Start Sounding the Alarm!

Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities are also building more than they need, says BIS Shrapnel.

The forecaster, which started warning about an apartment overhang in Melbourne a year ago, is now also ramping up warnings about Brisbane and Adelaide. 

Brisbane's voracious appetite for apartment construction has resulted in a stock surplus that dates back at least to 2006, but that glut is about to triple from 5000 from last financial year to 15,000 by next year, BIS Shrapnel says.

See AFR

No oversupply in Inner Brisbane for Apartments?

"Brisbane's inner-city apartment market is a long way from being oversupplied, according to leading real estate adviser Urbis.

Issuing its detailed inner-city report on Wednesday, the group reported that a record 1500 sales had been made in the December quarter from 111 apartment projects. The September quarter recorded 1400 and such numbers have not been seen since 2007.

Urbis economic and market research director Mal Aikman said future supply was "not an issue" and that investors from Sydney and Melbourne were seeing value in Brisbane.

"Looking forward what we find is that in the first and second quarters of 2015 there are about 5000 apartments available for sale," Mr Aikman said.  "At the current rate of demand, that would equate to a sales rate of about 4000 apartments. So demand is slightly behind, but not significantly, and we're a long way from saying there's an oversupply or a glut."

Urbis noted that the Brisbane central business district had a huge surge in sales almost entirely driven by AMP Capital and Billbergia's Skytower, which saw 415 sales worth $267 million."

See AFR, 25 March 2015

In my opinion, Urbis is overly optimistic.  There may be buyers for off the plan apartments, but will there be enough renters?  I suspect that most buyers in Brisbane Skytower are from China.

The Brisbane Times provides this gloss:

He admitted prices for new apartments were highly unlikely to rise in the coming year due to the increased supply and stopped short of guaranteeing they would fall.  However, he indicated tumbling price tags to live in the inner-city were probable.  "Our view is prices aren't likely to rise but whether they will fall really depends on the developers," he said.

Brisbane Times

What to do in Brisbane?

Travel & Leisure magazine has an interesting blog post about Brisbane.  See post here.

Arbour on Grey - recent sales

It is hard to find out recent sales prices for a number of South Bank apartments in Brisbane.  This is because the land is leased on a 999 year lease.

Arbour on Grey is one of the better apartment buildings in Brisbane - developed by Mirvac about 12 years ago..  Some apartments on levels 3 and 4 have river views.  It is hard to compare apartments in this complex, because the floor plans and aspects are often very different.  There are two buildings - the north building and the south building, which are low arise, with about 6 entries in total.

Grey St is named after Earl Grey, who once had a tea storage facility on the street.

Some recent sales from Arbour on Grey (all two bed, two bath, 1 car park):

• Apt 1110, 172 Grey St - level 1, north building - $660,000  (This apartment is a very large apartment looking over Grey St -- 96 sqm internal, with a 50 sqm balcony.  See www.1110arbour.com)
• Apt 1307, 172 Grey St - level 3, north building - $735,000 (109 sqm overlook South Bank Parklands and Little Stanley Street, with river views)
• Apt 2202, 186 Grey St - level 2, south building - $662,500 (100 sqm overlook South Bank Parklands and Little Stanley Street)
• Apt 2218, 180 Grey St - level 2, south building - $655,000
• Apt 2312, 182 Grey St - level 3, south building - $735,000

There is a three bedroom apartment with a good floor plan currently for sale for $1M plus.

Before buying elsewhere in South Brisbane, it is worth comparing what you get in Arbour on Grey.

Brisbane the laggard, says Macquarie

"Brisbane is still very much the laggard for this cycle given the sluggish domestic economy, with periodic price falls still common particularly for the Brisbane unit market," Macquarie's latest report noted.

It was in part because Queensland continued to show population growth moderation as the recent mining boom subsided.

The lagging occurs even as prices emerge back into recovery and should exhibit strong price growth into 2015, it noted.

See Property Observer

In my view, another big reason for zero growth in Brisbane is income growth has been negligible, and other costs (especially food and entertainment) have increased faster than salaries.  As a result, rents in Brisbane have basically been flat for two to three years.

Brisbane Apartment Glut, then Crash

Queensland University of Technology property economist, Professor Chris Eves, has warned a glut in apartments in Brisbane's CBD, South Brisbane and West End would cause a price crash for apartments in 2016.

"I know of one construction company [Hutchinson] that currently has contracts out for 3000 units in those locations and basically when you are looking at those sorts of numbers, you are looking at a serious oversupply, he said.

Professor Eves said research showed there had been a 9% increase in the number of approvals for apartments in inner-city Brisbane in the past year.

"But we are not seeing the same sort of increase in the population," he said.

The crash will hurt major developers, off-the-plan buyers and some banks, but deliver a bonanza for renters and buyers.

"If we see those approval numbers continue, we are looking at the potential of another Gold Coast/Sunshine Coast glut in the unit market."  

He said the glut in Brisbane CBD, South Brisbane and West End apartments would peak in 2016, causing prices to drop sharply.

See Brisbane Times

Advice from Warren Buffett

Forget what you know about buying fair apartments at wonderful prices; instead, buy wonderful apartments at fair prices. 

