A new service has just launched, to allow property owners to sell without an agent. Some real estate agents are so hopeless, and don't return buyers calls, so there is some appeal here if you know what you are doing. See www.noagent.com.au
Saturday, March 12, 2016
Friday, March 11, 2016
Will Brisbane Prices Increase This Year?
CoreLogic recently reported:
"The trend in home value growth is showing signs of increasing in those markets that have previously underperformed. These include Brisbane, Adelaide, Hobart and Canberra. Affordability constraints as apparent in these cities and rental yields been compressed to the same extent as what they have in Melbourne or Sydney. Home values increased in Brisbane by 5.5% over the past year, which is the fastest annual rate of value growth in a year."
The above 5.5% included houses and apartments. Below is the information just for apartments, which is not as good. The question is whether Brisbane will have capital appreciation across the board, or whether it will be limited to certain suburbs, or to houses (not apartments), or to houses and older apartments in better locations. There appears to be great oversupply of new smaller apartments, in locations such as Newstead and South Brisbane, so capital appreciation of this dwelling type seems doubtful.
Year to Date - up 1.5%
Year on Year - up 3%
Median price based on settled sales of Brisbane apartments over the quarter - $391,000 (which is less than reported for the quarter ending May 2015).
"The trend in home value growth is showing signs of increasing in those markets that have previously underperformed. These include Brisbane, Adelaide, Hobart and Canberra. Affordability constraints as apparent in these cities and rental yields been compressed to the same extent as what they have in Melbourne or Sydney. Home values increased in Brisbane by 5.5% over the past year, which is the fastest annual rate of value growth in a year."
The above 5.5% included houses and apartments. Below is the information just for apartments, which is not as good. The question is whether Brisbane will have capital appreciation across the board, or whether it will be limited to certain suburbs, or to houses (not apartments), or to houses and older apartments in better locations. There appears to be great oversupply of new smaller apartments, in locations such as Newstead and South Brisbane, so capital appreciation of this dwelling type seems doubtful.
Brisbane apartment prices (to 29 February 2016):
February 2016 - down 1%
Quarter - up 0.9%Year on Year - up 3%
Median price based on settled sales of Brisbane apartments over the quarter - $391,000 (which is less than reported for the quarter ending May 2015).
Wednesday, March 9, 2016
Property Prices Double Every 10 years?
I have been to seminars by property agents and promotors, where they say that property is a sure investment because property prices double every 7 to 10 years. CoreLogic debunks that "rule".
"Melbourne is the only capital city housing market in which home values have doubled over the past decade. In fact, many cities are a long way from having doubled with values in Brisbane, Adelaide, Perth, Hobart and Canberra having all increased by less than 50% over the past decade."
See CoreLogic Report
"Melbourne is the only capital city housing market in which home values have doubled over the past decade. In fact, many cities are a long way from having doubled with values in Brisbane, Adelaide, Perth, Hobart and Canberra having all increased by less than 50% over the past decade."
See CoreLogic Report
Monday, March 7, 2016
Off the plan risks
Two stories in the AFR today are worth reading, both on page 33.
The first is titled "Industry warns of settlements failure". It has a chart that shows that the average number of completed apartments in Brisbane for the period 2007 to 2014 was less than 2,500 a year. For 2016, it is predicted to be more than 5,000 in the year. For 2017, it is closer to 10,000, or more than 3 times the past average.
"The settlement risk will occur in places where prices are slowing and the market's getting harder."
"Banks are not only cutting back their LVRs, they are also taking a more conservative approach to valuing completed apartments, and in the case of at least one retail bank, this meaning between 15 and 23 per cent below the purchase price."
So if you are buying off the plan, and have paid a 10% deposit, you may need to stump up 40% of the contract price, because the Banks may only lend in effect 50% of the purchase price.
The second article is titled "Lenders nervous about incentives to apartment buyers". It states:
"A recent survey by WBP Property sowed nearly half of the off-the-plan sales in the eight months to last August were in negative equity, which means worth less than the purchase price." And this does not take into account transaction costs, such as stamp duty.
The first is titled "Industry warns of settlements failure". It has a chart that shows that the average number of completed apartments in Brisbane for the period 2007 to 2014 was less than 2,500 a year. For 2016, it is predicted to be more than 5,000 in the year. For 2017, it is closer to 10,000, or more than 3 times the past average.
"The settlement risk will occur in places where prices are slowing and the market's getting harder."
"Banks are not only cutting back their LVRs, they are also taking a more conservative approach to valuing completed apartments, and in the case of at least one retail bank, this meaning between 15 and 23 per cent below the purchase price."
