End of the Road for Mirvac at Tennyson

Mirvac and an off-the-plan purchaser, Mrs Dunworth, have had protracted legal battles regarding Mrs Dunworth's contract to purchase an apartment at Tennyson Reach that flooded.  Mrs Dunworth got out of the contract in this decision.  Mirvac appealed that decision to the High Court, but on Friday last week, the High Court refused leave to hear the case, so Mrs Dunworth wins and does not have to settle.  A rare win for an off-the-plan purchaser trying to get out of a contract.

South Bank to Expand?

The Queensland State government plans to expand South Bank upriver, and into South Brisbane & West End.  This will involve the purchase of the Parmalat milk premises.  See story here.

"The South Bank Corporation would oversee the expansion of the parklands precinct from 42ha to 69ha. It would include a 50m pool and aquatic play area, green space, picnic and barbecue areas, markets and a retail and dining precinct.  There would also be new commercial and residential buildings to offset the cost of public infrastructure.  Ms Bligh said one of the features of South Bank 2 would be a new cultural institution, with a national indigenous museum favoured by authorities.  She said the plan envisaged Hope St and Montague Rd becoming "vibrant destinations" similar to James St in Fortitude Valley and Little Stanley St in South Brisbane."

It looks like a great plan.  But if the government changes at the next election, this is unlikely to go ahead because Campbell Newman said that he wants to abolish South Bank Corporation.

Academic Says Housing Market is Ponzi Scheme

According to Soos, the tipping point for the mark will come when “the household sector is so overloaded with debt there exist no more ‘greater fools’ willing to commit to a lifetime of debt serfdom to purchase property”.

“With few buyers and many sellers, prices stagnate then rapidly fall as assets are unloaded en masse onto the market. With demand falling in the housing sector, coupled to an inevitable increase in unemployment, a vicious deflationary spiral occurs. Economy activity grinds to a halt.”

See article in Property Observer

Savill's view of Brisbane

"There is demand at the moment. There is going to be some rental growth, certainly in the CBD and fringe and I think the unknown is in the investment market what's going to happen there.

"The credit squeeze is still on, we know that. It's very tough to get finance. It's very tough to get funding for development. But I think there is some light at the end of the tunnel in that regard."

Courier Mail

DoubleOne3 by Devine

Devine reports that development approval has been received for a 111 apartment project at Teneriffe, Brisbane. The project, known as DoubleOne3, will be launched to the market in late February 2012.  If you preregister, you will receive a free double expresso!

"There’s only one Teneriffe. And there’s only one DoubleOne 3. When you put the two together you get the double effect of sleek modern living in the midst of historic charm. A dynamic duo indeed.  One bedroom apartments with secure carpark start from $370,000.  Be doubly quick."

Failed Settlements At Hamilton Harbour

Devine reports that as at 8 February, 384 settlements had occurred for the apartments in Towers 1 and 2 at Hamilton Harbour.

Devine also reported to the ASX this week the following information:

• Hamilton Harbour (Towers One &Two) settlements commenced with 85% of contracted pre-sales settled prior to 31 December 2011 
• This strong completion result is testimony to the quality outcome at Hamilton Harbour
• Sales activity within the third residential tower has improved and continues into 2012.

I think it is somewhat funny that Devine thinks that a settlement rate of 85% is a strong result.  Maybe there were expecting a lot worse.  There are 469 apartments in total in Towers One & Two.  So assuming that all have sold, this means that 70 buyers did not settle.  That is a large number of contracts to crash.

Why buy in the third tower, when you have a choice of 70 failed contracts in the first and second towers?

Extent of Losses

RP Data reported recently that Brisbane apartments in 2011 lost value of 6.5% (when looking a medium sales prices of apartments that actually sold in 2011).

Let's assume Mr Investor purchased a Brisbane apartment on 31 December 2010 as an investment for $485,000.  Assume that he borrowed 80% of the purchase price, including stamp duty.  Stamp duty is $14,850.  So the total purchase cost, including legal fees and bank fees, is just over $500,000.  Mr Investor put in $100,000 of his own money, and borrowed $400,000.

