Valuer says Brisbane will get worse

Independent property valuers Herron Todd White say that the Brisbane apartment market is about to enter a decline.  It looks like values will go down.  We have not had a boom in Brisbane since 2007.  Who said property prices double every ten years?  If you bought in 2007, you may still be underwater!

The report says:
"Brisbane property has been a heartbreaker over the past few years, offering so much promise, but failing to live up to the hype – and anyone hoping 2017 would prove to be “The Year of the Brissie” will probably be disappointed again.

The hoodoo continues to be employment-fuelled interstate migration and, truth be told, we can’t see anything on the economic horizon to suggest southern buyers will start heading here in droves.

That’s not to say we should be ignored - on the contrary, Brisbane is one of the country’s most forgiving capital city markets. There are very few disappointed long-term buyers in our sunshine- state’s big city, provided they stuck with the fundamentals and bought the right property in the right position at the right price. With this historic performance as a foundation, there are opportunities to get into Brisbane and hold tight that will leave you feeling very satis ed with your decision come a market cycle or two.

Herron Todd White Brisbane has always been keen on well located second hand units as a strategy for those trying to get a foot on the market. They usually offer an affordable option in a great location, and while capital gains aren’t always mind blowing, good tenant demand ensures you can continue to service the mortgage without too much stress. There is, however, a very real oversupply risk looming for investor units in our city as new stock struggles to find demand. This is having a negative flow on to our traditionally solid second-hand unit market. If you buy investor-grade unit stock in particular – new or old – please tread with caution in 2017."

Student "Apartments"

There is a social media advertising campaign underway for Atira Student Living in South Brisbane.  The rooms are extremely small:

• 16 sqm for a studio
• 21 sqm for a twin studio
• 33 sqm for a 2 bedroom apartment
• 55 sqm for a 3 bedroom apartment.

A typical apartment bedroom (4m x 3m) is 12 sqm.  A typical hotel room is about 33 sqm.  A small two bedroom apartment in a low quality complex is about 75 sqm.   There are many two bedroom apartments in Brisbane that are 110 sqm and larger.  These Atria rooms are small.  And they are charging more than $460 per week for a studio.  (A furnished one bedroom that is 72 sqm in a good location is about $550.)

Students are best advised to look at regular apartments on realestate.com.au and compare against student apartments before renting.

Brisbane Still Going Backwards

According to RP Data CoreLogic, Brisbane apartments did badly in 2016.  See report here.

Brisbane apartment prices (to 31 January 2017):

January 2017 - down 0.1%

Quarter - up 0.2%

Year on Year - down 2.7% 
Median price based on settled sales of Brisbane apartments over the quarter - $380,000

The report says:

Mr Lawless cites the large number of high-rise units currently under construction as another factor that may slow overall housing market performance. He said, “Dwelling approvals have already peaked across the high rise sector, as have construction commencements. However, the unit supply pipeline remains at unprecedented levels with a large proportion of these high rise units located within the inner city regions.”
“As these units flow through to settlement, the risk of buyers receiving a finance shock is becoming heightened.”
”Metadata flowing across CoreLogic valuation platforms is showing more than 40% of off-the-plan settlement valuations are coming in under contract price across the Melbourne, Brisbane and Perth unit sectors. While the large majority of these ‘under valuations’ are not showing a significant gap between the contract price and settlement valuation, more significant differences can be seen in some projects and precincts. Buyers who receive a valuation lower than the original contract price will generally require a larger than expected deposit in order to meet the loan to valuation ratio required by the lender.” 

Solicitor Assaults Neighbour - Then Sells House

Last year, it was reported that controversial Brisbane solicitor, Robert Hynes, assaulted his neighbour, who happens to be a barrister.  The Hynes family house is now for sale.  The house, in 18 Ormond Street, in Ascot, Brisbane, is in Hynes' wife's name.  She purchased the house in 2009 for $2M.  Hynes Lawyers went through a restructure in 2013, and not everyone was happy.  Restructured and now Hynes Legal, this firm is well known for its aggressive body corporate and management rights practice.

