Fire Sale

"A mass apartment fire sale could be set to swamp Brisbane in the next 12 months — allowing would-be first home buyers to finally get a foot on the property ladder. 

The inner city housing market is in the grip of an apartment glut thanks to a “record boom” in high-density dwelling construction, according to economic forecaster BIS Oxford Economics.

But it means now could be the best time to bag a bargain.

Managing director Robert Mellor is predicting a frenzy of discounting by developers to take hold for at least another year, with prices for remaining stock in some projects to be slashed by at least 10 per cent to 15 per cent."

See Courier Mail story

No Price Growth for Brisbane Apartments

RP Data CoreLogic have issued their Home Value Index Report for March 2018.

The medium price for apartments has dropped from $400,000 in April 2017 and $389,000 in August 2014 to $383,000.   This price decline does not take into account stamp duty or agents fees.  For example, a person buying an apartment for $400,000 a year ago, really paid $412,000 including stamp duty, and selling it for $380,000 today is only receiving about $368,000 after agents fees.  So the loss is actually $44,000 or about 10% loss.  It appears that the loss is going to increase over the next few years.

I suspect that anyone who purchased an apartment after 2010 would be selling at a significant loss if having to sell today.

CoreLogic head of research, Tim Lawless, said, “The overall softening in the market becomes more evident when looking at the change in values over the past three months.” 

Brisbane apartment prices (to 28 February 2018)

February 2018 - no change

Quarter - down 0.3%

Year to Date - up 0.1%

Year on Year - down 0.6% 
Median value - $383,000

New or resale apartment?

I am often asked whether it is better to buy a new or a resale apartment.  Often, you get better value in a resale apartment.  There are less marketing and agent costs, and the seller does not have to achieve a price to satisfy a bank or investors.  A resale apartment may have an older kitchen or bathroom, but will often be larger.

Before buying a new off the plan apartment, look at what is available today for resale.  For example, this apartment in Admiralty Towers Two, on a high floor, is listed for sale at $749,000.  This is in a good location on Queen Street, near the Marriott Hotel and the Howard Smith Wharf development.   It is direct river front, has excellent views, deducted air-conditioning (not a split system) and is 116 sqm (much larger than most new two bedrooms.)  Currently, it achieves $670 a week rent.

Grim View of Brisbane Apartment Market

Independent property valuer HTW paints a very depressing view of the apartment market in Brisbane.  HTW says that it is a falling market -- prices will decrease.  Many new apartments are being sold for above market prices.  Rental demand is weak.

Beaches have Upside

Apartment values in Noosa and Mooloolaba are on the rise again, driven by Sydney buyers.

These beaches were recently highly rated by TripAdvisor.

Brisbane property prices to improve?

Brisbane is well placed to take over as the best performing capital city housing market over the next five years.  Dwelling values across Australia’s third largest capital city have risen at the annual rate of 1.2% of the past decade; that’s half the pace of inflation and dramatically lower than Sydney or Melbourne where annual gains have averaged 6.3% and 5.9% over the past ten years.

Importantly, there are a variety of economic and demographic factors that are likely to support improving market conditions across Brisbane including economic and demographic trends as well as a worsening performance across the larger cities of Sydney and Melbourne which will provide a lower relative benchmark for Brisbane.

Although Brisbane looks primed to experience an improvement in housing market conditions over coming years, I wouldn’t necessarily expect that the rate of growth in Brisbane will reach the heights of those experienced in Sydney and Melbourne over recent years.

See https://www.corelogic.com.au/news/could-brisbane-take-over-best-performing-capital-city-housing-market-5-years

No surprise - Brisbane apartments cheaper than Sydney

Sydney apartments are way more expensive than apartments in Brisbane.

Sydney’s median apartment value currently sits 98.3% higher than Brisbane’s median apartment value, which is the largest premium since late 2002.  The average premium for a Sydney apartment over Brisbane has been recorded at 54.1%.

Does this mean that Brisbane apartment values will rise as a result of this difference?  CoreLogic does not think so:

"We would expect the Sydney premium to reduce over the coming years as values decline however, we also believe that historical premiums for Sydney relative to other capital cities don’t reflect the likely differentials in the cost of housing going forward.  That is to say we expect that the cost of housing in Sydney and Melbourne will continue to be higher relative to other capital cities than it has been in the past."

See CoreLogic Report

West Village in West End

The West Village development in Boundary St, West End is being heavily marketed at present.

