Ray White Agent's View of Brisbane apartment market

From an email from a Brisbane Ray White agent:

"The concerns for property owners for the next 12-18 months is that with around 23,000 new apartments under construction around the CBD & fringe, is that it will have a volcano effect and force property prices and rent down due to the over supply. 

We are seeing this happen at the moment in Surfers Paradise with 9/10 owners are losing money on their property. Sydney and Melbourne have already seen this happen. We are recommending it's crucial to have a think what your property plans are for the next few years. 

If you are having any thoughts of selling, don't hesitate to get in touch before it's too late. This new stock coming to the Brisbane market is not far away. 

Good news is! The market is strong at the moment."

Buying Activity and Capital Gains Not Strong

But not everyone is as optimistic about Queensland’s prospects.

Property analyst Louis Christopher of SQM Research said the state’s comparatively sluggish economy meant “buying activity hasn’t been strong”.

“If Brisbane is so good, why aren’t we seeing capital gains now?” he challenged.

“Yes, we are bullishly positive on the southeast Queensland market, and it’s a lot more affordable than Sydney — but there are reasons for that,” Mr Christopher said.

He said that the Queensland economy was still suffering from the austerity of the former Liberal Government, along with the mining downturn.  But there were hopes the new Labor Government would “open up its purse strings” and kickstart a recovery.

“There’s still a lot of stock about, and the economy is still quite patchy,” Mr Christopher said.

“Nevertheless, we are a little bit more positive on the market. We do agree it’s more affordable, on a rental basis and on an absolute price-to-wages basis.”

He said the Gold Coast was likely to see capital gains of between seven and 11 per cent over the next 12 months, but that Brisbane would be more restrained.

Source:  News.com.au

Brisbane Apartments and Units perform poorly

CoreLogic (RP Data) has released its recent monthly housing report.

"According to Mr Lawless, the strongest growth conditions outside of Sydney and Melbourne have been in Brisbane where dwelling values were 3.9 per cent higher over the year. Sydney and Melbourne values continue to boom, the next best performing city, Brisbane, has seen dwelling values rise by just 3.9 per cent over the past twelve months. Based on the median dwelling price, Sydney prices are now 72 per cent higher than Brisbane’s and Melbourne’s are 24 per cent higher,” he said."

However, apartments in Brisbane performed very poorly when compared with houses.  In fact, apartment values have declined in Brisbane.

Brisbane apartment prices (to 31 July 2015):

July 2015 - down 1.9%

Quarter - down 2.3%

Year to Date - down 0.8%
Year on Year - down 2.5%
Median price based on settled sales of Brisbane apartments over the quarter - $380,000

Recent Brisbane City Apartment Sales

Some example recent sales in Brisbane city apartment buildings.  Some buildings are tightly held and have few sales.

Quay West - 132 Alice Street

• Apt 88, 1 bed, 1 bath, 1 car, park views - $512,000 in June 2015
• Apt 50, 2 bed, 2 bath, 1 car - $705,000 in February 2015

Admiralty Towers 1 - 35 Howard Street

• Apt 119, 3 bed, 2 bath, 2 cars, river front - $1,240,000 in February 2015

Admiralty Towers 2 - 501 Queen Street

• Apt 78, 3 bed, 2 bath, 2 cars, river front - $1,100,000 in March 2015

Charlotte Towers - 128 Charlotte Street

• Apt 3701, 1 bed, 1 bath - $368,000 in July 2015
• Apt 2504, 1 bed, 1 bath, 1 car - $436,000 in July 2015
• Apt 1702, 2 bed, 2 bath, 1 car - $545,000 in Juune 2015

Casino Towers - 151 George Street

• Apt 2101, 2 bed, 2 bath, 1 car - $872,000 in July 2015
• Apt 1506, 1 bed, 1 bath, 1 car - $334,000 in July 2015
• Apt 2104, 1 bed, 1 bath - $384,750 in June 2015
• Apt 1307, 2 bed, 2 bath, 1 car - $480,000 in June 2015

Riverplace - 82 Boundary Street

• Apt 288 - 2 bed, 2 bath, 1 car - $740,000 in July 2015
• Apt 38 - 2 bed, 2 bath, 1 car - $677,500 in June 2015

Soleil - 501 Adelaide Street

• Apt 5501, 2 bed, 2 bath, 1 car - $695,000 in July 2015

Lost Views for some apartments in Brisbane

You have to be careful these days when buying an apartment, because with all the development in Brisbane, your view may disappear or change.

Here is an example of an apartment in Sebel Suites (95 Charlotte St) on the 30th floor, where the aspect was impacted by a building nearby.  There are many other apartments in Brisbane that have recently been impacted or may soon be impacted by pending construction.

