Vacancy Rate Increases for inner Brisbane

As the Queensland sales market kicks into gear, pressure on the rental market has eased according to the Real Estate Institute of Queensland (REIQ).

The REIQ Residential Rental Survey, carried out in December across all REIQ accredited agencies, found the majority of the State recording higher vacancy rates compared to the previous three months.  REIQ chairman Rob Honeycombe said that it was usual for one market to thrive more than the other.

“Over the past few years, it has been the rental sector which has been the better-performing segment of the market,” he said.  “Now while the sales market returns to healthy levels of activity after a period of subdued volumes, the rental market is experiencing a slight easing of vacancy rates after a long period of tight rental conditions. The rental market is also cyclical with January and February being the peak periods for demand.  While rental markets within the mining regions are struggling with both supply and demand imbalances, the outlook for the rest of the Queensland rental market remains positive as business returns to normal now the Christmas holidays have passed.”  

According to the survey data, over one third of REIQ member agencies reported an increase in investor activity which subsequently added stock to the rental pool.  In addition to this, the end of the year is historically a period of lower tenant demand with many vacating over the Christmas and New Year periods, usually in a move to another area for either work or educational reasons.  Over recent weeks, however, there has been an increase in enquiry and demand from tenants as is usual for January.

In the Brisbane City local government area, the vacancy rate as at the end of December was 3.2 per cent, up from 2.3 per cent at the end of September. A vacancy rate of around 3 per cent however is deemed to represent healthy levels of supply and demand.

Across Brisbane the results are varied. Inner Brisbane - suburbs within 5km of the CBD - recorded the highest increase, up 1.7 percentage points to 4.1 per cent.

“Local agents have reported a slight oversupply of rental properties with a number of new developments coming onto the market,” Mr Honeycombe said.  “Also at the end of the year we generally experience lower tenant demand as residents vacate for work transfers or the end of the university year. From mid-January, demand increases again as tenants begin their search for their new property.”  

Brisbane off the plan apartment prices expected to soften in 2015/2016

In an article in Property Observer, BIS Shrapnel is forecasting further strengthening of the off the plan apartment market in Brisbane over 2014 and 2015 before a period of softening.

"Senior project manager and report author, Angie Zigomanis, said that the inner Brisbane apartments are increasingly attractive with yields in many of these projects around the 5% mark and above.

“However, with many expecting that the Brisbane market has now bottomed out and the risk of further price declines is dissipating, the impetus to enter the market has increased,” said Zigomanis.

Price growth up until the 2015/2016 peak is expected to be around 5% per annum.

Walter Taylor Bridge

An interesting article about the Walter Taylor Bridge at Indooroopilly, by a real estate agent, sent to me by a reader.
See here

Selling Your Apartment

When reading a recent story in The Times (from London) titled "How to avoid house-sale hell", about a lady who went through a series of real estate agents, and taking 18 months to sell her London house in a rising market, it reminded me of many stories I have heard about bad real estate agents in Brisbane.

Some common complaints about Brisbane agents:

• Not returning phone calls and emails.  (This always amazes me.  As as cash buyer, I often have trouble having agents return my emails when I am wanting to buy an apartment that they have listed for sale.)
• Pushing expensive advertising packages on the seller.
• Pushing auction sales on the seller.  For most properties, an auction is the less desirable way for the seller to sell a property, often leading to higher sales costs and a lower sales price.
• Using a "front man" who sells the agency's services, but who is never seen again.  Young inexperienced sales agents then do the open house and deal with the buyers and sellers.
• Having an agent give a misleading impression as to how long it will take to sell the property.
• Listing the property at too high a price.
• Conditioning the seller, with unreasonably low (and sometimes fake) initial offers.

Many sellers are often surprised at how few people come to inspect, and that those who do are often completely disinterested.

Queensland Coastal Apartments - Capital Losses

RP Data recently issued is "Coastal Housing Markets - December 2013" report.