Is this a good place to invest?  I have a number of concerns:

• The development consists of 11 new apartment buildings, going as high as 22 storeys, with a huge number of new apartments.  It is being developed and sold in stages, with the first two buildings settling at the end of 2018.  If you buy today, not only will you be living near a construction site for years, you will be competing with new apartments as they come online over the next few years.  Hard to resell or rent in this situation.
• In my opinion, the apartments do not appear to be high quality.  For example, in the two bedroom apartments, the second bedroom is not air-conditioned.  The air-conditioning is not a central system, but a split system with unsightly head ends on the wall.  
• Most of the bedrooms do not have large windows -- they appear to have one tiny window, and I suspect they will be dark and feel pokey.
• The bathrooms are small.  (None have a separate bath -- compare Saville Southbank by comparison.)
• Most bedrooms don't have access to the balcony.  Of itself, this is not an issue, but it makes both the bedroom dark (and for the smaller apartments, the balcony will be dark and alley-like). 
• The apartment layouts are troubling.  For example, in 1 bedroom apartments, the bathroom is a long way from the bedroom, through the kitchen.  For most two bedroom apartments, the second bedroom is too close to the main bedroom and too far from the bathroom.   
• The prices are expensive!  For example, a one bedroom apartment is selling for $467,000 on a low floor.  This apartment is 54 sqm internal.   (The balconies are long and skinny, with an air-conditioning compressor on the balcony.  The apartment, especially the kitchen, is likely to be dark.)
• The 3 bedrooms are being sold for more than $1.6M.  Small two bedroom apartments (only 84 sqm internal) start at $700,000!

The design is such that you can't even put a sofa in front of the TV!

It is worth comparing the West Village apartment with a similar recent development nearby, for example, Opera on Cordelia Street that settled about 6 months ago.  A similar size brand new one bedroom in Opera, which I feel is a better quality development is a better location, recently sold for $415,000 on a midlevel floor.  A floor plan for the Opera apartment is below.  When you compare the apartments side by side, you can see that the Opera living room space is bigger, and the design is better.  Opera even has a walk-in wardrobe and a separate laundry, plus more storage cupboards, and an island kitchen bench.  (It is also better quality, for example, deducted air conditioning.)

So make sure you compare what is currently happening in the market, for existing apartments, before buying in a risky new off-the-plan development.

Is there an oversupply of apartments in Brisbane?

"Brisbane’s high-rise apartments have been growing at a rate of 34% to 43% each census since 2001. This year alone, Brisbane has had 9,000 new apartments supplied, which is a massive 200% increase since 2015. As a result, Brisbane currently has a huge supply of new apartments, and is evidently oversupplied in popular inner-city suburbs such as Fortitude Valley, Newstead and West End.

However, over the past 12 months, there has been a large reduction in apartment building approvals as more developers have become fearful of the current market. At the moment, 38% of projects with development approval have been deferred indefinitely. Larger developers are even opting to land bank and sell existing projects as they fear getting stuck with a partial apartment development. This is now contributing to Brisbane’s stalling apartment price growth in the densely populated suburbs."

See https://www.validum.edu.au/brisbanes-apartment-oversupply-mean-property-investors-real-estate-agents/

Vacancy Rate of Brisbane Apartments

The vacancy rate of inner city Brisbane property has increased to above 4%.  This is regarded as being unhealthy for landlords.  Rents are decreasing - and tenants are asking for rent reductions on renewals.

See http://www.beesnees.com.au/2018/02/brisbanes-rental-vacancy-rate-4/

Buyers of new apartments in Brisbane sell at a loss

This blog post, from PropertyUpdate, is worth reading.  Many buyers of off-the-plan apartments paid too much.  But this is old news!  I have been saying that for years on this blog.

Brisbane Off-the-plan resales

In talking with real estate agents in inner Brisbane, they are telling me (for what it is worth) that:

• Resale prices of new apartments that the seller purchased off-the-plan a few years ago are often at least 10% to 15% less than the seller paid.
• Larger apartments targeted at owner-occupiers are selling well, especially in the $1.5M plus price bracket.
• Interstate migration from Sydney and Melbourne is increasing, and those moving are looking to buy.
• Apartments targeted at investors are not selling well.
• There are few Chinese buyers in Brisbane, especially compared with Sydney which is regarded as a safe international city.

