Undervalued Brisbane apartments

The Courier Mail had an article today that suggested that over reliance on property databases by real estate agents is leading to pricing discrepancies, particularly for some apartments. Reading between the lines, the suggestion is that some agents don't know the market as well as they think. The article states that "... the reales values of many homes - especially older, well positioned apartments - are being artificially curtailed. This is part of the reason why older properties remain so much cheaper than comparable newer stock."

My views on some of the inner city apartment buildings, based on recent listing prices and recent sales achieved:

• Admiralty Towers One - undervalued - large riverfront apartments, with an excellent new onsite manager
• Admiralty Towers Two - possibly undervalued - large riverfront apartments, but onsite manager has gone bankrupt and some owners hostile to body corporate committee leading to inefficient building management
• Admiralty Quays - at value - beautiful riverfront building, but apartments are smaller than Towers One and Two
• Riverplace - at value - great location on riverfront with large balconies, but lesser quality than Admiralty buildings, and larger less personal building
• Skyline - overvalued - poorer quality building surrounded by other buildings
• Evolution - significantly overvalued - located on a freeway, sold mostly to Asian investors, small poor quality apartments in badly managed building
• Casino Towers - overvalued - good views from some apartments, but these apartments face West and views likely to be built out when old State Library site redeveloped into multistory tower
• 212 Margaret - overvalued - located on edge of construction site
• Charlotte Towers - probably overvalued - many apartments listed for sale and not selling
• Festival Towers - probably overvalued - poor quality Devine building, likely to be further surrounded by new development and remaining views built out
• Quay West - undervalued - large apartments with Gardens and river views never to be built out, well run building with good finances
• Grosvenor - at value - large apartments with Gardens and river views never to be built out, low turnover of apartments
• Felix - overvalued - smaller apartments looking with little privacy
• Metro 21 - mixed - great difference between apartments in this building - smaller well run building with much better value than the Oaks run buildings, but one bedroom apartments in this building are not great
• Aurora - overvalued - large, poorly run building

Apartment Auctions in Brisbane

Newspaper reports and auction clearance statistics show that less than half the properties that are for sale by auction do not sell at auction. In fact, probably only 1 in 3 sell at or immediately after auction. For apartments, my guess is that the sales rate for sellers is even worse. The reason is that it easier to value an apartment, by looking at similar sales in the same and nearby buildings. So a purchaser is less likely to overbid (and overpay) for an apartment at auction, and thus less likely to reach the seller's reserve price.

Good Advice from Matusik

This is from Matusik's email this week. It is worth subscribing to his newsletter

Matusik Missive – A new paradigm?

20^th October 2010

The numbers of housing loans and new housing starts continue to slide. Every excuse under the sun is offered up as to why. The real reason, being an actual lack of demand, is rarely mentioned. But in short, buyers across the board are not that interested in buying residential property at present. This is especially the case for new stock.

Why?

Let’s cover the new supply first. This follows on nicely from the most frequent reply to our three-part urban myths missive series last month, which posed the question as to why a proper study into “what the market really wants” isn’t done. Well, we have done several; for the PCA for their Australia on the Move publication and for several clients including the Brisbane City Council.

In short, the current new supply is wrong. It is either too small, of limited quality and/or overpriced. What’s on offer too often does not offer value for money. Hence buyers increasingly opt for something established, which they might renovate or refurbish in the future, rather than buy a new dwelling.

In an ideal world, many would buy something alternate to the detached house, but only at prices much cheaper than new apartments, townhouses and the like are currently asking. In general, the market expects “other” housing to be about 20% cheaper than a detached house in the same area. Whilst they expect some shrinkage in the size of alternate accommodation, the current offerings are considered by most to be way too small.

Another complaint is that the quality of the new product – and in particular for apartments – is far too low for the prices expected. The thirst for a quality product is an opportunity and one which should grow in demand as baby boomers enter retirement.

The cheap and cheerful (often of late more “nasty” than “cheerful”) trend has gone too far. It is somewhat ironic that the housing industry is vamping up the supply of really tight product just as the emerging demographics suggest the opposite. Household sizes are increasing across Australia – fuelled by a baby boom, relatively high overseas migration and adult children remaining (out of choice) at home with their parents.

