, fire and hydraulic works."

Oaks Dives

On Friday, the CEO of the Oaks Hotel and Resorts Group, Brett Pointon, was terminated. No reason was given. On Monday, the Oaks shares dropped 4.5%.

See Courier Mail. The Oaks Press Release says only this: "Oaks Hotels and Resorts Limited (Oaks) announces that Mr Brett Pointon’s employment contract as Chief Executive Officer of Oaks has been terminated effective immediately."

But see the Oak's website:

"The principles and ethics that firmly ground The Oaks Group were laid down by CEO Brett Pointon over many years of personal experience in strata-titled property management. The group’s impressive increase in its portfolio of properties under management since its foundation in the early 1990’s is thus anchored to astute knowledge of this unique industry. Known for his pro-active, hands on approach, Brett Pointon leads by example, creating an environment in which innovation in marketing is balanced by the utilisation of proven strategic planning systems."

What is going on at Oaks?

Noosa

Story from this weekend's Courier Mail: Noosa Mansions Going Cheap

Extract: "AS FAR as top-end real estate goes, these are rich pickings - Noosa's property market is brimming with luxury bargains due to an oversupply of stock and undersupply of buyers.

As pressure mounts on sellers some under siege from banks prices of homes in the iconic playground for the rich and famous have dropped.

Prominent agent Tom Offermann said that for "those with confidence" this was a defining moment. "You can buy well and reap the rewards," he said. "Stock is up 20 per cent on normal levels, buyers are down about 30 per cent and there's good value."

Mr Offermann said the reason behind the downward shift was that Noosa had a high concentration of "discretionary properties" holiday and investment homes that people looked to dispose of in uncertain times. However, he said the area coped better than other hotspots and would bounce back faster.

Mr Offermann's agency recently sold a duplex apartment at 2/11 Mitti St, Little Cove, for $2.015 million for sellers who had acquired it in 2006 for $2.43 million a reduction of 17 per cent.

A stunning waterfront unit in Las Rias on Noosa Sound is listed at $1.95 million 22 per cent below the 2008 value of $2.5 million."

New Developments Blog

The New Developments blog gives you an idea of how many apartment projects are in the pipeline. Hard to say that there is a housing shortage in Brisbane with this many apartments soon to be built.

Mirvac at Portside

Mirvac has lodged plans for development approval for 4 buildings in the Portside Hamilton area. The towers will range in height from 23 levels for Building 1, 18 levels for Building 2, 8 levels for Building 3 and a single level retail building for Building 4. There will be over 500 apartments. The apartments are small. 300 apartments will be only 50 sqm internal, and about half of these will not have a balcony. (Compare Quay West 1 bedrooms by Mirvac, that are 72 sqm including balcony.) About 200 2 bedroom apartments will have an internal area of less than 80 sqm.

This development will add further density to the area, and kills the rear views for the Promenade Apartments from Multiplex.

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.

RP Data Video Report

This is worth watching:

http://www.youtube.com/watch?v=YeZUSUU1AYs

REIQ Sales Report

Region	Median Sale Q4.10	Qtrly change	Median Sale 12mths Q4.10	Median Sale 12mths Q4.09	1yr change
BNE (SD)	$380,000	1.3%	$379,950	$362,000	5.0%
BNE (LGA)	$400,500	-1.8%	$407,000	$386,500	5.3%
AUCHENFL	$447,500	4.1%	$430,000	$430,000	0.0%
BNE CITY	$485,000	-4.9%	$460,000	$423,500	8.6%
CHERMSIDE	$415,000	8.1%	$426,250	$407,500	4.6%
The VALLEY	$375,500	-4.9%	$400,000	$402,500	-0.6%
INDO	$460,000	2.4%	$465,000	$435,000	6.9%
KANGAROO PT	$408,000	-25.8%	$505,000	$450,000	12.2%
NEW FARM	$531,500	4.2%	$525,000	$460,000	14.1%
PADDO	$407,500	N/A	$420,000	$444,000	-5.4%
Sth BNE	$472,500	2.3%	$445,000	$399,250	11.5%
SPRING HILL	$391,063	10.9%	$390,000	$390,000	0.0%
ST LUCIA	$447,065	5.2%	$440,000	$448,750	-1.9%
TARINGA	$427,500	-2.8%	$426,750	$399,500	6.8%
TOOWONG	$407,000	-4.3%	$435,500	$415,000	4.9%
WEST END	$520,000	-3.0%	$530,000	$509,000	4.1%

Construction Costs

Quantity Surveyors, BMT, have published a construction cost table.