Body Corporate Laws - New Report

The Attorney General Yvette D’Ath has released the Property Law Review Final Recommendations titled Procedural issues under the Body Corporate and Community Management Act 1997.

Download a full copy of the Property Law Review Final Recommendations – Procedural Issues under the BCCMA: http://www.justice.qld.gov.au/__data/assets/pdf_file/0008/529784/final-recommendations-procedural-issues-paper.pdf

Different Brisbane Trends

There are different trends for the apartment market in different parts of Brisbane.  For example, West End and The Valley may be oversupplied at present, but there is an undersupply of large quality apartments in the Western Suburbs.

Place Projects have produced an interesting report, in two parts, that is worth reviewing:

See Part 1 and Part 2

From the report:

"It’s no secret that the Brisbane apartment market has suffered in recent periods. As shown in the graph below, each of the three regions have experienced varying amounts of decline over the past two years.

Over the past 12 month period, Brisbane’s Inner Ring has experienced the largest decline in median apartment prices, decreasing by 3.5%. This was followed by the Middle Ring, declining by 2.7% over the period, whilst apartment prices in Brisbane’s Outer ring decreased by just 0.7% over the period. 

The Inner Ring does however, remain to be the most expensive region to purchase an apartment. During the six month period ending December 2016 apartment prices sat at $468,000, compared to $445,000 in the Middle Ring and $380,000 in Brisbane’s Outer Ring. Longer term, the Middle ring has experienced the highest price growth, with median apartment prices increasing by 3.5% per annum over the past ten years, followed by the Inner Ring and the Outer Ring, recording 2.7% and 2.3% price growth per annum respectively over the past ten year period."

REIQ Quarterly Report

The real estate agent's industry group, REIQ, released a report this week into the Queensland residential property market.  From the REIQ press release, which is always somewhat optimistic:

"THE house market has rebounded from a period of low listings with a surge of stock, in some markets as much as 100 per cent more in the March quarter, according to the REIQ’s March Quarter Queensland Market Monitor.

Looking at southeast areas where the market is performing well, the Gold Coast and Sunshine Coast were the two strongest performing markets in Queensland again this quarter, outperforming Brisbane (as they did last quarter).

The Sunshine Coast continues to grow and, along with the Gold Coast, these centres formed the top two most popular migration destinations for people moving within Australia in 2016.   More than 12,000 people moved to these two coastal destinations (excluding overseas immigration) last year, according to ABS data.

Noosa was the top annual median house performer with an annual growth of 9.2 per cent compared with March 2016. This has positioned Noosa as the second-most expensive house market with an annual median sale price of $615,000.

The unit market over the past 12 months has begun to show signs of easing, with the annual median unit price falling 1.9 per cent to $445,000.  However, that slight easing doesn’t represent the whole story for Brisbane’s unit and townhouse market.

There are suburbs that have done well this quarter, including Albion (up 5 per cent since December), Bulimba (up 26.8 per cent this quarter), Indooroopilly (up 18.5 per cent), New Farm (up 7.5 per cent), Rochedale (21.1 per cent), Taringa (4.8 per cent) and Toowoong (up 3.2 per cent since December).  [Editor note:  this is likely because of new apartments being sold for the first time, not price increases in existing apartments.]

  

Brisbane LGA suburbs where units have done well over 12 months and five years include:

• ·       Annerley
• ·       Balmoral
• ·       Bridgeman Downs
• ·       Coopers Plains
• ·       Coorparoo
• ·       Darra
• ·       Greenslopes
• ·       Highgate Hill
• ·       Manly
• ·       Manly West
• ·       Mount Gravatt
• ·       Norman Park
• ·       Red Hill
• ·       Richlands
• ·       Rochedale
• ·       Toowong
• ·       Wakerley
• ·       Wynnum

Units are becoming more popular with Queenslanders. CoreLogic has reported that 17 per cent of Queenslanders live in an apartment, just behind New South Wales’ 22 per cent and ahead of Victoria’s 15 per cent.

“The REIQ is confident the long-term future of apartments is secure and particularly in the inner-city where such exciting projects as Queen’s Wharf and the Howard Smith Wharves are adding to the night-time economy of inner Brisbane.  Added to South Bank, Milton’s Caxton Street and the Barracks, the West End, and Eat Street Markets, this is a diverse and vibrant inner-city and the demand for inner-city apartments will continue to grow over time,” Ms Mercorella from REIQ said.