"Across the Sunshine Coast, median house values are typically most expensive in the Noosa region and most affordable between Caloundra and Maroochydore. Sunshine Beach has the most expensive median house value ($894,733) and Currimundi the most affordable at $400,631.

Median house values across the Gold Coast and Tweed Coast tend to be most expensive at the northern end of the Gold Coast. Across the region, the most expensive houses are found in Surfers Paradise ($962,563) and the most affordable are in Labrador ($392,681)."

Medium value as at September 2013 for apartments:
Noosa Heads - $528,000
Maroochydore - $323,857
Mooloolaba - $358,380
Kings Beach - $367,888
Surfers Paradise - $337,767
Broadbeach - $401,824
Palm Cove - $336,795
Port Douglas - $251,312

Number of apartment sales:
Noosa Heads - 238
Maroochydore - 404
Mooloolaba - 234
Kings Beach - 124
Surfers Paradise - 1068
Broadbeach - 418
Palm Cove - 54
Port Douglas - 270

Change in value over past 5 years
Noosa Heads -  negative 23.3%
Maroochydore - negative 17%
Mooloolaba -  negative 5.2%
Kings Beach - negative 13.7%
Surfers Paradise - negative 15.4%
Broadbeach - negative 10.5%
Palm Cove - negative 21.5%
Port Douglas - negative 13.1%

Interstate Property Buyers

The AFR had a story on page 3 on Wednesday this week: "Interstate property buyers see value in northern exposure."  Some extracts:

• Investors from Sydney and Melbourne are flocking to Brisbane's apartment market seeking better value for money after being pushed out of increasingly expensive southern cities.
• Brisbane developer Silverstone Developments reports that 72% of off-the-plan sales in its Vertice project at Dutton Park were sold in interstate buyers.
• Other developers are all reporting surging interest from interstate buyers.
• Mirvac's chief executive for residential said there was an upswing in sales of quality Brisbane properties to interstate investors due to the low rental vacancy rates and increasing rental yields in prime locations across Brisbane, as well as the price differential between Brisbane and those in southern states.
• Since 2007, the gap in prices between Brisbane and Melbourne/Sydney has slowly opened up again.
• Further interest in Brisbane will be contingent upon how may jobs the south-east of the state creates.
• There is a lot more value for money in the Brisbane market, according to Metro Property Group.

MRD Partners Book

Investment advisory group MRD Partners from the Gold Coast. has a free book, Property Investing in the post-GFC World.  It is worth reading to see MRD's positive outlook.

Are Auctions A Good Way to Sell Property?

From a recent RP Data submission to the Queensland Government:

We conducted some analysis of auction sales in each of these two States for the period 1 October 2012 to 30 September 2013 in order to ascertain whether or not there were any material differences in terms of outcomes between the states. For each of the auction sales in the respective states during that period, we compared the sale price with RP Data’s estimate of the subject property’s market value at the sale date, derived from our automated valuation model (“AVM ”) and utilising only those AVM estimates we deemed reliable. The percentages in the table below demonstrate, by relevant price band, the extent to which the sales price exceeds our estimate of market value. For example, for all properties sold for less than $500,000 in Queensland during this period, only 14.9% of homes were sold for a price we consider to be higher than the estimated market value of the property at that time, with the remaining 85.1% of properties sold at or below our estimated market value.

Brisbane home prices increasing, but are still behind

Brisbane Apartment Sales Up

According to RP Data, Brisbane unit and apartment sales (that is, the number of sales) is up 16% than the same three month period a year ago.

(click on image to make bigger)

Based on RP Data’s estimates, there were 9,639 Brisbane house sales over the three months to October 2013 and 3,671 apartment sales.

How long does it take for property to double in value?

There is a common saying that Australian property double in value every seven years.  RP Data's recent Pain-Gain report suggests that they doubling takes longer.  And this does not take into account stamp duty and real estate agent's fees.