See www.bmtqs.com.au/Email/mav-29/ConstructionCosts.aspx

For a medium quality Brisbane highrise, the construction costs are about $2000 a sqm metre.

Fairfax Says, Don't Trust Real Estate Agents

Fairfax, which earns a large part of its revenue from real estate agents advertising on Domain and in the SMH and The Age, warns not to trust real estate agents.

"Don't take the word of an agent about what your property is worth. Make up your own mind through research or, if you're still unsure, pay to have a professional valuation carried out on your property. That will cost you between $400 and $600."

Full Story

REIQ Queensland Unit Report

"The Queensland unit and townhouse market held its ground over the December quarter last year, even as the number of investors and first home buyers remained relatively subdued.

Completing a trend throughout 2010, the last three months of the year were characterised by lower overall buyer demand, particularly from the type of buyers who typically target the unit market.

Similar to the house market over the December quarter, Real Estate Institute of Queensland (REIQ) figures show unit sales across the State easing over the quarter however some regions fared better than others.

“The unit and townhouse market at the end of last year was impacted by less overall demand from investors as well as the lower number of first home buyers in the market compared to the same period in 2009,” REIQ acting CEO Ian Murray said.

“Although we have experienced a number of natural disasters in Queensland in the beginning of 2011, it is hoped that the steady interest rate environment and the stable property pricing that now appear to be in play will result in a strengthening unit and townhouse market by year’s end.”

...

In Brisbane and surrounds broadly, a drop in the number of unit and townhouse sales occurred predominantly within the $350,000 to $500,000 price bracket which is the price range usually targeted by first-timers and investors.

The inner city continues to be the most sought after for units in Brisbane with Brisbane City recording 76 preliminary sales, New Farm recording 48 preliminary sales, and Fortitude Valley recording 33 over the period.

Over the December quarter on the Gold Coast it was the bottom and top end of the market that performed the best with preliminary sales increasing in the sub $250,000 price bracket and the $1 million-plus price bracket compared to the September quarter. Surfers Paradise and Broadbeach were the star performers with each recording 20 more preliminary sales than the previous quarter.

On the Sunshine Coast, Sunshine Beach and Caloundra recorded increases in preliminary sales numbers, while the region as a whole saw unit sales numbers hold steady."

Reaction to The Economist article

The Economist reports that Australian house prices are 56% overvalued.

Reaction:

Chris Joye on ABC's PM program and Yahoo

See Australian Property Bubble

56% over-valued!

"Australian house prices remain the most overvalued in the world, according to the latest quarterly ranking of global house prices by The Economist magazine.

Based on a historical gauge of home prices to rents between 1975-2010, the magazine estimates that Australian residences are 56 per cent over-valued, exceeding the 54 per cent over-priced rate in Hong Kong and 48 per cent in France.

"There may be good reasons for Australian prices to have risen so far, but people made similar, and ultimately incorrect, arguments for the run-up in prices in the West,"The Economist said in a statement accompanying the survey's release."

See SMH

Save West End

See www.savewestend.org

Colliers Research Report - Brisbane Apartments Q4 2010

Here are some interesting extracts from the recently released Colliers Brisbane Apartments Q4 Research Report that focuses on off-the-plan sales in the inner Brisbane area.

"Transaction activity in the new Inner Brisbane Apartment market is currently being driven principally by demand from investors. Recently owner-occupiers have been largely absent from the market due in part to expectations of flat prices in the short to medium term, higher borrowing costs and the removal of fiscal stimulus measures.

Currently investors are accounting for 80-90% of all transactions in the new Inner Brisbane apartment market. Investor demand - which is driven largely by rental return and expected capital appreciation - is even stronger for affordable stock (less than $650,000). Notably, the market generally is strong for price-pointed affordable stock.

Returns, which ultimately drive transaction activity for investors, are highly sensitive to both rental values and borrowing costs. Currently, both of these variables are delicately balanced, with rental values sensitive to current and future levels of supply and borrowing costs dependent on the bank’s cost of capital and macroeconomic factors such as inflation. In the near term, investor returns are likely to be driven by rental income rather than capital growth.