That apartment, if it went down 6.5% in value, is now worth $453,475.  That is a capital loss of $46,525.

So Mr Investor has had a capital loss of over 46% in one year.  That is the risk of leveraging.  A small decrease in value means a large capital loss where there is a leverage situation.  (If Mr Investor had to sell, he would pay over $10,000 in real estate agent fees, making his capital loss even greater.)  If values decrease further, Mr Investor will be completely underwater.  I suspect that there are many apartment owners in Brisbane who have little or no equity left.

Pradella's New Project - Canvas

Pradella is advertising a new project in South Brisbane, called Canvas.  It is a high-rise building, having one and two bedroom apartments.  The development is located at 41 Boundary Street, and will have 141 apartments over 11 levels.

Devine Hamilton Harbour Settlements

Devine recently issued a stock market release saying:

"Market conditions have continued to deteriorate across most Australian property markets which have had a significant impact on the company bringing new projects to the market."

In Brisbane, Devine has a joint venture with Leightons on a multi-building apartment complex called Hamilton Harbour, where most off-the-plan sales for buildings one and two have reached settlement.

According to the AFR this week, as at late December, Devine had settled 80% of the off-the-plan sales.  Why have 20% not settled?  All may be revealed when Devine's financial results are released shortly.  If 20% of the sales have fallen over, this may impact nearby developments by Brookfield Multiplex, Mirvac and Citimark.

Devine has a rental website for the project, advertising two bedroom apartments for rent from $545 per week.  But some two bedroom apartments are listed on RealEstate.com.au for $795 a week, which seems outrageously high for a 85 sqm apartment facing West.

RP Data December 2011 Index

"On the outlook for the year ahead, Rismark’s Ben Skilbeck commented, “We expect that the RBA’s interest rate cuts in the final two months of 2011 will lend further momentum to housing activity as transaction volumes pick up over February and March after the seasonally slow months of December and January. If financial market pricing for substantial additional RBA rate cuts proves accurate, we could see a stronger-than-expected bounce-back in housing conditions.”

“Housing affordability in Australia has experienced a striking improvement in recent times. While disposable household incomes on a per household basis rose by five per cent over the year to September 2011, Australian dwelling values have declined by 3.4 per cent since September 2010. As a result of the RBA’s rate cuts borrowers can now get fixed- and variable-rate home loans as low as 5.9 per cent and 6.14 per cent. Rismark’s research shows that disposable incomes per household have risen about 15 per cent further than Australian dwelling values since the end of 2003. This helps account for the decline in Rismark’s national dwelling price-to-income ratio, which is as low as its been since 2003” Mr Skilbeck said.

RP Data’s Tim Lawless added, “While global uncertainty and a stagnant local labour market could weigh on the consumer’s mindset, we are nevertheless observing improvements in monthly housing finance commitments. RP Data’s leading indicators on average selling times and vendor discounts are also starting to look healthier. There is no doubt that additional interest rate relief in 2012 would afford a very welcome cushion to the housing market.”"

See RP Data.  Chart above from RP Data, for Apartments only (not houses) for period ending December 2011.  It shows a decline in Brisbane apartment prices for all relevant periods.

Mosaic Apartment Complex to Become Grand Chifley Hotel

The Mosaic Apartment complex in the Valley will include a Grand Chifley Hotel.  I hope that the building is constructed to comply with all the proper fire regulations for a hotel.
Story here.

Alderley Square on hold

PCN's Alderley Square project is on-hold.  See Quest story.  PCN's El Dorado Indooroopilly project seems to have stalled.

There are a number of other projects where the developer is trying to off-load the whole project to another developer.  Buyers beware!

Brisbane Rentals

According to SQM Research, the Brisbane rental market is tightening, with less advertised vacancies than this time last year.  See note.

Grey Street, South Bank

Part of Grey Street at South Bank (South Brisbane) is getting a major and needed facelift.