When it comes to existing product, many vendors, in short, want too much for the property. There is a flood of second hand stock on the market; the customary spring market pick-up is missing this year (although its impact is usually overstated) and with the threat of a further interest rate rise pending, vendors need to get realistic quickly or take their property off the market. Failure to do so could result in substantially lower offers (than a realistic price today) in the near future.

This issue was brought home quite clearly when a 293 square metre penthouse on the Brisbane River in Kangaroo Point (with uninterrupted views of the Brisbane CBD) was passed in at auction a few weeks back. The reserve was set between $1.2 and $1.4 million which equates to a paltry $4,600 per square metre.

Ironically, it is a buyer’s market and could be for some time to come – read “years” not “months” – yet potential purchasers are not buying. Usually and somewhat ironically, rising interest rates get interested parties off the fence. Maybe that will occur once the RBA actually moves the cash rate, but maybe not.

I cannot help but feel that we have entered a different paradigm – one in which a dwelling is a home, rather than a vehicle for speculation. If that happens, the term “real” estate will regain its true meaning.

To revisit our Aussie Urban Myths commentary visit newgeography.com

Brisbane Skyline

A great photo of the Brisbane skyline from Jesse on Skyscraper City. You can see (from the left) Waterfront Place, Felix, the back of Riverplace, Riparian (behind Riverplace), Skyline, Soleil under construction and Aurora.

Empire Square To Be Reborn

According to the AFR, Grocon (owned by the Grollo family in Melbourne) is in due diligence to buy the Empire Square site and also the Trilogy site.

El Dorado Indooroopilly Delayed?

It appears that PCN's project on the El Dorado at Indooroopilly has yet again been delayed. On the second or third attempt, it was due to start in November 2010, but has been pushed back until 2011, according to workers in the cinema complex. I wonder if it will ever get off the ground. PCN is also developing Alderley Square. PCN did not proceed with its apartment project at Graceville. As far as I can tell, PCN has never completed an apartment project that it has attempted.

Properties

RP Data September Report

In August the seasonally-adjusted RP Data-Rismark Capital City Home Value Index fell by 0.2 per cent. On a non-seasonally adjusted basis the index remained unchanged in August. (Residential data are ‘seasonally-adjusted’ to remove the influence of the seasonal swings that occur at various times of the year.) Since the market peak in May 2010, the RP Data-Rismark Capital City Home Value Index has declined by 1.2 per cent (raw and seasonally-adjusted). Over the year to end August 2010, capital city home values have risen by 8 per cent. The median dwelling price in all capital cities is $457,000. ...

Mr Lawless added, “Rental yields across the capital cities are now showing signs of improvement. RP Data and Rismark estimate that the gross yield on units is 4.9 per cent while for detached houses it is a lower 4.0 per cent. On a total return basis, Australian housing has outperformed most other asset-classes over the last 10 years.”

Christopher Joye commented, “We were not forecasting any further capital growth in the second half of 2010. Recent data vindicate this thesis. In the first seven months of 2010, capital city dwelling values have accreted by 4.8 per cent in raw terms, which is in line with consensus expectations for disposable household income growth.”

“Futures market pricing for interest rates has changed dramatically over the last month, shifting from expectations of rate cuts to at least two hikes by end 2011. But following hawkish RBA remarks, economists are now predicting we’ll get 4-6 cash rate hikes. We’ve modified our views accordingly,” Mr Joye said.

He continued, “If the resources boom combined with frisky consumer spending compel the RBA to lift the cash rate 4-6 times by end 2011, we would expect to see nominal dwelling values decline modesty. This is not a bad thing. Asset prices cannot always rise - the volatile sharemarket regularly subjects investors to savage swings. Since 1993 there have been five instances when the RBA has lifted the cash rate sharply. On every single occasion national capital city dwelling prices have flat-lined or declined. If the RBA aggressively raises rates, there is no reason to expect 2010-11 to be any different.”

Source: RP Data

Investment Apartment

“Four out of five investors reside in a detached home, yet just half buy a detached house as an investment. Investors seem to like apartments, not to live in as such but as an investment, with just 12 per cent living in an apartment but over a third of them holding an investment apartment."