So if you are buying off the plan, and have paid a 10% deposit, you may need to stump up 40% of the contract price, because the Banks may only lend in effect 50% of the purchase price.
The second article is titled "Lenders nervous about incentives to apartment buyers". It states:
"A recent survey by WBP Property sowed nearly half of the off-the-plan sales in the eight months to last August were in negative equity, which means worth less than the purchase price." And this does not take into account transaction costs, such as stamp duty.
Thursday, February 18, 2016
Apartment lawyer in trouble
Well known lawyer, Michael Teys, has been banned by ASIC from being a director. Mr Teys often advises body corporate committees in relation to issues with onsite managers. For example, he advised the committee of Admiralty Towers Two not to accept the assignment of the management rights from bank receivers to a professional manager due to the honesty and business skills of the proposed manager. Very strange. The pot calling the kettle black.
I suspect many committees have been unduly influenced by Mr Teys' almost religious like views of management rights.
Monday, February 8, 2016
Brisbane Vacancy Rate Increases
According to the REIQ, the rental vacancy rate in the inner city of Brisbane is almost double that of the middle ring:
The REIQ Rental Report has revealed a higher vacancy rate in inner Brisbane as the supply of new apartments edges the
0-5km ring into weak territory for the December quarter.
The inner Brisbane vacancy rate reached 3.8%, up
from 3.4% in the September quarter.
In contrast, the more affordable middle ring of
5-20kms tightened as the more affordable dwellings attracted residents, going
from 2.4% to 2.1%.
Sunday, February 7, 2016
Brisbane Prediction
"Brisbane Avoid: High density apartments in the CBD, West End and Fortitude Valley. Recommend: Character houses in low density, established areas with good schools, transport and lots of renovation activity."
See Property Observer
See Property Observer
Thursday, January 21, 2016
China limits cash moves offshore - danger for property settlements
A story in today's Australian Financial Review is titled "China limits cash moves offshore" and show the risks for developers in relation to off-the-plan sales contracts. The Chinese buyer may not be able to get the cash out of China, and then may not be able to settle the contract on completion of the building. And try suing the Chinese buyer. Some buildings under construction in Brisbane have more than 80% offshore buyers, so I suspect that some developers may run into troubles next year.
China limits cash moves offshore AFR, 21 Jan 2016, p1 Shanghai | Chinese banks are delaying and even blocking some foreign exchange transactions under a decision by the central government to limit capital leaving the country, a move that could hurt demand for foreign assets including Australian property. At meetings on Monday and Tuesday afternoon senior bank executives were told by the government to toughen up their capital controls. While they haven't introduced new rules, one executive told The Australian Financial Review banks were using existing measures to slow the amount of money going overseas. The crackdown has seen more stringent checks for both companies and individuals. "We are now refusing all foreign currency transfers where the documents are not fully complete … previously the requirements were not so strict," said a bank executive in Shanghai who asked not to be named. ... An Australian real estate agent based in Shanghai, Scott Kirchner, said the tougher capital controls could "cause problems for Australian developers as clients may not be able to get their money out of China". "I'm advising people not to sign a contract unless they already have their money outside China," said Mr Kirchner, a director of BellerChina. "There is lots of uncertainty at the moment and that might affect sales." In China, individuals are restricted to exchanging the equivalent of $US50,000 in foreign currency each year. American lawyer Dan Harris said on his blog on January 14 that his firm's China office had received more "money problem" calls in one week than it had received for the whole of the past year. "If there is a common theme, it is that China banks seem to be doing whatever they can to avoid paying anyone in dollars," said Mr Harris from Seattle-based firm Harris Moure. He said it had affected real estate agents and companies waiting for Chinese investment money. Previously, one option for those interested in buying overseas property was to use the currency quotas of friends and family. Alternatively, underground channels in Macau or Hong Kong were available to get money out of the country. Both these methods are now under increased scrutiny as the government tries to stabilise the yuan. "They haven't introduced any new capital controls but the implementation of existing measures has been strengthened," said another executive, who works at one of China's big state-owned banks. David Olsson, a China Practice Consultant at law firm King & Wood Mallesons, said Chinese banks "have clearly got some direction to look more closely at outbound capital flows particularly around Shanghai and Shenzhen". He said it was not expected to affect legitimate outbound investment and Australia would continue to be a big beneficiary of Chinese investment in agriculture, services-related sectors and tourism."
