Receivers Move Into Alderley Square

This blog reported recently that PCN's Alderley Square development was on hold.  The AFR reported on Thursday that receivers have moved into Alderley Square, due to a significant slow down in sales.

• Developer owes Westpac $12 million.
• Construction has not yet started.
• Off-the-plan purchases have dried up.
• Colliers reports 30 months of supply of new apartments in Brisbane.
• Alderley Square had 234 apartments across 3 buildings.
• In the first 12 months, $55 million of contracts, mostly to locals.
• In the next six months, only $4 million in sales, even with the $10,000 building boost.
• The AFR reports that buyer fatigue extends throughout south-east Queensland.
• At Australand's Yungaba project at Kangaroo Point, only 37 out of 167 lots have been sold, or about $33 million out of $150 million of stock.
• What will happen to PCN's El Dorado Indooroopilly development?
• See also story here and here.

Hamilton Harbour Press Release

HUNDREDS of new sales and settlements of residential apartments at the Hamilton Harbour mixed use development are signaling renewed confidence in Brisbane’s property market, according to developers Leighton Properties and Devine Limited.

During the November-January period, over 380 pre-sold apartments settled in the 22-level Harbour One and 19-level Harbour Two towers, completed in November 2011.  This now brings total settlements to more than 90 per cent of the 434 pre-sold apartments.

Project director John Campbell said, “Predominantly local buyers have been the driving force behind these sales and the average price of settled apartments is $526,000.  Pre-sales accounted for over 90 per cent of apartments in the two towers, a Brisbane record for the post-GFC environment.”

The 20-level third and last residential tower Riverside Hamilton, currently under construction and due for completion in late 2012, had sold 128 apartments (113 on unconditional contracts) by the end of January.

With Harbour One and Harbour Two owner occupiers moving in, and over 75% of investor purchased properties already rented, the first two towers are quickly filling up with residents.

“The average gross rental yield on one-year leases is 5.3 per cent across all stock, with one-bedroom and two-bedroom with study products achieving higher yields,” Mr Campbell said.  “Professional workers, couples and fly-in fly-out workers are boosting popularity of the leases on offer, with rents starting at $300 per week.

Mr Campbell said residents were also eagerly awaiting the opening of Hamilton Harbour’s commercial and retail precinct which would bring restaurants, convenience and boutique shopping right to their doorstep.

Local Investors Buying in Brisbane

New research indicates Brisbane property investors are the strongest buyers in their own backyard.  As investment activity returns to the city, PRDnationwide has found some 86% of recent property investors are Queenslanders.  The company's research director, Aaron Maskrey, says most of the property investors in the city came from inner-city suburbs, and they often chose to invest in the same suburbs.

Although housing stock is higher priced than unit stock and typically provides a lower gross yield, when closely analysed it is determined that approximately 50% of investors have purchased units, and the other half bought houses.

See Property Observer

Gold Coast Hilton

The Gold Coast Hilton development (originally developed by Rapits, a company that went bankrupt during construction) still has unsold apartments.  They are advertised as starting at $475,000, with two bedroom apartments with ocean views for sale at $565,000 and three bedrooms with ocean views for $765,000.

Casino Towers Auction Result

A sub-penthouse in Casino Towers (Apt 3803, 151 George St), recently sold at auction for just over $800,000.  This was a large two bed apartment, about 130 sqm internal.  It faced East, and did not have river views.

The owner/vendor purchased this apartment in August 2006 for $875,000, and so lost money.

The first owner purchased this apartment off the plan from Devine for $840,000 in 2005, and so over 6 years, this apartment went down in value.

Misleading Photo Montage

Some developers are known to produce misleading photo montages and computer generated images of their apartment projects to make them look better, so as to sell to off the plan purchaser.  He is a different spin on the story -- a developer submitted a misleading photo montage for development approval, to make the apartment complex look smaller so that local residents would not complain.  See story here.

Brisbane Property Strategy

Here is a story, where two Metropole agents have a discussion about the Brisbane property markets.  Listen here for what it is worth.  "A lot of segments of Queensland have hurt over the past 12 months."  Interestingly, they compare the decline in property values with declines in share prices -- but there are three additional factors to take into account here -- firstly, the income received from shares by way of franked dividends are much higher than net returns from property (good shares return about 3 times as much income as good property on average); secondly, most people who buy shares are not as highly leveraged as people who buy property, so a 6% decrease in value in property often is actually a 50% capital loss for a leveraged investor; and thirdly, shares a more liquid and have significantly less transaction costs compared with property.

House Prices in Queensland

The REIQ, which is the industry lobby group for real estate agents in Queensland, issued a press release today regarding Queensland house prices.  Note that this relates only to houses, and not apartments or units.  An extract from the press release:

One year on from the floods and Cyclone Yasi, the Queensland residential property market has stabilised, according to the Real Estate Institute of Queensland (REIQ).  The REIQ December quarter median house price report found property prices in South East Queensland recording mostly steady results, while the strong resources sector is driving demand and price growth in Central Queensland and the Darling Downs.
Over the December quarter, the median house price in Brisbane recorded a negligible fall of 0.2 per cent to $499,000 - the lowest fall in our capital city’s house price since September 2010.  Across Queensland, investor and first home buyer activity continues to strengthen with buyers recognising that prices have plateaued in many areas.  REIQ CEO Anton Kardash said the improving results showed that our state had begun to move on from 2011.  