Source

Reserve Bank's View

Deputy Governor Ric Battelino of the Reserve Bank of Australia is optimistic that there would be turnaround in the property and real estate sectors as an encouraging shift of financing models will pave the way for future growth.

Source

Rents in 2010

From RP Data September Quarter 2o10 Rental Review

"Over the last five years the weekly rent on a unit both nationally and within the capital city markets has increased by more than that of houses. This result reflects the growth in demand for units as lifestyle preferences change and affordability pressure see more prospective tenants turn towards unit living as an alternative to detached homes. ...

The slowdown in the rate of rental growth is commensurate with the Reserve Bank of Australia’s aggressive cuts to official interest rates as the Global Financial Crisis hit and the introduction of the First Home Owner’s Grant Boost. Both initiatives, coupled with softening property values during 2008 and consistent growth in rental rates during recent years, resulted in a significant boost to affordability for first time buyers. As a result during 2009, first home buyer activity was at its highest level on record. With first time buyers generally coming from the rental market it’s no surprise to see that the rate of rental growth had slowed so markedly."

Yardney's Advice

"... I foresee generally flat property prices over the next few months – possibly well into next year. But I also see some great opportunities.

With an improving local economy, strongly rising population growth, rising rents and the ability to buy a bargain from some motivated vendors – the type of bargain that we couldn’t find in the last few years when there was strong competition from other investors – I know some investors will set themselves up for success in this current stage of the property cycle.

My personal strategy is to continue what I have been talking about and doing personally for years:

1. Buy the right type of property – one that has some element of scarcity, which will always make it appealing to owner occupiers (who push up the prices) as well as tenants.

2. Buy in an area that has always outperformed the market.

3. Buy at the right price –this should be below intrinsic value - the type of price that even if values do drop 5 or 10 % (and I don’t think they will in most areas) you will be covered.

4. Only buy a property to which you can add value – during this time of flat growth, manufacture some capital growth yourself through renovations or redevelopment. ..."

See "Is it time to worry.." from Property Update.

Bowen Hills

There will be a large number of new apartment projects in Bowen Hills. This area is close to the city and the Royal Brisbane Hospital, but does not have much else going for it.

Some example developments selling off the plan include

• The Chelsea, 195 apartments, being co-developed by David Devine (now that he has left Devine)
• Code, 132 apartments
• Belise, 200 apartments
• Richmond Apartments, 107 apartments

How To Lose Money in Property Investing

Here is an interesting article, that discusses the risks of buying off-the-plan.

"Three surefire ways to lose money in property"

The Milton at Milton

FKP has opened its sales office for "The Milton", a new apartment building that FKP plans to build next to the railway line at Milton Station.

The building will feature 298 one and two bedroom apartments. There will be no three bedroom apartments. There is a pool. Shops are located on the ground level.

Compared to all recent developments for Brisbane apartments, the floor plans for the apartments in The Milton are the best that I have seen. The apartments have wide frontages, good light, storage space, and most have good sized kitchens (rather than galley kitchens). There are no internal bedrooms. The apartments are an ok size - the average size for a two bed is 92 sqm including balcony and 62 sqm for a one bed.

The downsides:

• FKP's recent developments in Brisbane have not been great. Vue at Milton was did not turn out to be great, and many of the apartments there are still selling below the original sales price. The Albion Mill project never started. I considered the SL8 development at West End to be a disappointment.
• The Milton is being built on a railway.
• The Milton is located close to the XXXX brewery, and so residents will be impacted by smell, fumes and fallout from the brewery.
• Despite the nice brochures from FKP, The Milton is located a fair distance from the river. It is not river front, and will only have distant river views. There is the strong possibility that other towers will be built between this development and the river. In my opinion, the artist's impressions being distributed by FKP are somewhat misleading.
• There is the risk that the apartments on each end will be built out if similar apartment buildings are constructed on the neighbouring land. The Milton is not on a corner block, and this is a risk.
• The building does not have central airconditioning. The hallways are unlikely to be airconditioned. Not all rooms in your apartment will have an airconditioning output head. So FKP selected the low quality option here.

The biggest downside to me is the price. FKP is advertising that the median (not average) price for 2 bedroom apartments is $778,049 and for one bedrooms is $430,497.

