Turned?

So how can you tell if a market has turned the corner?

Market watchers will have their own theories on milestones that signal a change in the fortunes of the real estate market.  I, for one, think that Brisbane has turned a corner and is well-positioned on the property clock.

But why do I think this?  What measures am I using?  Well, here are my ten market turn milestones.

  1.  Offers are made before a property goes “public”
  2.  Multiple offers are made – by different buyers – on the same property after listing
  3.  Properties start to sell above listed or reserve price
  4.  New properties start to sell above their resale value
  5.  Tightening vacancy rate & rising rents
  6.  The amount of established stock on the market falls
  7.  New housing supply falls below its long-term underlying demand
  8.  Job growth starts to accelerate
  9.  Sales volumes start to increase
  10. The time resales remain on the market fall

Brisbane has nine out of ten.  Too early to call an upturn?  Maybe, but the signs are definitely there.  Of course, the proof in the pudding is a sustained rise in generic property prices.

Now, depending on which data set you believe, recent REIQ figures suggest that the Brisbane property market has turned that corner.  The median price in Brisbane rose 1.2% to $505,000 over the March quarter, according to the REIQ.

I have been helping a tradie mate to find a renovator’s delight somewhere across Brisbane’s inner to middle-ring suburbs in recent weeks.  I am amazed at how quickly offers are being thrown at well-priced stock.  Many are received before the property hits the internet, the print media or even an agent’s window.  Properties are starting to sell before they even get officially listed.

This trend is also starting to happen in well-placed, well-designed and well-marketed new investment projects.  In inner Brisbane think Binary, Vivid and more recently Vine, to name a few.

According to Place advisory, there were 450 unconditional transactions during the first three months of this year – a historically quiet selling period – and this March quarter’s result was the strongest first quarter in over a decade.

And it appears to be going from strength to strength with Belise, in Bowen Hills, converting four out of every five walk-ins in recent months, with four sales alone last week, with another couple pending. Over 60 apartments have now sold in this proposed apartment complex since the beginning of the year.

According to Bees Nees City Realty, four out of their last five sales have had multiple offers submitted.  Other trusted realtors across the city are starting to report similar trends.

Also as I tweeted a few weeks back, I attended an auction run by Doug Disher Real Estate of a two-bedroom, unrenovated, post-war cottage in Brisbane’s St Lucia.  There were 17 registered bidders.  I mentioned to people present at the auction that it would sell for more than $725,000.  Many thought I was smoking something.  It sold under the hammer and in about ten minutes for $775,000, which was well above the reserve.

The timing of John McGrath’s arrival in Brisbane is no accident.  And Johnno is certainly no fool.

Brisbane’s vacancy rate now is just 1.5%, and rents rose by close to $20 across most residential rental properties across the city over the past twelve months.

The amount of resale stock on the Brisbane market has fallen by 8% since this time last year. And the city is undersupplied when it comes to new housing stock.  We are currently building about nine-tenths of what we really need.

Of late, there has been much press about a pending oversupply of new apartments across inner Brisbane.  Now, whilst we have lots of new mooted apartment development, the fact remains that not enough new product is actually being built.  Over the last five years, for example, 13,000 new dwellings were required to accommodate the population growth, yet – based on the official statistics – just 8,017 new dwellings were approved.  Last year, just 1,902 new dwellings were approved.  At present there is a serious short-fall.

In addition, the latest ABS figures show that 22,000 full-time jobs were created across Queensland last year and about half of them are in Brisbane.

Sales are now starting to improve and especially for apartment and townhouse stock, with sales up about 11% on last quarter.  Affordable apartment sales have lifted even further, up 22% in during the first part of this year.

What’s missing is a reduction in the time resale property remains on the market.

The average Brisbane resale property now takes 132 days (just over four months) to sell.  This is up from 105 days this time last year, or about a month longer (27 days).  However, this increase is in line with the Australian capital city average.

Now, why aren’t sales picking up or the time needed to sell falling?

For mine, most home buyers aren’t that confident.  Whilst many that we speak to believe that the Brisbane market has bottomed, they can’t help being tempted to wait just in case prices fall a bit more.  On one hand, they want Steve Keen to be kinda right, but on the other they believe in Matusik, Ryder, Yardney et al.  So they are waiting in the wings, so to speak.

Also, another truism is that low offers are rare.  Yes, APM reports that the average private treaty discount for Brisbane is 8.5%, but experienced agents report that agreed contract prices average under 3% for well-priced property across Brisbane.

Buyers are reluctant to invest themselves emotionally (nor will they spend their time) on a property that is (in their minds) not realistically priced.  If a property is listed too high, buyers will simply move on to the next listing.  The internet allows this to happen with ease.

One of the real issues facing the Brisbane residential market (and elsewhere, too) is that too many sellers are unrealistic and also aren’t prepared to market their property properly.  Many should take their homes off the market or reduce their asking price.

Dropping the price can open up a strong market response, especially when the “market turned” signals are getting stronger.  Even in a buyer’s market, buyers will compete for a property they want and price these days is a major part of that “want”.

And yet, in spite of an excellent position, good value for money and redevelopment potential, certain properties just aren’t selling. Curious, indeed.

Matusik Pulse – last call to fill in our current survey about Brisbane investment property.  Just ten seconds of your time is all it will take.  Results in Saturday’s Weekend 3.

If you want to keep your comments private and confidential contact me directly on michael@matusik.com.au

For more stuff visit our website and follow me on twitter, plus connect via LinkedIn.

25 thoughts on “Turned?

  1. Andrew Allen says:

    The last month has been more buyer unfriendly than any time in the last two years in our experience. Even beginning to see a few frustrated buyers emerge.