• The new ABC headquarters are almost complete.
• The new entrance and shops at the Convention Centre are complete and have opened.
• The Queensland Conservatorium has done minor improvements to the streets cape -- more work is needed here.
• The Rydges Hotel is improving its street front.
• The South Brisbane train station landscaping and heritage features are being improved.

All of these improvements add value to the apartments on Grey Street (such as Saville and Arbour).

Hamilton Reach Press Release

Diversified property group Australand is poised to begin construction on one of Brisbane’s most anticipated new residential projects – the $400 million Hamilton Reach in the Northshore Riverside precinct. 
Following a successful sales run equating to more than 60 percent of available product, Australand is about to start work on The Green Quarter – the second release at Hamilton Reach since its launch in April 2011. 
The Green Quarter – comprising 12 unique terrace homes located just one street back from the Brisbane River is anticipated to be completed late 2012. 
“Hamilton Reach has generated a high level of interest due to its sought-after low to medium density masterplan, diverse and considered product and its unrivalled riverfront location,” he said.  “The project has been designed as a highly liveable community optimising views to the river and parklands.  Hamilton Reach will be intrinsically different to anything else in the area as it has been designed as a boutique enclave that is spaced out over a number of low rise buildings which have been extremely well received.” 
ULDA urban development director, Matt Leyshon, said Northshore Hamilton is currently undergoing the biggest urban renewal in Brisbane’s history and Australand’s Hamilton Reach is a significant part of the precinct’s transformation. 
“Northshore Hamilton is the most significant waterfront redevelopment in Brisbane since Expo 88 and Southbank,” he said. 
Watermarque features a stunning collection of 78 contemporary apartments across two five-storey buildings. There are a variety of floor plans with one, two and three-bedroom configurations on offer ranging in size from 56 sqm to 333 sqm.
The Green Quarter’s terrace homes will be built according to stringent design and construction standards in a bid to reduce the future energy costs for the end user.
Designed by Rothe Loweman White Architecture, the terrace homes will feature a 3 kilowatt solar power system, double glazing to windows and doors, cross ventilation, a 3000-litre rainwater tank plumbed to the toilets and laundry,  private courtyards and smart meters to monitor water and electricity usage. 
The terrace homes range in size from 193sqm to 280sqm and remaining homes are priced from $925,000 - $1.375 million. Watermarque apartments are selling from $535,000 - $950,000.

Project Marketing Blog

A new blog has recently been launched by Colliers Real Estate dealing with project marketing.  That is, marketing a real estate project, such as an off-the-plan apartment building.  See Project Blog

High-rise Dangers For Children

"Balconies are definitely a safety issue and no doubt the battle over how to make them safer hasn't finished yet. But at least with balconies, people know they are dangerous.

Windows, on the other hand, are a silent risk – as many people mistakenly assume that if a flyscreen is fitted, children are "contained".

It's not just an issue in Australia – see this story from the US where despite tough building codes in New York – there are thousands of falls across the rest of country, where legislation is lacking.

It's about time we all took some responsibility for some of the most vulnerable people in our society – our children. I mean "our" in the collective sense."

See Fairfax Media story

Renting Is the Gateway to Financial Success

“The bills were endless. There's the rates, the utilities and also the insurance for the property,” Klemencic said. The Klemencics sold up, investing the proceeds in shares, and returned to the rental market. “We save about $600 per month easily in renting rather than buying,” she said.
See Today Tonight story

Indooroopilly Shopping Centre Expansion

Indooroopilly shopping centre is set for a major facelift, with a $450 million expansion receiving the green light from planning authorities. Eureka Funds Management, which manages the superannuation trust that holds a 50 per cent stake in the centre, announced today that development approval had been obtained and work had started on the 30,000 square metre addition. Construction company Brookfield Multiplex is expected the finish the work by April 2014.
Full Story Here.

In addition, apartment buildings up to 20 storeys will be allowed near Indooroopilly shopping centre and Indooroopilly train station under a draft neighbourhood plan passed by Brisbane City Council in December.
Full Story Here.