Prediction that Brisbane Rents will not fall

"Brisbane's booming inner-city apartment construction market has led many to speculate a fall in rental prices could ensue in late 2015 as the market is flooded.  However, Dr Wilson said that in Melbourne, where there have been record levels of inner-city apartment developments, rents have continued to increase, which could bode well for Brisbane investors, though not so much for renters."

See Brisbane Times

Capital city dwelling values rise 9% over past 12 months but capital losses in May

From RP Data:

Today's results revealed the pace of home value growth stalled in May with dwelling values down 0.9% over the month.  After an increase in dwelling values of 3.8 per cent over the first four months of the year, the May CoreLogic RP Data Home Value Index results out today recorded a drop of 0.9 per cent for the month across the combined capitals index; the first month-on-month fall since November last year.

Mr Lawless said, "Over the past three years, dwelling values have risen more than three times as fast as rents. Dwelling values are 24.2 per cent higher across the combined capitals over the past three years while weekly rents have risen by only 7.2 per cent. The net result is that gross rental yields have been compressed from 4.3 per cent back in 2012 to the current average gross yield of 3.7 per cent across the combined capital city index," he said.

Brisbane apartment prices (to 31 May 2015):

May 2015 - up 0.1%

Quarter - up 1.4%

Year to Date - up 1.7%
Year on Year - up 2%
Median price based on settled sales of Brisbane apartments over the quarter - $393,500

Leave Your Money in the Bank

"The latest research shows that only 10% of sales in the Brisbane inner-city unit market are to owner-occupiers. Investors are buying 90% of the stock and the great majority of them are distant investors – people from interstate and overseas. Many will wish they had left their money in the bank.

Vacancies in Brisbane’s inner-city suburbs range from 4% or 6.5% - and that’s before all the new supply now under construction hits the rental market. BIS Shrapnel research shows that a record number of new apartments will be completed this year, but more will be finished next year and even more the year after. These numbers are a red flag for sensible buyers.

Brisbane, like Melbourne and the Gold Coast, is building far too many apartments because they’re not being created for local consumption – they’re being conceived for sale to unsuspecting foreign buyers."

See Terry Ryder: Better in the bank than on Brisbane inner-city apartments

Supply Greater than Demand in Brisbane

4BC Real Estate Guru Keven Turner has downplayed any risk of undersupply in the Brisbane apartment market despite recent reports of an upcoming boom in demand.

Speaking to Mark Braybook on 4BC Mornings, Mr Turner said that the supply of new units far outweighs recent increases in demand.

"If you look at the number of approvals sort of going forward, we've only got something like 2000 or 1500 to 2000 units in the pipeline which is not even going to meet demand."

Mr Turner said Melbourne is at a far greater risk of oversupply with over 20 000 new units being planned or developed.

However Mr Turner has warned potential buyers in Brisbane to be prepared to hold onto properties well into the long term if they are seeking to make a profit.  

"Developers actually have a huge amount of control over new stock, new development stock, so they pretty much do actually control that market.  If you find that you're buying a unit you're probably gonna have to hold onto it for anything up to five to 10 years to get something value back out of it." 

Source 4BC Radio

Property is a very long term investment

"Across resales of homes throughout the December 2014 quarter, those homes that were held for only a short period of time proved to be much more susceptible to loss. Although home values increased over the 2014 calendar year, 13.1% of owners who purchased and resold in the same year recorded a gross loss (resales in less than a year accounted for just 1.6% of all resales over the year). Homes resold after being held for between 3 and 5 years were the most likely to record a gross loss (17.1%) followed by those held between 5 and 7 years (15.3%). The data also reiterates the long-term nature of housing investment as well as relatively weaker growth in values over the past decade. Of those homes resold between 10 and 15 years from the previous purchase only 48.4% sold for double their original purchase price with the proportion rising to 95.0% for homes sold after 15 years of ownership."

Source: RP Data Pain Gain Report

 More than 10% of resellers in Brisbane suffered capital losses:

Sydney Strong, Brisbane About to Boom?

"Since mid-2013, the average gross rental yield across Australia’s combined capital cities has reduced from 4.3 per cent down to 3.6 per cent. Gross rental yields are now approaching record lows in both Melbourne and Sydney at 3.3 per cent and 3.6 per cent respectively.

Mr Lawless said the latest housing market data is likely to present a further challenge for the Reserve Bank when they deliberate interest rate settings next week. 

"Despite the headwinds of softer labour markets, very low rental yields, increased oversight on lending conditions and heightened economic uncertainty, historically low mortgage rates appear to be adding further stimulus to the housing market, albeit that stimulus is largely being felt in Sydney."

See RP Data Report

With Sydney now overpriced, Brisbane looks more promising.

Brisbane apartment prices (to 31 March 2015):

March 2015 - up 1.8%

Quarter - up 2.1%

Year to Date - up 2.1%
Year on Year - up 3%
Median price based on settled sales of Brisbane apartments over the quarter - $380,000

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.