For example, the apartment listed above (N type) on about level 12 is listed for sale at $795,000 plus an extra $12,000 for the "upgrade" interior package. This is over $8,500 per sqm metre, for an average residential starter apartment -- we are not talking about a luxury building or prime location here.

A two bedroom M type on lower than level 10 will cost $785,000 plus a $10,000 upgrade package. A two bedroom K type on a similar low floor will cost $748,000 plus $10,000 upgrade package.

What is even more amazing is the printed information that FKP is giving out to potential investors. They have a sheet of paper showing investment returns for a 2 bed, 1 bath apartment listed at $650,000. The predicition is that this apartment will be worth $807,500 on completion of the project in 2013, and will be worth over $1M by 2016. The predicted rent is over $720 a week in 2013.

Take note! Investors who purchased a 2 bedroom 1 bathroom apartment off-the-plan in Evolution (a better location, in the downtown area) over 5 years ago at over $600,000 are now having great trouble selling that same apartment for $500,000 today, and similar apartments in Felix are selling for about $450,000 today. So it is a bit rich to say that a two bed, 1 bath apartment at Milton is good value at $650,000 today, and I find it very hard to believe that it will be worth 0ver $800,000 in three years time.

Take care!!

Dishonest Real Estate Agents

I came across this illegal trick that a "reputable" city real estate agent is doing. This is the story. Let's say that the apartment is listed at $1.4M. He receives an offer of $1.2M. So to butter up the vendor, he first puts in a fake offer (a forged contract) to the vendor at say $1.025M. The vendor is disappointed, and rejects the offer. Soon after, he presents the real $1.2M offer (telling the vendor that this is a good offer; and also telling the purchaser that there is another person bidding on the the property.) The vendor is more likely to accept the $1.2M offer.

So if you are an investor selling your apartment in Brisbane, take care! Especially if the address of the purchaser is a PO Box. If you get a low ball offer, have someone check out to see if the offer is from a real person.

Meriton's Infinity Pricing

I received this from a Sydney investor, who was asked to invest in Infinity, on Herschel Street in Brisbane:

1 bedroom with study with city views from: $398,000 
1 bedroom with study with river views from: $448,000  
2 bedroom with city views from: $525,000 
2 bedroom with river views from: $560,000  

Month In Review

The Herron Todd White Month in Review report, issued each month, often has useful commentary. Some extracts from the September 2010 report:

"Importantly, do not read ‘relatively affordable’ as ‘secondary quality’. It is better to stretch the dollar a bit and buy a dodgy looking second had unit with good bones and quiet position in an area such as Ascot or Toowong, rather than a brand newie in the same areas that is the size of a bathtub and has full exposure to rail noise. The good thing with these units is that they always have a strong rental demand and some value-add potential if you get something that needs a little love.

... there are some areas that you should steer clear of.

The first that comes to mind is on the Redcliffe Peninsula and specifically high rise unit developments. A favourable council hell bent on turning the area into something beyond a sleepy seaside habitat went gung ho with developers to create a mini Surfers Paradise along the esplanade. The result was a number of multi-level unit projects designed to take advantage of the views and the natural attributes that usually have investors salivating. Unfortunately the suitors became a little too enamored and far too many projects came out of the ground, with many units snapped up by out of town buyers for prices well beyond the average local punters cashbook. The result - there is now a glut of these attached dwellings throughout the area. Some initial buyers have lost large money and given the abundant supply on the market and the near zero demand from well informed local buyers, the prospects of growth appear somewhat limited for some time at least.

Gold Coast

Overall market sentiment has remained very slow/ subdued over the winter months, with minimal market activity and some less than impressive sale results. Therehas been a significant drop off in the number of sales and selling prices, and fingers are crossed that demand will increase as the election is out of the way and the weather warms up."

The report then lists recent sales where the vendor has lost money.

The report also states that the Brisbane apartment market is "peak of market" and that the Gold Coast apartment market is "declining" but that the Sunshine Coast unit market is at the bottom of the market. This would suggest that it is best to buy on the Sunshine Coast, than in Brisbane or the Gold Coast.

Landmark case sends a warning to investors

"Know how you should and shouldn't market your apartment, particularly when the onsite complex manager owns the building trademark."

From September 2010 edition of Australian Property Investor

Similar to issues raised in prior posts here.