These changes will probably have a negative impact on those apartments very close to the shopping centre, such as those on upper Station Road, on Belgrave Road and on Grosvenor Road.  But for those apartments a little further away from the shopping centre, it will be a positive addition and will add further value to those apartments.

Soleil Review

I recently visited an apartment in Soleil, which is in the Meriton pool.  Meriton is running a short term rental business out of Soleil, and so the ground floor lobby looked more like that of a cheap hotel than a residential apartment building.

I visited a one bedroom apartment.  It was very small.  Basically, two rooms.  A small bedroom, and a living room with a kitchen along the wall.  So really, a bedroom and a kitchen.  The kitchen/living room/dining room was very crowded even with the minimal hotel furniture.  You were sitting very close to the TV when on the sofa.

There are no balconies, and the windows only partly open.

No ducted airconditioning.  There is a split system, with an ugly head-end in the living room.

There were strange bangs and mysterious deep noises coming from the walls and the common hallway areas.  I could not determine what these noises were, but they were very annoying.

Overall, my opinion is not positive.  I was very unimpressed.

The building has a Facebook page, if you want to become friends with this apartment building.

Home Equity

A summary from the recent September 2011 Quarter RP Data home equity report.

The highlights of the report are:

• Over the five years to September 2011, capital city home values increased by around 28 per cent.
•  Australian housing markets recorded value declines recently with capital city home values down 3.3 per cent from their October 2010 peak to September 2011.
• Properties in Queensland and South Australia have higher turnover rates; therefore equity levels in these states tend to be lower than in other states.
• Far North Queensland & the Gold and Sunshine Coasts have the highest instances of negative equity at 20.2%, 14.0% and 13.5% respectively. 
• The highest proportion of homes that are now worth at least double their initial purchase price is typically either regional and non-coastal, or capital city markets. 
• Capital cities have enjoyed long-term value appreciation and have proven to be less susceptible to ongoing value falls than certain non-capital city markets.

Juniper's Soul

It is hard to tell, but it appears that only about a third of the apartments purchased off the plan in the first stage of the Soul tower at Surfers Paradise have settled.  Juniper, the developer, must not be happy about this.

Brisbane real estate transaction volumes below average

Brisbane home values continue to fall

Summary of Recent RP Data report

Housing values record their first monthly increase since December 2010 in November 2011

• Capital city dwelling values up 0.1% over the month of November, the first monthly increase since December 2010.  Dwelling values are down -3.5% over the twelve months to November 2011.
• Home values in Melbourne and Brisbane fell by the most significant amount over the quarter, both down by -1.7%, followed by Adelaide and Perth which both fell by -0.3%.

National sales volumes are tracking about 17% below the five year average.

·         In recent months the estimated number of dwelling transactions has remained quite stable. Based on our estimates of October transaction numbers, every capital city except Sydney (+8%) is recording lower than average home sale numbers.

·         The worst hit markets are Melbourne (-32% below average) and Darwin (-30% below average).

• Rents are starting to improve in certain areas and across certain product types while yields continue to improve.
• Capital city house rents have increased by 4.9% over the 12 months to November 2011, compared to average annual growth over the past five years of 5.8%.
• Capital city unit rents have increased by 5.4% over the 12 months to November 2011, compared to average annual growth over the past five years of 6.6%.
• Gross rental yields for houses have improved from 3.9% last November to 4.3% currently and for units they have increased to 5.0% from 4.7% last year.

Homes are taking longer to sell and vendors are providing large discounts on their price expectations however, conditions have shown improvement over recent months.

·         The average number of days it takes to sell a house has decreased over recent two months.  It currently takes 53 days on average to sell a capital city house compared with 46 days at the same time last year.

·         Vendors are now providing an average discount of -6.9% from their initial listings price, at the same time last year the average vendor discount across the capital cities was recorded at -5.9%.

Blue Sky Ahead?

