Brisbane Apartments compared with other capital cities

In the AFR on 23 January 2020 (page 3), there is an article titled "Rebound Sends Property to Records".  However, reading carefully, this does not apply to Brisbane apartments.

The graph in the article, sourced from Domain, shows that Brisbane apartment prices have fallen over the past 3 years and are not at a record.  A Brisbane apartment costs the same today as in about 2013.

Moreover, Brisbane apartments are cheaper on average than Sydney, Melbourne, Canberra and Hobart.

Is there a structural problem in Brisbane?  What is holding back price growth in Brisbane?  Poor quality apartment developments?  Ineffective State and local government?  Lack of infrastructure in inner city areas?  No population growth?  Fewer tourists?

Is it that approximately 40% of the people working in Brisbane work for government or government owned corporations?

Brisbane Apartment Market Update

In the downtown area of Brisbane, there are a few new apartment buildings adding stock to the market.  These include:

• Mary Lane which is on top of the newly opened Westin Hotel in Mary Street, with many apartments sitting empty (this is the replacement for 111+222 that did not go ahead)
• 443 Queen Street, on the Brisbane River, which is currently under construction
• Brisbane SkyTower, which is nearing completion but with the lower floors occupied prior to completion (this is the other part of the replacement for 111+222 that did not go ahead)
• The One Residents at Brisbane Quarter (which is where the W Hotel is located), currently under construction
• Spire Apartments on Queen St, but not riverfront, complete but with very few new apartments available for sale

For sales of existing apartments, the trends depend upon the building (quality and location).  Ray White has recently published a report of sales from October 2018 to December 2018.  It shows:

- In some buildings, there have been no sales.  These are good quality buildings, in good locations, with large apartments and fewer apartments.  The owners don't want to sell.  There are less renters and more owner occupiers.  An example is Admiralty Towers Two, at 501 Queen St on the river.

- In some buildings, there are a few sales, and there have been capital gains over the past 10 years.  For example, in this period, a large 1 bedroom in Quay West on Alice St has increased in price from about $390,000 to $525,000.  Riverplace has also done well over the past 10 years.

- In buildings which are in second rate locations, with a poor quality build, there have been no capital gains over the past ten years, and in reality, capital losses.  Buildings by Devine (and the people who did this are now at Metro) are an example.  For example, in Festival Towers, a 2 bed, 2 bath, 1 car was selling for about $500,000 ten years ago, and one sold recently for $470,000.  In Charlotte Towers, 1 bed 1 bath no car apartments have been selling consistently in the price range of $300,000 to $330,000 for the past 10 years with no capital gain.  Unilodge (which is really student accommodation) has stayed flat at the $125,000 to $130,000 range for ten years.

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/