"Of those homes sold throughout the September 2013 quarter, those held for a short period of time have been much more susceptible to loss. Despite home values having risen over the past year, 17.6% of owners who purchased and sold in the same year, sold at a loss. The greatest proportion of loss making sales has occurred across those homes re-sold after three to five years (20.2%). If an owner wishes to double their initial outlay upon re-sale they generally need to hold the home for at least a decade. 56.2% of homes re-sold between 10 and 15 years after purchase sold for double the purchase price and 94.0% of resales after 15 years were for more than double the initial purchase price."

Brisbane Apartment Capital Growth Summary - December 2013

From RP Data:

Brisbane apartment prices (to 31 December 2013):

Month of December 2013 - up 0.4%

Quarter - up 2.4%
Year on Year - up 3.5%
Year to Date - up 3.5%
Median price based on settled sales of Brisbane apartments over the quarter - $383,000.

Mr Kusher from RP Data said that it is clear that as the market enters 2014 and as values rise across each capital city, the rate of growth will vary greatly. He said that the main challenges in 2014 are likely to be the impact of a forecasted higher unemployment rate, affordability constraints for the more price sensitive sectors of the market (particularly in Sydney, Melbourne and Perth) and whether any regulatory changes will be implemented by APRA and the RBA to cool the near-record high levels of investment activity.

RP Data December 2013 Report

Highlights over the three months to December 2013

• Best performing capital city: Sydney +4.1 per cent 
• Weakest performing capital city: Canberra, -1.3 per cent 
• Highest rental yields: Darwin houses with gross rental yield of 6.0 per cent and Darwin Units at 6.2 per cent 
• Lowest rental yields: Melbourne houses with gross rental yield of 3.4 per cent and Melbourne units at 4.2 per cent 
• Most expensive city: Sydney with a median dwelling price of $655,250 
• Most affordable city: Hobart with a median dwelling price of $330,000

Each capital city housing market recorded positive home value growth in 2013, however, the cities driving the capital growth have been Sydney (14.5%), Perth (9.9%) and Melbourne (8.5%). Brisbane was the only other city to record value growth in excess of 5 per cent (5.1%) with each of the remaining capital cities recording annual value growth of 3.5 per cent or less.

Brisbane – house values have increased by 5.3 per cent over 2013 compared to a 3.5 per cent increase in unit values. Value growth has only slightly outpaced rental growth however it has resulted in gross house yields falling from 4.7 per cent a year ago to 4.6 per cent currently and unit yields easing from 5.6 per cent to 5.5 per cent.

Pradella developments

Pradella has a number of apartment developments in Brisbane that are currently being marketed.  These include:

Riverside, West End
1 bedrooms from $400,000
2 bedrooms from $540,000
3 bedrooms from $929,000
These apartments will be located behind the Waters Edge complex.  Project website.

Skyview, Kelvin Grove
1 bedrooms from $335,000
2 bedrooms from $524,000
3 bedrooms from $789,000
Settlement expected late 2014.

Canvas, South Brisbane
1 bedrooms from $346,000
2 bedrooms from $575,000
Settlement expected mid 2014.

Urban Edge, Kelvin Grove -- development completed
1 bedrooms from $429,000
2 bedrooms from $539,000

Waters Edge, West End -- development completed
2 bedrooms from $600,000
3 bedrooms from $889,000

Parklands at Sherwood - development completed
from $395,000

Infinity Brisbane by Meriton

Meriton's Infinity tower in Brisbane is now at its full height -- 81 levels -- and is now the tallest tower in Brisbane.  The internal fit out in the upper levels is not complete.  Lower levels are being occupied.  Meriton is selling apartments up to level 64.

A two bedroom, two bathroom, 1 car apartment in the middle for the building will sell for around $665,000.  These apartments are being offered for rent at $690 a week.  No balcony.  Internal size is 86sqm to 90sqm, which is not large.  I suspect many of the buyers are not Australian residents.

The Glass Factory Apartments in West End - Sold Out

CBRE was marketing The Glass Factory at West End.  It is reported as being sold out.  The current website states:

"West End’s fastest selling boutique development is now 100% SOLD.  After an incredible response from the market, the limited opportunity to purchase an apartment within The Glass Factory has passed."