John Edwards at Residex believes that there is blue sky ahead for the Australian residential property market.  A quote from a blog entry from today:

"Adverse comments and the position currently surrounding European economic problems have certainly had an impact on Australia’s economy; however it is important to recognise the position Australia holds, and that if things do go horribly wrong, Australia has the capacity to simulate its economy by increasing borrowings and decreasing interest rates.

Our housing markets ended 2011 in a better position to where they started and I am confident that the year ahead will be better for residential property owners compared to last year.  Most owners should see their assets hold value or increase and this year could in fact be a good time for investor activity provided the world economy doesn’t move into severe recession as a consequence of the problems in Europe. ...

The data suggests that we are exiting a period of negative adjustment however, in my view, we should not expect any rapid uplift in housing values because current economic conditions are not capable of supporting strong consumer activity. Retail activity during the Christmas period certainly suggests that consumers are cautious."

Busting Bubble?

According to contrarian economist Professor Steve Keen, it was accelerating debt that drove house prices up and it is decelerating debt that is causing the fall.

Keen has argued the significance of private debt in the economy - something which mainstream economists largely ignore. In a recent post on his blog, debtdeflation.com, Keen reveals the debt to disposable income ratio for Australian households has been rising until recently. Now Australians are saving and paying off debt rather than spending and this has a negative impact on house prices.

The end result, Keen argues, is that house prices will fall 40 per cent over the next 10 or so years, or 5 per cent to 10 per cent for 2012.

See Courier Mail and Property Observer

But see a contrary story here and story by Matusik.  Chris Joye from Rismark takes the opposite view.

Chinese Investors

"And buyers from China once again topped the list, according to new research by Colliers International.  The figures on buying patterns during the 2010-2011 financial year have shown 733 residential sales to foreign buyers.  In all, 506 of those sales were investments with 277 for owner-occupiers."

See Courier Mail

Gold Coast Still Oversupplied

"The high-rise market on the Gold Coast is nothing like any other Australian market.

"It's a unique market and it's driven by speculation and not necessarily the fundamentals. But we just don't need any more high-rise developments for the moment.''

Mr Morris said his latest research indicated there were 625 new high-rise apartments for sale on the Coast. That represented a 2 1/2-year supply based on the average sales rate over the past two years.

"But the figure is a bit camouflaged by a rather big project in Southport - Philip Usher Constructions' $200 million H20 on Broadwater development, which is completed, but has not yet been put to the market.

"So there's another 350 apartments just sitting there which, when they get released for sale will add another year to supply, increasing it to 3 1/2 years.''

In the wake of the GFC, the Gold Coast high-rise apartment market has been hit by spiralling valuations and two high-profile victims of receivership, Southport Central and the twin-tower The Oracle Broadbeach.

It has led to heavy discounting of stock, with prices of some luxury apartments slashed by as much as 30 per cent.

But Mr Morris believed prices could fall even further throughout 2012.

"Most of the stock on the Gold Coast is held by receivers and the prices are not being driven by the market.

They're being driven by what the receivers have to do to get rid of the debt,'' he said. ``So it's quite possible the average price of new apartments could sink below the average price of resale stock.''

Research by the Oliver Hume Real Estate Group shows the Coast's total supply of available apartments - low, medium and high-rise - has reached 1626, down from its peak of more than 2000 over the past couple of years.  And the figure is expected to continue to fall with predictions of the strongest summer sales since the GFC. 

See Full Story

Recent Brisbane City Apartment Sales

Here are the recent reported apartment sales in the larger Brisbane downtown buildings.  Most of these sales closed in the period from late October to early December 2011.