Brisbane Apartments Outperform Brisbane Houses

Have a look at this chart from RP Data.

RP Data August 2010 Index

From the RP Data press release:

After a large 1.0% seasonally-adjusted fall in June, Australian home values changed little in the month of July, recording an increase of +0.1% (up +0.4% seasonally-adjusted).

According to the market-leading RP Data–Rismark Hedonic Home Value Index, Australia’s capital city home values remained relatively flat in the month of July recording a modest, seasonally-adjusted increase of 0.4% (on a raw basis home values were up only +0.1% in the month).

The July results follow a 1.0% seasonally-adjusted decline in the month of June; the first negative movement in Australian capital city home values in 17 months.

The slow-down in Australia’s housing market had been long-anticipated by RP Data and Rismark and was noted by the Reserve Bank of Australia in its most recent Board Minutes.

According to RP Data’s research director, Tim Lawless, the July index results are further evidence that Australia’s housing market has experienced a controlled soft-landing after a resounding recovery during the course of 2009.

“In the period between end 2008 and March 2010, Australian home values rose by 16.3%. Yet monthly growth rates have declined consistently since the start of the year. RP Data and Rismark expect to see the market track sideways over the second half of the year. There is the possibility of modest gains if mortgage rates remain in check and economic conditions continue to improve,” he said.

The deceleration in capital growth rates is evident across the cheaper, middle and more expensive suburbs tracked by the ‘stratified’ version of the RP Data-Rismark Hedonic Index. This index shows that while the most expensive 20% of suburbs realised the highest capital growth between end 2008 and March 2010, these same suburbs have suffered the largest falls in home values in the period since.
According to Mr Lawless, “As has been the case previously, the illiquid top-end of the market is showing higher volatility than lower priced markets. Home values in Australia’s most expensive suburbs fell more in 2008, rebounded quickly in 2009, and are now tapering at a more rapid rate than cheaper property markets. Home values in the most expensive 20% of suburbs were down 2.0% over the three months ending July 2010 compared with smaller declines of 0.4% and 0.7% in the cheapest 20% and middle 60% of the suburbs, respectively.”

Christopher Joye, Managing Director of Rismark International, said, “In contrast to claims that the decline in home values recorded in June would accelerate, we have seen quite the opposite: Australia’s housing market appears to have gravitated back to a no-to-very low growth trajectory, as we forecast.”

Mr Joye added, “RP Data’s leading indicator data also paints an encouraging picture. After falling from historically high 70-80% levels, national auction clearance rates have now leveled at around the 60% mark. While outstanding inventory levels have expanded in response to the weaker demand, they have recently settled. Perhaps most significantly, the futures market is currently pricing in no further interest rate hikes over the next 1-2 years. In recognition of the flat yield curve, we have seen some banks cutting the cost of fixed-rate loans.”

“Looking forward, I would expect to see the major banks pushing housing credit growth a little harder as profitability gains--driven by reduced impairment provisions across their business lending books--dissipate. Australian housing credit growth has been running at record low levels, and has experienced a downward trend since 2006. An increase in credit growth back to reasonable single-digit rates will provide further support to the market in the next 12 months.” Mr Joye said.

Mr Lawless agreed that substantial falls in Australian home values look very unlikely.

He said, “The number of homes being advertised for sale across Australia is only 5% higher than what we saw at the same time last year. We aren't seeing a blow out in stock levels and properties are taking on average about 40 days to sell, which is only a little higher than recent experience.

“And while we have noticed an increase in vendor discounting, this is coming off the very low base we recorded during 2009,” he said.

When will Park Get Into Drive?

Mirvac's Park development at the Newstead River Park is currently being sold off the plan, and is due for completion in about June 2012. It is divided into two sections, Park North (which is more expensive) and Park South (which is less expensive.) There are 100 apartments in Park. So far, about 30 apartments have been sold. (See prior Park posts.)

It appears to be a quality but basic development. No pool. No gym. But it is priced too high for investors, and so seems to be aimed at owner occupiers.

In Park South, you can buy a 2 bedroom, 2 bathroom apartment on level 5 for $745,000. This apartment is 81sqm internal with a balcony of 15 sqm. The living room and both bedrooms are at the front.