Here is a price list from August 2013:

Apple Store Comes to Brisbane City

As previously reported in this blog 20 months ago, an Apple Store is coming to the Brisbane City.  It will be in MacArthur Chambers, the site of Douglas MacArthur's headquarters, and most recently a Dymocks bookstore.

Recent Sales in Brisbane's Admiralty Precinct

Admiralty Towers One (35 Howard Street)

• Apt 93, 2 bedrooms, 2 bathrooms, 2 car parks - sold in September for $880,000
• Apt 58, 2 bedrooms, 2 bathrooms, 1 car park - sold in September for $900,000

Admiralty Towers Two (501 Queen Street)

• Apt 108, 3 bedrooms - sold in September for $938,000
• Apt 132, 2 bedrooms - sold in August for $760,000
• Apt 26, 2 bedrooms - sold in July for $662,000

Admiralty Quays (32 Macrossan Street)

• Apt 100, 2 bedroom 2 bathroom - sold in October for $800,000
• Apt 12, 1 bedroom - sold in August for $590,000

Skyline (30 Macrossan Street - not riverfront)

• Apt 125, 1 bedroom, 1 car - sold in December for $347,000
• Apt 13, 3 bedroom - sold in October for $1,131,000
• Apt 172 - 2 bedrooms - sold in July for $590,000

Riverplace (82 Boundary St)

• Apt 215, 1 bedroom - sold in December for $510,000
• Apt 140, 1 bedroom - sold in November for $435,000
• Apt 316, 2 bedrooms - sold in October for $750,000
• Apt 54, 2 bedrooms - sold in October for $647,000
• Apt 146, 1 bedroom - sold in September for $370,000

Pain and Gain

RP Data has issued its December 2013 Pain and Gain report, comparing sales prices with the actual purchase price for the same property.  A summary:

"Over the third quarter of 2013 RP Data recorded 69,949 residential property re-sales nationally; of these 11.1% recorded a gross loss from the original purchase price. The gross value of the losses associated with these loss making re-sales totalled $488.1 million. Conversely, 88.9% of all September quarter re-sales recorded a gross profit relative to their original purchase price. The gross profit from these re-sales equated to $12.6 billion.

 Lifestyle regions continue to show the largest proportion of loss making re-sales, particularly within the unit markets as opposed to detached housing markets. Queensland’s Far North has overtaken the Gold Coast to record the largest proportion of loss making re-sales, with 33.9% of all September quarter re-sales transacting at a price lower than what the home was purchased for."

El Dorado Redone

A few years ago, a South African developer tried to redevelop the El Dorado cinema site in Indooroopilly.  The developer, PCN, went bust.  Now, a new development is planned, not just for the El Dorado site, but for neighbouring sites as well.

The development that has been proposed consists of two towers, as well as a podium containing cinemas, a bowling alley and possibly an open air cinema.

The first tower is 16 storeys, with 78 residential apartments.  (These will be mostly two bedroom apartments.)

The second tower is 21 storeys, with 255 residential apartments and 70 short stay suites.  There will be 135 two bedroom apartments, with the remainder being 1 bedroom or studios.  The second tower also has a round Skybar on level 21!

There will be no three bedroom apartments.

See www.eldoradovillage.com.au

300 George Street

The site of the old Supreme Court and District Court buildings at 300 George Street have been sold by the State Government to a property developer.  Three towers are planned for the site, including an office tower, a residential tower and a hotel.  There will also be a shopping mall at ground level.  The residential tower will be 82 levels high, and consist of 428 apartments.  There are two recreation decks (level 4 and level 45) that will include pools, gyms etc.

The developers are a joint venture between Shayher Group and Bao Jia Development.

38 High Street

A new apartment development is currently being marketed off-the-plan in Toowong.  It is 38 High Street, overlooking the R.E. Hotel.  It even has a floor plan painted on the side of the sales suite.  the sign says that 2 bedroom apartments are available for under $500,000.  There are a number of sites in central Toowong earmarked for development.