Charlotte Towers

• Apt 2110, 1 bed, 1 bath, 1 car - $382,000

Aurora

• Apt 393, 2 bed, 2 bath, 1 car - $665,000
• Apt 236, 2 bed, 2 bath, 1 car - $515,000
• Apt 512, 2 bed, 1 bath, 1 car - $582,000

Festival Towers

• Apt 3401, 2 bed, 2 bath, 1 car - $475,000
• Apt 1707, 2 bed, 2 bath, 1 car - $440,000
• Apt 2110, 1 bed, 1 bath, ? car - $350,000

Felix

• Apt 356, 2 bed, 2 bath, 1 car - $505,000
• Apt 276, 2 bed, 1 bath, 1 car - $492,000

River Place (82 Boundary Street)

• Apt 302, 2 bed, 2 bath, 1 car - $690,000
• Apt 326, 3 bed, 2 bath, 2 car - $1,497,000
• Apt 231, 2 bed, 1 bath, 1 car - $423,000
• Apt 110, 1 bed, 1 bath, 1 car - $410,000

Skyline

• Apt 55, 1 bed - $320,000
• Apt 131, 3 bed, 2 bath, 1 car - $700,000

Admiralty Quays

• Apt 9, 3 bed, 2 bath, 1 car - $900,000
• Apt 67, 1 bed, 1 bath, 1 car - $580,000
• Apt 135, 2 bed, 2 bath, 1 car - $780,000

Admiralty Towers Two

• Apt 57, 2 bed, 2 bath, 1 car (103 sqm) - $660,000

No reported recent sales (last October to early December) in Casino Towers, Quay West or Admiralty Towers One.

Brisbane Market Flat, and therefore good buying?

With the market remaining soft most of last year, Mr Lawless said Brisbane was again becoming more affordable compared to other capital cities.

There had not been such disparity between Brisbane and Sydney prices since 2007 and Melbourne since 2004.

"It just demonstrates that there is quite a strong value proposition opening up within the Brisbane marketplace,'' he said.  "Which should make the Brisbane market look much more attractive to investors and also interstate migrants.''
See Courier Mail

South Brisbane and Indooroopilly

A recent report by Urbis lists South Brisbane as being "trendy" and Indooroopilly as a "prime unit location".  Bowen Hills also gets a mention as an area undergoing redevelopment.
See Article

Why are Landlords Hostile to Pets?

Many landlords are hostile to pets.  My experience is that students are worse than pets.

"Brisbane vet Michael O'Donoghue has seen too many people have to give up, or put down, their pets because they could not find a rental property that welcomed animals.

"It's very heart-breaking, people euthanising their beloved pet because they can't find accommodation," he said."

See SMH

The Dunmore in the Valley

There is a new apartment development currently being marketed in Fortitude Valley.  It is called The Dunmore.  Management rights have been sold to Mantra, and the property will be managed under the Peppers brand as a small hotel.  For investors, the rental returns will be on a pooled basis based on lot entitlements, similar to many Mirvac properties.

According to the selling agent, The Dunmore will comprise of 78 apartments including:

-           42 One bedroom apartments, a number without car parking

-           18 One bedroom + study nook apartments

-           18 Two bedroom apartments (inc. flexibility of dual key access)

Product	Price Range
1 Bedroom	$376,000 - $462,000
1 Bedroom + study	$399,000 - $482,000
2 Bedroom	$572,000 - $632,000

Predictions for 2012

I am not going to make any major predictions for the Brisbane apartment market for 2012.  It is too uncertain what will happen next.

It is probably not a good time to sell.  If you can hold off selling, then that is probably wise.  (I guess that the market will, at worst, be flat.)  However, if you may be forced into selling sometime in 2012, such as due to loss of a job, divorce, financial difficulties, or a forced move, then it is probably best to sell as soon as possible so that you are not a distressed seller.

If you are buying, there is plenty of choice.  But only buy if you plan to hold for the long term.  I think it is better buying an established apartment than buying off-the-plan, at least in Brisbane.  (The Gold Coast is a different story.)

Rents are unlikely to fall.  Body corporate levies are unlike to decrease.  Who knows what interest rates will do.

I may buy in the next 6 months, but only if the price is extremely competitive or the property is extremely unique.  I doubt that I will buy off-the-plan this year.

Two books to assist you:

• Buying An Apartment Off The Plan in Queensland - A Guide For Successful Buying
• Investing in Brisbane Apartments