The advertorial in the AFR and The Domain, without some of this detail, is below.

Brisbane City Apartment Sales

Recent sales in November and December 2016:

Parklands

Apt 3104 - 2 bed, 1 bath, 1 car - $590,000

Apt 3036 - 3 bed, 2 bath, 1 car - $650,000

Charlotte Towers

Apt 1207 - 2 bed, 2 bath, 1 car - $460,000

Apt 1502 - 2 bed, 2 bath, 1 car - $490,000

Apt 1704 - 1 bed, 1 bath, 0 car - $322,500

Apt 602 - 2 bed, 2 bath, 1 car - $510,000

Riparian

Apt 4301 - 3 bed, 3 bath, 2 car - $2,562,000

Admiralty Towers One

Apt 135 - 2 bed, 2 bath, 1 car - $615,000

Apt 21 - 2 bed, 2 bath, 1 car - $720,000

Admiralty Towers Two

Apt 29 - 3 bed, 2 bath, 2 car - $1,059,000

Meriton Infinity

Apt 2907 - 1 bed, 1 bath, 1 car - $420,000

Apt 5006 - 2 bed, 2 bath, 1 car - $600,000

Apt 5406 - 2 bed, 2 bath, 1 car - $580,000

Riverplace

Apt 109 - 1 bed, 1 bath, 1 car - $516,800

Festival Towers

Apt 2905 - 1 bed, 1 bath, 1 car - $390,000

Aurora

Apt 248 - 2 bed, 1 bath, 1 car - $400,000

Capital gains were best for direct riverfront buildings and worst for the large apartment towers built by Devine (Charlotte Towers and Festival Towers and Aurora).  The Devine developers now run Metro.

Recent Southbank Sales in Brisbane

Arbour on Grey
180 Grey St
3 bed, 2 bath, 2 car, 191 sqm, sold for $1,165,000
2 bed, 2 bath, 1 car, 106 sqm, sold for $740,000
174 Grey St
3 bed, 2 bath, 2 car, 186 sqm, sold for $1,487,500
3 bed? 128 sqm - sold for $820,000
172 Grey St
3 bed, 2 bath, 2 car, 155 sqm, sold for $1,010,000

Saville
161 Grey St
2 bed, 2 bath, 2 car, 119 sqm, sold for $920,000

Galleria
15 Tribune St
2 bed, 2 bath, 1 car, 120 sqm, sold for $570,000

Saville Southbank

Howard Smith Wharves

Under the Storey Bridge are some old wharves.  I remember in the late 1980s parking my car on the wharves in this area.  There are now plans to redevelop the land, to build a small hotel and exhibition area, plus restaurants and cafes.  See http://howardsmithwharves.com

If completed, this will add value to the nearby apartments, Riverplace, the Admiralty buildings, and others nearby.

Construction was supposed to have started at the end of last year.

Is it better to rent or buy?

Here is a comparison of two similar apartments in a Brisbane inner suburb, in the same complex, with each apartment being side by side.  These are good apartments, two bedrooms, two bathrooms, each 119 sqm total size, in a complex with a pool and gym.  Both were sold for similar prices.

Apartment A - owner occupant
Price - $465,000 plus stamp duty $7,500 approx.
Repairs and improvements before moving in - approx $8,000
Monthly costs
Loan repayment - $2,500 a month
Rates - $107 a month
Water - $98 a month
Body Corp - $375 a month
Insurance - $20 a month
Total - $3,100 a month

Apartment B - rental
Price -$450,000 plus stamp duty $14,100 approx.
Rent per month - $2,210 per month

Thus, the renter is $890 a month or $10,680 a year better off, and had no capital outlays, and does not have to pay for repairs and improvements (usually another $100 a month on average).  The renter can easily move to another location if work needs to take the renter there.

Another way to look at this is that the weekly rent should be $715 a week to cover all costs that are included in the rent.  But the rent is only $510 a week.  The landlord is subsiding the tenant to the tune of $200 a week.