Given the current market imbalance, stemming mostly from elevated supply in Inner Brisbane, owner occupiers have become increasingly cautious before committing to purchase. In addition, there is now less urgency to purchase as the strong levels of capital growth witnessed in recent years have dissipated.

Despite the aforementioned threats to performance, the fundamentals of the new Inner Brisbane apartment market remain reasonably solid and underlying demand has held up well. This is reflected by the number of unconditional sales over 2010, which are well above trend levels. However, the ability and/or willingness of both investors and owner-occupiers to purchase has been eroded by increased borrowing costs and expectations in the near term of flat prices and limited rental growth. Whilst some rental markets will be influenced in the short term by home owners displaced by the floods, a sustained increase in tenant demand will be required to deliver solid levels of rental growth.

The annual demand for new apartments in Inner Brisbane is rising, as reflected by the number of unconditional sales reported during 2010 (1,433). The number of transactions in the year to December 2010 is now at its highest level since December 2005 and is well above the long term average for this market. Similarly, demand continued at trend levels over the final quarter of 2010, with 339 unconditional sales.

On the supply side, the number of new apartments available for sale in Inner Brisbane rose to 2,228 during Q4 2010, representing an increase of 24% from the previous quarter. More importantly, available supply is now at its highest level in over 10 years and is well above previous highs observed in 2002 and 2004 (circa 1,500 apartments). Current levels of available supply in Inner Brisbane represent 19 months of demand, based on the average number of unconditional sales witnessed over 2010.

Like many property markets – both residential and commercial - the New Inner Brisbane Apartment market is experiencing the impacts of a misalignment between the business cycle and development cycle. Economic conditions turned down sharply in 2009 and are yet to fully recover, whilst the supply pipeline has retained its strength, resulting in a significant market imbalance.

Most of the new apartments currently for sale in Inner Brisbane are located in the CBD and Inner North, which account for 34% and 41% of the total respectively. Additionally, when we include our estimates of apartments which are likely to be released during 2011, the Inner North and CBD continue to account for the largest share of supply.

The weighted average price of unconditional sales has been trending downward since late 2008. Despite above trend levels of demand during 2010, prices have continued to fall, although the pace of decline has eased significantly. Continued recent falls in the weighted average sale price are a reflection of the large proportion of price pointed affordable stock that transacted during 2009 and 10. The weighted average price of unconditional sales for Inner Brisbane during Q4 2010 was $556,200, a moderate increase from the previous quarter.

The unconditional sales of new apartments in Inner Brisbane during Q4 2010 were comprised largely of affordable stock, with 84% of transactions involving properties less than $650,000 in price. More specifically, 42% of the unconditional sales in the fourth quarter involved properties less than $450,000 in price. Evidently, purchasers continue to be very price conscious and this trend is likely to continue in the near term. Fourth quarter transactions in Inner Brisbane were dominated by one and two bedroom stock, with each category accounting for 45% of the unconditional sales reported.

The number of unconditional sales in the Brisbane CBD rose substantially over the final quarter of 2010, increasing to 94, which is more than twice the average witnessed during 2010 (45). Most of the sales were achieved by Meriton projects, with Infinity and Soleil accounting for 61 and 30 sales respectively. Furthermore, the majority of transactions involved two and one bedroom apartments, with 65% and 21% respectively of the total. The CBD precinct achieved 28% of the sales reported for the new Inner Brisbane Apartment market during Q4 2010 and 12% of the 2010 total. In annual terms there were 179 unconditional sales for the Brisbane CBD during 2010.

The CBD precinct represents a large component of available supply in Inner Brisbane, with 34% of the total (758 apartments). Supply levels are expected to rise substantially during 2011 due to the expected release of some 875 units.

Future Projects

Colliers International Research has estimated approximately 4,000 apartments will be released within Inner Brisbane during 2011.

Approximately 45% of this supply is expected to be located within the Inner North precinct. Madison on Mayne will release the largest number of apartments to the market (286).

The CBD precinct is likely to receive 21% of the potential supply with Camelot providing 420 apartments.

Resales of Existing Apartments

• During the third quarter of 2010, the number of apartments (new and established) which settled in Inner Brisbane fell by 12% to 1,191.
• The number of settlements in Q3 2010 was significantly lower (-23%) than the equivalent quarter of 2009 (1,357).
• Buyers continue to be very price conscious, as reflected by the large number of settlements involving affordable stock, with almost 80% involving apartments less than $600,000 in price."