‘‘Last year was a very tough one for everyone in Queensland with the series of natural disasters having a drastic impact on our economy as well as on confidence levels overall,’’ he said.  ‘‘With the first anniversary of these events now passed, it certainly appears that Queenslanders are feeling more optimistic about the future and this is starting to have a positive effect on our property market.  While it was too soon for the two interest rate reductions in November and December last year to be reflected in these results, we anticipate more positive news on our property market in the months ahead as these rate cuts flow through our wider economy.’’ 

Brisbane Apartment Capital Growth

Extract from a recent article by Tim Lawless from RP Data:

"Another recent trend has been the superior performance of the unit market relative to houses. Over the first five years [2001 to 2005] average annual growth was recorded at 8.7% for houses and 6.2% for units, over the last five years [2006 to 2011] the figures have been 4.4% pa and 5.5% pa respectively. The results reflect the fact that affordability has become an issue and people are focusing on cheaper housing options. The results also reflect changing lifestyle patterns and a greater acceptance of unit living, particularly within inner city areas of our major capital cities.

If recent market conditions are anything to go by, the residential housing market is likely to show lower levels of capital gains in the coming years compared to the longer-term historical trend. It is important to note that historically housing has been a long-term asset class which has appreciated at a slow pace over a long period of time. In recent years big spikes in growth rates have seen people more prepared to speculate on short-term value growth. Given the recent data it looks as if the housing market fundamentals are reverting to "normal" market conditions after a period of higher than normal growth rates."

A Reader's Response

Here is a note from a reader:

I read with interest your article “Positive sign for Brisbane Property market.”. When an individual or some organisation with an interest in selling real estate starts telling the world (or anyone else that will listen for that matter), that race is on again and property sales are going just short of gangbusters, you can bet they are not.  

The sellers and marketers of real estate need to understand that the market of potential buyers has changed and we are not fools this time round. We’ve all seen someone close by with mortgage stress trying to pay for something they paid an inflated price for in the first place.  And those properties that have now become liabilities as they continue to fall in value. Just go and ask your bank for a loan to buy “off the plan”, you won’t even get an interview. What does that tell you?

About 24 months ago, a New Farm/Valley real estate agent told me he expected 2006 prices by Jan 2012.  Now he’s revised that to saying year 2000 prices and dropping. That’s no gain in 12 years.  A really good investment isn’t it.  

Take a drive around at night to any of the big new apartment complexes now on the market. Either they can’t afford electricity or they are empty, take your pick – the lights are out on half the block or more, every night. To say the rental market is tight  - well I disagree.  Down Teneriffe and Newstead way, the signs are out day and night offering 1, 2 and 3 brm apartments to rent.  There’s no shortage and dozens to choose from.

Your writer may indeed have seven positive signs to offer from a seller perspective.  Let me offer rule Number One in commerce: The smart money is made upfront during the purchase process, not at sale time 30 years later (if one is lucky enough to be able to keep up the payments with interest for all that time and, by sheer luck, the market is up at the time one wishes to sell).  

In simple terms, it’s made upfront buying at below market value. Real estate in Australia is grossly overpriced and regardless of the spin put by real estate marketers, developers the Treasurer et al, let me say to you all, stop wasting your breath, we know the joke.  Money in the bank on-call earning interest with no risk and renting beats buying at inflated prices and a life time of serfdom paying off a mortgage for an overpriced piece of real estate.  When prices fall by at least another 40%, then perhaps a property may be a consideration. Now that’s a more positive outlook.  

Please don’t come back with “investment” property with rental income or negative gearing.  Rents are already at their peak, the ability to pay will set the market, not the owner’s idea of what rent should be.  It doesn’t take too many weeks of no income to ruin an investment.  Rent is insufficient to fund an investment property. I’ve done the sums dozens of times recently. It doesn’t stack up unless you can exclude the ATO’s share of the deal, and that’s not recommended. And let’s not forget CGT later on. Need I continue.  

As mentioned, when prices fall by at least another 40%, then perhaps a property may be a consideration. The smart money unloaded in 2008 and now rent. We’re laughing at the property market now days.

Government Review of Management Rights

The Queensland Government has issued a discussion paper on Management Rights in Community Titles Schemes, and is asking for community response to a number of questions.  If you own an apartment in a Queensland apartment building, it is well worth reading and responding.
The paper is available here.

Positive Signs For Brisbane Property Market

Matusik has written a note "Seven positive signs for Australia's property market".   A focus of the note is the Brisbane apartment market.  Contrary to the blog entry below, Matusik believes that Hamilton Harbour is settling well.

Scott Street Apartments Go Under

Bank of Scotland has become mortgage-in-possession of the remaining unsold apartments in Waterford Properties' Scott Street development at Kangaroo Point.  The luxury complex, with one apartment per floor and a total of 12 apartments, was completed in 2010.  It has Brisbane city views, but looks West.  The development has at least $30 million of unsold stock at current list prices (that may be revised downwards).  Photos here.

The penthouse sold for $7 million, and other apartments sold for $7.65 million and $4.06 million.  One of the purchasers was Scott Hutchinson, who was the builder.

According to the AFR, demand for the high end of the market has been sliding in Queensland.

Place real estate agents said that the premium market had dropped back.  "Realistically, the top-end apartment market has come back 30% and in some cases 40%.  The market was overinflated.  We were going through a boom and the prices were ridiculous" said Lachlan Walker of Place.

Now I bet Place real estate agency didn't tell buyers a few years back that the prices they were paying were ridiculous!

Another Decision in Favour of the Dog

See Decision allowing resident to keep a dog named Beau in an apartment at Marcoola Beach.  Decision here.  The residents opposed the dog.  One of the grounds was that no other holiday apartment buildings allow dogs.

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.