Wednesday, January 20, 2016
Failure to settle an off the plan contract was a costly decision
The Queensland Supreme Court recently decided a case involving an off the plan apartment contract in the Soul building at Surfers Paradise.
The case is Juniper Property Holdings No 15 P/L v Caltabiano (No 2) [2016] QSC 005
Mr Caltabiano purchased the penthouse in Soul in July 2006 for $16.85 million, a lot of money for a 519 sqm apartment. Mr Caltabiano failed to settle upon completion of the building in 2012. So the developer forfeited the deposit, and sued Mr Caltabiano for damages. The developer resold the penthouse in April 2015 for $7M. So the claim for damages was $8.8M plus interest under the contract for failure to settle for over $3M.
Mr Caltabiano claimed that the sales agent was misleading -- it was claimed that at the request of Mr Caltabiano, the sales agent provided information in an oral discussion regarding supposedly comparable sales in Jade and Q1. Mr Caltabiano never checked whether this information was correct.
The judge decided that the sales agent did not make the alleged misleading statements. Even if they were made, they were not relied up by Mr Caltabiano.
See http://www.sclqld.org.au/caselaw/QSC/2016/005
This shows one of the many dangers of buying off the plan. Values may go down substantially between contract and settlement, but you still have to settle. And if you don't, then you are in big trouble.
The case is Juniper Property Holdings No 15 P/L v Caltabiano (No 2) [2016] QSC 005
Mr Caltabiano purchased the penthouse in Soul in July 2006 for $16.85 million, a lot of money for a 519 sqm apartment. Mr Caltabiano failed to settle upon completion of the building in 2012. So the developer forfeited the deposit, and sued Mr Caltabiano for damages. The developer resold the penthouse in April 2015 for $7M. So the claim for damages was $8.8M plus interest under the contract for failure to settle for over $3M.
Mr Caltabiano claimed that the sales agent was misleading -- it was claimed that at the request of Mr Caltabiano, the sales agent provided information in an oral discussion regarding supposedly comparable sales in Jade and Q1. Mr Caltabiano never checked whether this information was correct.
The judge decided that the sales agent did not make the alleged misleading statements. Even if they were made, they were not relied up by Mr Caltabiano.
- "The defendant submits that the fact that he did not obtain external advice as to the value of the Soul penthouse or the prudence of the purchase only serves to emphasise his reliance on the alleged representations. However, in my view, it is commercially illogical and inherently improbable that in deciding upon a $16.85 million purchase the defendant would not have obtained such advice because of reliance on the alleged representations made by the plaintiff’s sales consultant comprising comparisons with properties that the defendant did not know anything about. This is where the defendant’s story is incredible."
This shows one of the many dangers of buying off the plan. Values may go down substantially between contract and settlement, but you still have to settle. And if you don't, then you are in big trouble.
Sunday, January 10, 2016
Response to Reader Comment regarding quality Brisbane apartments
A reader recently posted this comment, in relation to my post below:
"... you are certainly correct that there is a lot of stock under construction that will settle through the end of this year and next. However, with few exceptions most of this is small 1bd and 2bd "investor" stock targeted at the rental market. As you said, this is already leading to increases in vacancy rates and lower rents - at present, this is probably just a return to normal but it will probably over-correct and the rents/vacancy for small 1bd and 2bd stock will be worse than long term trend levels. That said, why do you see this impacting on quality owner occupier buildings such as admiralty, quay west?? The investor stock being constructed at present is vastly different to the owner occupier stock and I doubt there are many occupiers out there tossing up between admiralty and meriton's soleil. I feel the two markets will diverge and the the limited amount of quality owner occupier stock will lead to growth in this market. Do you not agree?"
This is my response. The over-supply in Brisbane is having an impact on the rental market for the high quality, owner occupied buildings. Note that many these buildings still have more than 40% of the apartments rented out, usually to long term tenants. For example, in Admiralty Towers, large three bedroom apartments that rented for about $1,400 a week at the top of the rental market boom are now renting for less than $1,000 a week. An excellent large one bedroom apartment with river views, fully furnished, has been vacant for months, at an asking rent of less than $600 a week. This apartment would have rented quickly at about $640 a week two years ago. For some reason, some tenants prefer smaller apartments in newer buildings.