Sunland's Abian ready for sale

Sunland has completed a very fancy display building for Abian, on site, on the corner of Alice Street and Albert Street.  See photo below.  There was an advertisement in the AFR magazine this weekend, inviting prospective purchasers to register.  I suspect that this building will be marketed as a high end building, at very high prices.  Sunland's apartment buildings on the Gold Coast are glitzy, and the apartments are large.  In my opinion, quality is average.  Q1 supposedly has a number of problems.  Sunland's honesty (or at least, that of a key executive/owner) has been questioned in a law suit in Melbourne -- see prior posts.  It will be interesting to see how successful Abian will be.

Brisbane Apartments

A Brisbane real estate agent who sells CBD apartments (Hannah Schuhmann) produced an interesting map that shows some of the larger apartment buildings in Brisbane city.  Those buildings were designed for residents and long term tenants.  However, most of these buildings are now mixed -- the onsite manager is running a short term rental pool, and is pretending to operate a hotel.  (Oaks is the predominate manager of the listed buildings on the map.)

It is interesting that this same real estate agent, who is selling an apartment in Metro 21 states, as a feature of Metro 21:

"No hotel-style accommodation within the building".

New hotel in Mary Street

Currently under construction, but almost complete, at 103 Mary Street is a new hotel, to be branded as a Four Points by Sheraton.  It is 33 storeys.  It is impacting the views of River City and 212 Margaret, both which are neighbouring apartment buildings.  It is also adjacent to the 111+222 site in Mary/Margaret Street.

103 Mary Street is the second building from the left.  212 Margaret is on the left.  Quest River Park Central can be seen second from the right.

Rent My Estate

For landlords who do not like real estate agents, a new service -- Rent My Estate -- allows landlords to list on real-estate.com.au.  It provides a good interface for landlords to create and manage online advertisements.

Where the rent is about $650 a week, an agent will typically charge more than $4,000 a year for property management services.  Most agents, in my opinion, do a poor job on the rental side.  So if you have the time and skills, and live near your rental property, you can save a substantial amount and get a better result using Rent My Estate.

What is now normal?

"But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?"

See http://nyti.ms/I0oEw2

What if low interest rates continue for a number of years.  What if there is little employment growth or wage growth for a number of years?  Rents will not increase. Capital growth will be less than past averages.

Those negatively gear and making losses will continue to make losses. And so housing prices will gradually decrease.  Is this possible?

Property Losses

Taking into account inflation, property has performed badly in recent times.  See article by RP Data.  Brisbane is down about 17%.  Taking into account transaction costs (e.g., duty) and holding costs (rates, body corporate fees, maintenance and repairs), the situation is very grim for property investors.  And I suspect that inflation is actually higher in Brisbane than the official figures show.

Buying of the Plan

At present, it seems that off-the-plan apartment developments are overpriced, and buying off the plan carries significant risks.  A series of commentaries in Property Observer discusses this issue.  See also this Kindle Book for more detail.  My recommendation is to look at existing apartments, rather than off-the-plan apartments.  The off-the-plan market appears to be fuelled by foreign investors, who are required to buy new properties under FIRB rules.

Will property growth come to Brisbane?

The release yesterday of the RP Data and Rismark International October housing market results confirmed a 1.3 per cent rise across the combined capital cities index over the month with the rolling 12 month combined capital cities index growth rate recording its fastest pace in three years.

Rismark CEO, Ben Skilbeck, added that while Sydney has eclipsed its previous cyclical high and Melbourne is near its peak, Brisbane remains 8.4% below its highs. “There is, however, evidence that growth conditions may be spreading to Brisbane."

Brisbane apartment prices (to 31 October 2013):

October 2013 - up 0.6%

Quarter - up 2.3%
Year on Year - up 1%
Year to Date - up 1.6%
Median price based on settled sales of Brisbane apartments over the quarter - $375,000.

Recent Brisbane City Apartment Sales

A list of some recent reported apartment sales in Brisbane CBD area, since June 2013.