Brisbane Apartments -- What happens next?

Most predictions for the Brisbane apartment market for 2017 are that prices will fall, and that there is going to be an oversupply or glut of apartments.  Well, maybe.

I think there may be a glut of certain kinds of apartments in certain areas.  For example, there are a large number of apartments under construction in Bowen Hills and Newstead.  Many of these apartments are small apartments in large buildings.  Some of the buildings are not in great locations or have poor aspects.  I am not sure who will want to live in these apartments.

But I don't think the news is all grim.  My reasons for saying this:

1.   In certain areas, there is no a glut of apartments.  Or even where a number of new buildings are under construction or have just been completed, the area has many facilities and a good location.  For example, South Brisbane, Indooroopilly and Toowong have new apartment buildings, but these are excellent areas, and can probably hold up to the new stock entering the market.

2.   Existing apartments that are 10 to 20 years only are good value.  Many are large apartments and are located in the better areas, and have good views.  Compared with newer apartments, which are smaller, the older apartments look very price competitive.

3.  There is a shortage of large apartments.  As baby boomers look to downsize, and wealthy families move from Asia to Brisbane, they are looking for apartments that are more than 120 sqm in size.  There are very few apartments in Brisbane that are spacious and luxurious.

4.  Compared with Sydney, or the freestanding house market in Brisbane, prices for apartments have been relatively flat for the past 2 to 4 years.

5.  Rents have decreased for some apartment types, but I think that rents will not keep decreasing.  I suspect that this time next year, we may start to see rent increases for certain apartments.

6.  Not all apartment buildings that have been announced or that are being sold off-the-plan will actually be built.  The potential oversupply is less than anticipated.  (That being said, there are a lot of apartments under construction, and there will be an oversupply.)

One example to consider.  Sunland is building Abian on the corner of Albert Street and Alice Street in Brisbane city.  The apartments were sold off the plan about 2 years ago (it has sold out) and settlement is likely to take place in June and July this year.  It has a great location, overlooking the Botanical Gardens, and will not be built out other than on the rear side.  It is on a corner block.  It is tall, but there are only about 150 apartments in the building.  Most are large.  The quality of the build and finishings are reported to be super.  There are resales available, and it is said that these kinds of prices are being achieved:

• Two bedroom, 69 sqm - from $680,000
• Two bedroom, 103 sqm internal- from $1,150,000
• Two bedroom and study, about 135 sqm internal - from $1,175,000
• Three bedroom and study, 150 sqm internal - from $1,700,000
• Three bedroom and media room, 200 sqm internal - from $2,700,000

This does not suggest to me that there is oversupply of this kind of apartment in this location.  (Or do these high prices tell us that a crash is coming?)

On Wednesday, the AFR had an article that said:  "... This year, that courage may well pay off for investors in established apartments.  In Melbourne, Brisbane and Adelaide, owners of these older style 1930s to 1970s built apartments saw little or no return last year and would have enviously watched houses perform substantially better.  This divergence in performance has been due to an oversupply of new units suppressing the entire apartment sector.  But with a slew of recent ABS data showing the apartment building boom is fading, we may well see the first signs of a recovery in older style unit prices and a vindication for remaining faithful to these assets in hard times."

Is now the time to buy established Brisbane apartments?

Admiralty Towers One Sales

Some recent sales from Admiralty Towers One, which is located at 35 Howard Street in Brisbane.  This is a direct riverfront building, although not all apartments have river views.  Some apartments have spectatular views.  The apartments are larger than most apartments being built today, with some one bedrooms about 70 sqm and some 2 bedrooms more than 130 sqm.

Apt 21 - 2 bed, 2 bath, 1 car - $720,000

Apt 56  - 2 bed, 2 bath, 1 car - $710,000

A[t 49 -  2 bed, 2 bath, 1 car - $692,000

Apt 135 - 2 bed, 2 bath, 1 car - $615,000

Apt 121 - 2 bed, 2 bath, 1 car - $575,000

Apt 88  - 1 bed, 1 bath, 1 car - $415,000