The rental market in quality buildings is being impacted by a number of factors, and not just new apartments being completed. These factors include:
"... you are certainly correct that there is a lot of stock under construction that will settle through the end of this year and next. However, with few exceptions most of this is small 1bd and 2bd "investor" stock targeted at the rental market. As you said, this is already leading to increases in vacancy rates and lower rents - at present, this is probably just a return to normal but it will probably over-correct and the rents/vacancy for small 1bd and 2bd stock will be worse than long term trend levels. That said, why do you see this impacting on quality owner occupier buildings such as admiralty, quay west?? The investor stock being constructed at present is vastly different to the owner occupier stock and I doubt there are many occupiers out there tossing up between admiralty and meriton's soleil. I feel the two markets will diverge and the the limited amount of quality owner occupier stock will lead to growth in this market. Do you not agree?"
This is my response. The over-supply in Brisbane is having an impact on the rental market for the high quality, owner occupied buildings. Note that many these buildings still have more than 40% of the apartments rented out, usually to long term tenants. For example, in Admiralty Towers, large three bedroom apartments that rented for about $1,400 a week at the top of the rental market boom are now renting for less than $1,000 a week. An excellent large one bedroom apartment with river views, fully furnished, has been vacant for months, at an asking rent of less than $600 a week. This apartment would have rented quickly at about $640 a week two years ago. For some reason, some tenants prefer smaller apartments in newer buildings.
The rental market in quality buildings is being impacted by a number of factors, and not just new apartments being completed. These factors include:
- the end of the mining boom, so less executive rentals
- a rental boom, that probably caused rents to increase too much
- short term rental apartments not achieving good returns, and so these are re-entering the long term rental market
- lower population growth
- no income growth
- younger people having different views as to what is a trendy apartment
- more choice in more inner city locations
Prices seem to be holding up at present, partly because interest rates are so low. I recently locked in an investor loan fixed for 3 years at 4.09%. Even at a reduced rent, this property is cash flow positive today. So why sell?
I agree that owner-occupiers still have little choice for quality apartments in Brisbane. If you are looking for a large two or three bedroom apartment in a quality building in a good location, there is still not much choice. Very few of the new buildings would be suitable if you are looking for a long term residence.
Monday, January 4, 2016
Brisbane apartment market looking grim
According to the CoreLogic RP Data Home Value Index, dwelling values were absolutely flat across the combined capitals during December, with negative movements in Sydney, Adelaide and Canberra being offset by a rise in dwelling values across the remaining five capital cities. The Sydney housing market was the main drag on the December results, with dwelling values down 1.2%, while values were down 1.5% in Adelaide and 1.1% in Canberra, and down 0.5% for Brisbane apartments.
See full report here.
Brisbane apartment prices (to 31 December 2015):
This is not a good result for the Brisbane apartment market for 2015.
The long term view for the Brisbane apartment market looks very uncertain.
There are a huge number of apartments being constructed. There are also a number of new hotels opening, which impacts the short term rental markets (for example, negatively impacting rents in apartment buildings such as Charlotte Towers, Aurora, Felix, Casino Towers and Festival Towers). At present, from my informal survey, rents are decreasing in Brisbane and vacancy periods are significantly increasing. This will only get worse. I am not the only one say this. See AFR article.
It is likely that valuations for new apartments sold off the plan in Brisbane will come in lower than the contract price, which may impact whether non-cash buyers will be able to settle.
My prediction for 2016 is that we may see values fall in 2nd tier buildings and remain flat in prestige buildings. Rents will likely continue to decrease. It looks grim. What happened to the Gold Coast about 5 years ago (remember, Soul, Hilton and Oracle) may happen in Brisbane this year or next.
See full report here.
Brisbane apartment prices (to 31 December 2015):
December 2015 - down 0.5%
Quarter - no change
Year on Year - up 1.8%
Median price based on settled sales of Brisbane apartments over the quarter - $390,000
Median price based on settled sales of Brisbane apartments over the quarter - $390,000
The long term view for the Brisbane apartment market looks very uncertain.
There are a huge number of apartments being constructed. There are also a number of new hotels opening, which impacts the short term rental markets (for example, negatively impacting rents in apartment buildings such as Charlotte Towers, Aurora, Felix, Casino Towers and Festival Towers). At present, from my informal survey, rents are decreasing in Brisbane and vacancy periods are significantly increasing. This will only get worse. I am not the only one say this. See AFR article.
It is likely that valuations for new apartments sold off the plan in Brisbane will come in lower than the contract price, which may impact whether non-cash buyers will be able to settle.
My prediction for 2016 is that we may see values fall in 2nd tier buildings and remain flat in prestige buildings. Rents will likely continue to decrease. It looks grim. What happened to the Gold Coast about 5 years ago (remember, Soul, Hilton and Oracle) may happen in Brisbane this year or next.
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