Brisbane’s apartment pains could trigger nationwide contagion
I’ve been warning that new apartments are being oversupplied by developers, and sold to unsuspecting investors who think interest rates will never go up and property prices can never go down. Recent trends have only confirmed my fears.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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W
:
I can offer an example from my apartment building. I live in Newstead which is one of the epicentres of the glut of apartments in Brisbane. I live on the top floor with a view over the river which can never be built out. It’s beautiful.
The complex was completed 6 years ago and my apartment sold for $690,000 and rented at $820 per week. Today similar apartments are selling for $615,000 in same complex and rent is $600 per week. Body Corporate fees and rates thrown in and I doubt the yield is better than 3% per annum and the property owner has experienced capital declines.
And I don’t see any upward tick at all, although to be fair it’s been a gradual decline. Each time an apartment comes onto the market it is $20k less than the last time.
Comm Bank told me just 2 weeks ago they want 30% deposit if I want to buy here and she said not to expect the valuation to match the contract price – so deposit will need to be higher to avoid LMI.
That’s not any sort of warning, just the facts of a situation I know.
Roger Montgomery
:
Thanks! Very useful anecdotes.
Andre
:
Roger,
The uplift in commodity prices (namely met coal and thermal coal for Queensland) will ensure that any pause in demand will be short lived as FIFO miners begin to reinvest earnings into the Capital. Tack on the infrastructure boom that Australia and Brisbane is experiencing and any drop off in apartment approvals will only exacerbate future demand short falls.
‘Bargain Hunters’ will ensure that the Sydney and Melbourne market will stay on a stable track for the foreseeable future and Perth is picking back up as mining ramps back up to meet the global growth outlook.
The steps taken by our regulators have ensured that our markets remain robust to any localised short term shock.
william-garbett
:
Similar to the Perth & Darwin contagions? Oh wait…
On Brisbane – why don’t we consider the more accurate measure that is the median price. Corelogic’s December updated rolling quarterly data has the median unit in Brisbane being $385k now go back a longer period (say a year) & the median (calculated on the exact same methodology) is $390k. A 1.3% decline, hardly a blip.
I too am not enthused by the investment grade of Brisbane apartments but neither is the sky falling.
Being young & based in Brisbane, I have observed a subtle shift over the last 2-3 months in long term views of the market. This is conjecture but people are starting to ask what’s next after the over supply as NIM is picking up and the over supply is slowly being absorbed.
john volf
:
thankyou Roger. I value the thoughts of you and your team
John
:
Rodger wondering if you have encountered, and even better have an opinion on, Fred Harrison’s Georgist 18 year land cycle? It may be unorthodox but he certainly is no crackpot. According to these thinker the next downturn will be 2026 (for the US) – Aus is said to follow by a year later. But maybe, because Australia skipped its last downturn Aus and other locations will precede the US’s next cycle and indeed the Aus downturn may go longer and harder than most have expect? I understand this kind of predictive work is like alchemy but I also think it is helpful to consider that there is a cycle at work.
Mark
:
Great article Roger, thank you for sharing.