Admiralty One

- Apt 93, 2 bedrooms, 2 bathrooms, direct river views, large 132 sqm - $880,000

- Apt 125, 2 bedrooms, side river views - $600,000

Admiralty Towers Two

- Apt 132 - 2 bedrooms, direct river views, 116 sqm - $760,000

- Apt 26 - 2 bedrooms, direct river views - $662,000

- Apt 124 - 2 bedrooms, direct river views - $705,000

Admiralty Quays

- Apt 104 - 3 bedrooms - $960,000

Riverplace

- Apt 146, 1 bedroom - $370,000

- Apt 82 - 2 bedrooms - $750,000

- Apt 165 - 1 bedroom - $500,000

- Apt 31 - 2 bedrooms - $650,000

Metro 21

- Apt 283, 1 bedroom on level 28, no carpark - $307,000

- Apt 301, 2 bedroom on level 30 - $553,500

Felix

- Apt 312, 2 bedrooms, 2 bathrooms - $555,000

- Apt 294, 2 bedrooms, 1 bathroom - $485,000

- Apt 324, 2 bedrooms, 1 bathroom - $475,000

Quay West - construction starting next door, and disharmony in building

- Apt 86, 2 bedrooms - $655,000

- Apt 129, 3 bedrooms - $1M

Saville South Bank - reports of two bedroom apartments selling above $900,000.

It appears that pricing is picking up.  In some instances, apartments are selling for record highs.  In other instances, prices are still below the 2007/2008 peak.  Volumes of sales in the period June to September do not appear to be high, although in recent weeks, this may have changed.  The high end sales appear to be to owner occupiers.

Avoid Areas where Chinese Buyers are buying

"There’s only one aspect of this that’s in any way outrageous – and that is the way Australian developers and their marketers are peddling bad real estate at inflated prices to distant investors.  There’s nothing new in this. 

Developers have always targeted distant investors to, firstly, get rid of unsold dwellings for which there are no genuine local buyers – and, secondly, to go a step further and create new stock specifically to sell to distant investors, notwithstanding the local over-supply or depressed market.  In the past, the victims have been found interstate, out west or in New Zealand. Now Asia is being targeted, especially China.

Marketing teams are taking roadshows to China and using deception to induce investors there to buy highrise apartments or house and land packages in poorly-performing markets.  There’s no crisis here, but one might emerge if Australian investors follow the advice that’s starting to emerge – namely, that they should be buying where the Chinese are buying.

I would suggest Australian buyers do the opposite. Avoid like the plague any markets being pitched to the Chinese. They’re being sold product in oversupplied markets, usually at prices above true market value. They’re not markets a sensible investor would want to be in."

See article in Property Observer

Based on this advice, one would want to carefully consider buying in any Meriton or Metro Property off-the-plan development in Brisbane.

Volume of Brisbane Apartment Sales

Soda Apartments, South Brisbane

A new development at South Brisbane is in pre-sale, Soda Apartments.  Lifestyle video here.

The building is 20 storeys, with 131 apartments.  It is behind Fish Lane Apartments, and is located at 27 Cordelia Street, which is a busy street leading on to the Go Between Bridge.  (Soda will impact the apartments on the northern side of new Fish Lane apartment building, which can be seen on the left in the rendering below.)

• 19th Floor, 2 bed, 1 bath, 71 sqm, apt 1906 = $510,000
• Apartment 608, 2 bed, 2 bath, 90 sqm, no view = $595,000
• Apartment 602, 1 bed, 1 bath, no view = $375,000
• Apt 604, 1 bed, 1 bath, no car, no view, 64 sqm = $340,000
• Apt 1908, 3 bed, 2 bath, 190 sqm = $1,650,000

This pricing looks expensive to me!

Iglu Student Accommodation on Mary Street

At 65 Mary Street, Iglu Student Accommodation is planning to build a 23 storey building, with over 400 rooms (not really apartments).  It is a skinny block, with not much road frontage, and is right next to a government building on Mary Street.  The new development will be opposite M on Mary, which can be seen in the right on the photo below.  Details at BrisbaneDevelopment.