Developments in Brisbane

A good website to look for future developments in Brisbane is the Brisbane Development website.  It demonstrates that there are many large apartment buildings in the pipeline for Brisbane.  Some examples:

• CavCorp's proposal for 366 apartments at Newstead Gasworks.
• Walker Corporation has plans for 433 apartments on Ann Street in the Valley.
• Aria plans for 84 apartments in Vulture Street in the South Brisbane
• Plans for 353 apartments on Brunswick Street in the Valley

Before buying, it is worth looking to see if your views will be blocked by any proposed new development.  And keep in mind that there is likely to be an oversupply of new apartments in Brisbane in the next 2 years.  Maybe wait until these buildings all settle, and you may then get a better price.

The Brisbane Development website has a good interactive map showing developments.

Troubles within Body Corporates

When buying an apartment, it is important to understand whether the body corporate committee is professional and sensible, and whether the building owners are cohesive.

An example of a building with major troubles in this area is Admiralty Towers Two at 151 Queen St. This is a prestigious riverfront building, with large apartments and great facilities, is in a really super location.  However, onsite management company went bankrupt a few years ago, and the receivers are trying to sell the management rights (that is, the contract for the caretaker for the building and onsite rental office).   The current body corporate is opposed to management rights as a concept -- some sort of religious like zeal.  The management rights were sold, and at an AGM the owners narrowly approved the sale to the new caretaker, but the committee is trying to block the sale.  The committee is spending owners money to engage a lawyer from Sydney to fly to Brisbane on this issue -- a lawyer who has publicly stated he is against management rights.  Fights and more fights.  Lawyers everywhere.   Uncertainty over who will be the caretaker.  This has and will impact the value of apartments in this building.

Another building where a fight is brewing is Quay West, where the management rights contract will come to an end in a few years.  Some committee members in this building are also opposed to management rights.  The committee is doing illogical things, just to make the onsite manager's life as difficult as possible.  One example:  the onsite manager offered to buy a new smoke detection system for the building at the manager's own cost to bring the building up to standard, but the committee rallied owners to vote against this.  Does this make commercial sense?

And in Admiralty Towers One, one owner keeps bring legal action against the body corporate and has been regularly unsuccessful.  See this decision and this decision and this decision for example.  This one owner is causing all the other owners to waste money on lawyers, rather than improving the quality of the building.

Another example is The Phoenician at Broadbeach.  The committee at this building has been hostile to a succession of onsite managers for years.  One example -- the committee got into a trade mark litigation with the onsite manager, and lost, having to pay the legal costs of the onsite manager!  What a waste of owners' money.

One common threat running through all this is the Unit Owners Association of Queensland.  Buildings listed above that have had internal disputes often have committee members from UOAQ living in the building or on the body corporate.  It is not uncommon for committee members in such circumstances to push the views of the UOAQ with religious like zeal, often to the financial detriment of residents and lot owners.

(Click on letter below to make bigger)

Recent Sales - Admiralty Towers One and Two

Recent sales in Admiralty Towers One (35 Howard Street)

• Apt 145, 2 bed, 2 bath, river views from side (not direct riverfront) 105 sqm - $600,000 in January 2015
• Apt 101, 2 bed, 2 bath, no river views - 104 sqm - $577,000 in January 2015
• Apt 146, level 24, 2 bed, 2 bath, no river views (same floor plan as Apt 101) - 104 sqm - $575,000 in September 2014
• Apt 54, level 8, 1 bed, 1 bath, 1 car - no river views - 74 sqm - $426,300 in September 2014
• Apt 44, level 6, 2 bed, 2 bath, 1 car - full river views - 132 sqm - $810,000 in June 2014

Recent sales in Admiralty Towers Two (501 Queen Street)

• Apt 72, 3 bed, 2 bath, 2 car - full view views - 151 sqm - $1,050,000 in October 2014
• Aprt 133, 3 bed, 2 bath, 2 car - full view views - 175 sqm - $1,250,000 in October 2014
• Apt 95, 3 bed, 2 bath, 2 car - full view views - 151 sqm - $1,048,000 in August 2014

Austin Apartment Sale

Aria developed a property at 77 Grey Street, South Brisbane, overlooking the Queensland Museum, called Austin.

Apartment 1807 is currently listed for sale at just less than $700,000.  The apartment has a nice view of the roof of the museum (which is not so attractive) as well as the river and city skyline.  This part of Grey Street is busy, often with traffic jams.  The location is a very short walk to downtown Brisbane.

The apartment has two bedrooms, two bathrooms, and is 80 sqm internal, with a small 9 sqm balcony.    So this works out to be over $7,850 a sqm.  To me, that is very expensive.

If you are considering buying an apartment off-the-plan, it is worth looking at this apartment to see what an 80 sqm apartment is like.  For example, look at the photo below -- there is no place to put a TV, unless you put the TV or the couch in front of a window, and the coffee table has been pushed up against the couch to make the room seem bigger.  The kitchen is not really a room, but a row of floor tiles.  The bedrooms are tiny, at 3m by 3.1m; or 3.05m by 3.3m.  Typically, you would not want a bedroom less than 3m x 4m.

Keep in mind that two bedroom apartments with good views can be as large as 130 sqm, so remember to compare apples with apples when looking at apartments.  That is why price per square metre is a good comparison measure.