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.

Metro Property Group - A remarkable marketing machine

Last week, Ken Woodley, marketing director of Metro Property Group, zoomed past me in his Jaguar.  He was leaving his Mirvac penthouse and heading in the direction of the Valley.  He must be super happy with the sales of Metro's off-the-plan apartments in the Valley.  As reported today in Property Observer, Metro has been hugely successful in its Valley developments.  Although they are marketed as luxury apartments, in my view, they are small, basic apartments, targeted at foreign investors who cannot buy existing apartments due to FIRB rules.

"Devine’s Metro Property Development group recorded 67 off-the-plan sales over the March quarter for Cambridge Towers, the first stage of its $450 million Central Village development in Fortitude Valley making it the top seller by some margin, according to the latest inner Brisbane apartment update from Colliers International.  Now under construction, Metro had sold 92 out of 165 units in the development as of the end of the March quarter.  In a release earlier this month, Metro said it had sold 80% of the 160 apartments in Oxford Towers, stage two of the project, with one and two bedroom apartments ranging from $275,000 to $575,000.  On completion Central Village will comprise five towers and approximately 970 apartments. The project is expected to take approximately five years to complete."

Vendor activity steady

Property owners in Australia do not appear to be rushing to sell, according to RP Data.

Comparison: Apartments and Houses

According to RP Data, when looking at the median price of properties sold in the 3 months to July 2013, apartments in Brisbane are $75,000 more affordable than houses.

Milton off-the-plan apartments

There are two competing apartment developments in Milton, currently being developed.

• The Milton, being developed by FKP, at 55 Railway Terrace.  FKP has announced recently that it will be focusing on retirement properties, rather than residential developments.
• Westmark Milton, being developed by Lang Walker from Melbourne, at Railway Terrace between Walsh and Manning Streets.

FKP's renderings show a park across the road from its development.  What FKP does not show is any illustration with the Westmark building, that will (I suspect) block out any river or city views that residents of The Milton may have been expecting.

Due to the railway, both buildings should have uninterrupted views of the XXXX brewery.

The Milton -- but where exactly is the green space that is shown?

Across the road is Westmark

Less Apartments Being Sold in Brisbane

The number of apartments being sold in Brisbane are less than the number sold in the same three month period last year.

Rental Returns

I have conducted a review across about 20 apartment rental properties in Brisbane and S.E. Queensland, comparing the 12/13 FY with the previous financial year.  The analysis is done before depreciation and tax is taken into account.  Some of my conclusions, from this limited review:

• rent increases in the past year have been minimal, and I suspect below inflation
• vacancy periods between tenants have increased slightly
• body corporate fees have increased dramatically, and well more than rents and inflation
• council charges and water rates are slightly higher
• long term rental properties do much better than vacation or short term rental properties
• net returns, before interest, have decreased compared to the previous financial year (mostly due to body corporate increases being more than rent increases)
• fees and charges from rental agents are high, especially when considering the work done and value received -- self managed properties do better than agent managed properties for this reason,  even if the rent received is slightly below market rent
• if interest rates had not decreased, then the overall picture would not have been rosy.  
• because of decreases in interest rates, the overall cash position (not taking into account depreciation and tax) improved in the 12/13 FY compared with the previous financial year.