Metro 21 Sales

From Harcourt City Sales, regarding Metro 21 on Mary Street:

Apartment 803 SOLD - $321,000 Details: 1 BED 1 BATH 1 STUDY No CAR One bedroom apartment with study alcove on level 8. 'C' design - Total area 60sqm - 53sqm internal. Apartment 1901SOLD - $500,000 Details: 2 BED 2 BATH 1 CARTwo bedroom apartment with ensuite on level 19.'A' design - Total area 107sqm - 84sqm internal. Single car space.

Apartment 1401 SOLD - $495,000 Details: 2 BED 2 BATH 1 CAR Two bedroom apartment with ensuite on level 14. 'A' design - Total area 107sqm - 84sqm internal. Single car space.

Australand's New Riverfront Project

"LISTED property developer Australand will launch a $400 million riverside project in Brisbane’s Northshore precinct this month – the first major new development since January’s flood devastation.

The $55 million first stage of the Hamilton Reach project features 78 residential apartments across two five-storey buildings and will initially create up to 80 full time construction jobs. Once complete, the Northshore development will comprise around 800 apartments and townhouses across 530 metres of elevated riverfront living, about 6 kilometres from Brisbane’s CBD.

Australand has also commenced construction on its controversial $160m Yungaba development at Kangaroo Point last year and is close to releasing the first stage of luxury residences within the heritage-listed Yungaba House building.

The Promontory stage of Yungaba is around 60 per cent sold totalling $30 million. The project was initially met with some resistance from the community, particularly the Yungaba House Action Group who believed the redevelopment of the heritage building wasn’t in the interest of the public. Fulcher says the protests are well behind the company and the project will preserve the cultural value."

See Brisbane Business News

"Pressure Grows on Gold Coast"

Headline in AFR on Thursday: "Pressure Grows on Gold Coast".

"Receivers are expected to add almost 500 units to the beleaguered Gold Coast market this year, increasing pressure on one of Australia's most fragile residential sectors. ... Many just completed projects were aimed at the middle to high-end and sold at the peak of the market in 2007. The GFC wiped 20 to 50% off values in some cases with the glut of new high-end stock forecast to cause further double-digt price reductions... ... 122 new apartments were sold in the December quarter. "

SQM Research is quoted: "We see this market as being highly susceptible to any further interest rate rises, which could mean that bargains found today could certainly be an even greater bargain tomorrow."

See photo

HTW Month in Review - March 2011

The HTW Month in Review for March 2011 has the following advice:

"In Brisbane it means check your pricepoints, shore up your rental base and see if you can value add. One sector that achieves all three is near city second hand units. These little treasure chests are normally in a three storey walk up design with a couple of bedrooms and a garage or two. This is all within an easy stroll of the really desirable stuff like shops and restaurants. Think Paddington, Auchenflower, Ascot, New Farm, West End and so on. In fact, draw a line around the CBD at about the 5km mark and start hunting. If you can feed off demand from a nearby university or hospital, all the better. If you can also get close to the café centres then you’re on a winner. It is still possible to land yourself in one of these gems for sub $400,000 and it’s amazing what a lick of paint and some new carpets can do for such little cost. If your dollar is a bit tighter try the same sector further out but close to shops and transport. All in all these units give you plenty of long term upside with capital growth and rental return pretty much a sure thing."

"And now, the caveat. We are witnessing a few eager beavers leaping onto flood affected property in the hopes of landing a bargain. We at Herron Todd White Brisbane have been considering discount rates of approximately 10% to 20% for the new wetlands but it must be remembered that there is now a whole heap of potential purchasers who will take years (if ever) to come back to flood effected property. If the 1974 example is set to repeat, there may need to be a generational change in buyers before the market returns to former glories relative to the non flood bricks and mortar. Make your investment a wise one when you start to consider the long term grow."

Gold Coast:

"Prudent buyers are seeking out prime beachside locations and purchasing both units and dwellings at prices up to 50% discount from there peak in late 2007.

The ‘Buyers Market’ which has been created by and oversupply properties has seen a steady decline in value levels throughout late 2010 and into 2011 with Iocal agents reporting buyers are willing to purchase if they feel a large enough discount has been given. This is very evident with local agents advising cash contracts being offered at open homes which are not subject to finance."