There is also a 2 bedroom, 2 bathroom apartment on level 4 for $740,000. This is 93sqm internal, with a 15 sqm balcony. The living room is at the front. Both bedrooms are at the back. It is a floor-through apartment.

The kitchens for these apartments are located on the wall of the living/dining room. So taking out the bathrooms and balcony, these are 3 room apartments.

REIQ Report

"Two years on from the beginning of the Global Financial Crisis, Queensland’s residential property market has ridden the wave of economic uncertainty and come out the other side with prices now back at pre-crisis levels.

However, the Real Estate Institute of Queensland’s (REIQ) June quarter median house report shows continued tough market conditions with the preliminary number of sales across the state down by about five per cent compared to the previous quarter. Most areas of the state recorded minimal median house price changes over the period."

“Agents have been reporting quieter market conditions since about early April when the string of interest rate increases began to have a negative impact on the market. Uneven economic data is also starting to worry consumers with many buyers currently happy to sit on the fence until a clearer economic picture emerges.”

While sales activity is currently subdued compared to last year, the REIQ June quarter report found property prices in most areas of the state are now on par with what they were two years ago.

“Over the past two years, Queensland’s median house prices have jumped up and down depending on the types of buyers in the market at the time,” REIQ managing director Dan Molloy said.

“Last year, the numbers of first-timers in the market was higher than usual, so correspondingly the median went down given they bought cheaper properties. This year, there has been a return to a more even distribution of first and non-first home buyers in the market so the medians have increased accordingly.

“This change in buyers, and the types of properties selling, has unfortunately given the false impression there has been robust property price growth when prices are now really where they were two years ago.”

Brisbane’s continued population growth has underpinned the capital city’s performance over the past two years with its median house price increasing about 9 per cent to $530,000 for the year ending June 2010.

Charts

Some interesting charts from the RP Data report to the ASX, released yesterday.

Ponzi Borrowers

Extract from The Australian:

"LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist.

In a bearish note to clients this morning, Morgan Stanley strategist chief strategist Gerard Minack warned Australia's housing "bubble" could be pricked should banks tighten credit or "loss-making" middle-class landlords start to sell.

He argues owner-occupiers are in too much debt and investors are riskily relying on capital gains to repay their loans and interest repayments.

Compounding the problem is "ill-advised policy", such as the government's first home-buyers grant, which has combined to make Australian houses "40 per cent above fair value", Mr Minack says.

"Buying an asset that's over-priced never ends well," he said. "The real return on residential property over the next decade is likely to be negative, in my view."

On the positive side, Mr Minack said the most plausible trigger for a correction in the Australian housing market -- broad-based jobs losses -- doesn't appear likely in the near term. This means big price declines in the near term "seems low".

See The Australian for the full story

Off-the-plan disappointments?

A story from The Australian:

• Investment properties to flood market
• Prices set to soften
• Short-term gains unlikely

"PROPERTY investors are targeting off-the-plan apartments hoping for short-term capital gain, with thousands of prospective pre-sale buyers eyeing Sydney projects.

Ray White is reporting a 6 per cent lift in investor buying as shares weaken and with the end last year of the boosted first-home buyer's grant, The Australian reported.

But analyst Michael Matusik predicts investment properties will flood the market in the near term, leading prices to soften.

An Australian Housing and Urban Research Institute report this month said 80 per cent of investors buy for long-term gain, but at least half sell within five years because of cashflow problems or disappointing capital growth. One in four investors sells within 12 months.

Developers in Sydney are reporting strong demand for new residential projects following stamp duty concession by the NSW government this year. ...

Mr Matusik said property prices would not crash, but there would be deflation in values over time.
"In the next decade, we might see very little growth, and if investors keep buying and thinking 'I'm going to make a killing and then move on', they're going to find themselves a little disappointed," he said.

This would be mostly the case in Melbourne, where the market had been strong, he said. In Perth, Brisbane and Adelaide, the trend had already started to occur.

The Australian

Risks with Off The Plan purchases

There are many risks with purchasing an apartment off-the-plan. These include:

• the development not actually starting, as some developers commence selling prior to obtaining development approval from the Council and many developers do not have finance prior to selling
• the development starting late and finishing later than you want (which is not good if you want to move in; but may be good if you are an investor)
• the development finishing earlier than planned (which is not good if you are not ready to move in, or if you are an investor and planned for a later settlement)
• the developer going bankrupt or running into financial difficulties during development, and so cutting corners or having another builder take over
• changes to apartment layout and size, that may be permitted by the contract
• different quality to what you expected
• different views to what you expected
• having no control over the appointment of the onsite manager and caretaker, who could be appointed under a long term contract
• body corporate fees being low for the first year (to attract purchasers) but then increasing dramatically in year two when the body corporate finds out not enough was budgeted
• paying too much for the apartment, especially if the market goes down between contract and completion, or if you are buying something "different" and so can't really determine value when you sign the contract
• not being able to obtain finance when it comes time to settle.

For these and other reasons, the purchase of an off-the-plan apartment should be at lower price than if you bought the same, completed apartment today. You are taking risks, and should get a discount for that risk. Often, however, that is not the case.

There are advantages of buying off-the-plan. You get first pick of apartments, and many of the better designs and locations sell out first. And sometimes the developer does a discount program for the first buyers.

I was reminded of all this by two readers, who sent me emails. One of the emails said:

"Thank you for your blog. You are very positive towards Pradella. I purchased in a Pradella development, and just want to point out a few issues, to give a more balanced viewpoint. First, stage one and stage two of the development are complete. Stages three and four, which can be seen from many of the apartments and the main lobby door, are just one big dirt patch with a low fence. A very ugly view. I have no idea when Pradella will complete the remainder of the development. Second, some features promised for Stage Two have been moved to Stage Three, and are not yet built -- for example, a picnic gazebo. Three, there is no enough visitor parking. This will only get worse when later stages are built. Four, Pradella own the onsite management rights, and the manager is an employee of Pradella. This creates a number of potential conflicts of interest. Five, the onsite manager is pretty hopeless as a rental agent, but Pradella does not seem to care or supervise. Six, there are two body corporates for the development (for each stage), so decision making is harder, especially in relation to defects and issues impacting all owners. Seven, Pradella has not sold all the apartments yet. This is making it difficult for people who want to resell, as they are competing with the developer, and prices have not risen much since settlement. Worse still, Pradella is renting out a number of the apartments, thus competing with the owner/investors in the rental market too. Overall, I am very happy with my purchase, and it is a great development, but I just wanted to point out that the picture is not 100% rosy."

Another reader's email described a situation in a development by Sam Vecchio at Taringa. I will not repeat the email here, as it goes for about 5 pages. It seems that the Vecchio family kept about a third of the apartments for family members and their superannuation funds. So even though the development "sold out", the developer sits on the body corporate and votes down motions. The fact that the developer was keeping apartments was not disclosed to purchasers off-the-plan. For example, it seems that most of the residents want pool furniture, but the Vecchio interests vote against this motion. There are also some issues regarding defects to common property, and failure to do the gardens as set out in the original plans and DA. So the disputes are getting messy, especially because the Vecchios can vote against motions to try to remedy the situation. Vecchio is now developing Rive Apartments near the Breakfast Creek Hotel.

Gold Coast

Although this blog focuses on Brisbane, a number of Brisbane investors also purchase on the Gold Coast. As the Brisbane market is flat, such investors are less likely to purchase on the Gold Coast at present. There are three big developments completing in the next year. First will be The Oracle at Broadbeach, then Hilton at Surfers Paradise, and then Soul. All are completing in two stages.

Here is a nice video showing The Oracle at Broadbeach. (Click here for full size video.)

Here is a link to photos showing Soul and the Hilton project, courtsey of defec8R of SkyscraperCity.

Close Up

Wide view

Macrossan and Soleil growing

A nice photo from Chris Hinds showing Macrossan Residents and Soleil growing, with Skyline to the right, and then Admiralty Quays and Admiralty Towers One.

Goodbye, Glitzy Condo Pitches

"...To adjust to a market strikingly different from the high-flying one that reigned when these projects were conceived, developers have not only created new marketing campaigns but also substantially changed the buildings themselves. Focusing less on trendiness and more on value, they have redesigned lobbies, combined apartments to create more family-sized units, and swapped luxuries like private roof cabanas for shared amenities like common roof decks. The changes all seek to appeal to today’s much more skeptical buyer...."

See NY Times article