    A few examples from our deals:

    > Townhouse for sale 610-640k for a couple of months, owner paid 580k when new a few years ago, our estimate was 580k would be a strong result for the seller to achieve, we offered 561k, somebody came in and paid ‘close to 600′ was the advice to buy the property.

    > House selling for close to sale price of 825k on first day of listing, the same property had been on the market for a few months in 2011 priced under 800k without selling

    > Block of flats, 6 written offers (including ours) and sold to a cash buyer unfortunately for us a few days after listing

    > Standard house 10k from the CBD, 27 parties inspecting at first open, 9 offers, 6 written, under contract with backup a few days after listing.

    Still a patchy market and yet to see any capital growth to speak of but what appears to have happened is a shift in the buyer/seller power balance to something more healthy for sellers. Talking predominantly <10k from the CBD.

  2. Similar results happening in Melb

    • Win Property Investments says:

      Michael – you do a great job educating and inspiring yet you would be the first person to agree that we have been on a wild ride. When it gets down to basics; as an industry it is time to make some fundamental changes to agency practice. Vendors need to be advised to seek upfront vals to establish a selling price range; we can then introduce confident/financed-approved Buyers who are capable of being able to negotiate to secure the best possible deal for themselves. We simply have to give up the egoic control; rid ourselves of the auction-farce process and fully realise that the disturbing truth is we have created an induced panic, just so we can get (laid) and paid.

  3. David Manson says:

    I must say I have to write this as it is a very positive message and speaks well of the future in real estate which is most likely be passed on in the Management Rights market.
    While there maybe more Management Rights properties listed than in previous times maybe the clearance rates will now go up.
    Certainly I am seeing more offers in our Broking firm (Kapitol Brokers)than previously and am hearing from some buyers who are making offers with other brokers. I think that buyers have a belief that the market has further to fall so many offers are too low for vendors to accept. Lenders also have taken a view of a falling market which slows sales.
    Hopefully with more market commentators taking your comments on board we will see a further shift as more buyers try to get in before the market rises significantly.
    Happy Hunting or Selling

  4. texac1 says:

    Thanks Michael – good article and a sensible and positive message. My opinion is that we will see the market pick up to something considerably less than a boom in the “next step in the property clock”, but I agree with your guess about our current position on the clock.

    I reckon we will probably see increases in line with long-term CPI averages (so somewhere from 2- 4%). My guess is this will continue for the short term until we have such pent up demand sometime in the medium term (maybe 7 -10 year range) that we get another boom.

    My advice is (after disclosing my position as a developer) that:

    Buyers (my customers) – buy things with strong yield as you will probably not get a significant Capital Gain again for some time

    Developers (my competitors) – hang in there but adapt to the market, and don’t take on marginal projects by using Capital Gain to make your feaso work!!

    Resellers (people we all want to look after as they are our economy) – don’t think your property has somehow missed the falls of the last couple of years and don’t leverage yourself too highly

    Interested to here other people’s opinions on how this will play out and especially yours Michael.

    • i am embargoed to some extent in my reply here by my arrangement with API magazine – as i cover this in some depth in an upcoming issue – i will post here after that API mag is published – not that many sleeps away

      • texac1 says:

        Look forward to it – thanks Michael. Shame no one else has a thought on the future of property who reads your blog!!!

      • Kevin Lee says:

        Hi Michael, I’ve been on record for years now advising & assisting my clients to buy investment properties for their current income & not capital growth.

        For the past 30-40 years most investors were ‘taught’ to buy negatively geared properties – with the expectation of capital growth as though it was a god-given right that their property would double in value every seven years. Or so the mantra went.

        But ‘what if’ things were going to be decidedly different in the years head? What if that old investment disclaimer was about to come true? You know the one: “past performance is no guarantee of future performance”.

        Imagine how all the negatively geared investors will be feeling IF the god of capital gain doesn’t pay them a visit.

        I inspected five properties in Sydney last Friday afternoon on behalf of some of my Smart Property Adviser clients – every one of those properties is delivering a gross rental yield greater than 7.35%. Clients with a $32k deposit (10% plus stamp duty & minor Reno costs are smiling all the way to the bank. BTW – your link is on my website now. Cheers

      • Texac1 says:

        Hi Kevin – I don’t think you are Robinson cruso advising investors to go for yield, but you still have to have an educated opinion on the state of the market! So where do you stand Kevin on the performance of propert over the coming years. You might have a view on rental yield growth as all these factors must influence your advice to investors???
        Jees I’ve got to get at least one other person’s opinion out there…,

      • Kevin Lee says:

        Hi Texac1, as you know property is a massively diverse field. That said, my philosophy regarding investing for cash flow vs investing for capital growth is based on the following beliefs/facts. 1) Sydney is the only capital city in Australia with geographic constraints on all four sides. 2) Sydney has 4.25 million residents right now, and will grow to 5.1 million by the end of 2020. 3) Greater Brisbane & Greater Sydney cover approx the same footprint/area. 4) Brisbane basically has one set of rules via one Council; Sydney has 39 Councils. 5) With 39 indivdual little hitler’s and 39 intrpretations of the Planning laws, Sydney will struggle to supply sufficient new stock for many years to come. 6) Compounding this is the fact that Government levies & charges on new land in Sydney are outrageous. 7) 200,000 Aussies turned 65yrs of age in 2011, in essence exiting the work force, tax base and Super system. 8) 5.4million more will join them between 2012 & end of 2020 – the impending Baby Boomer exit is a demographic change not seen before and is 24.8% of our current population; it’s a game changer & void that GenY & GenX will not fill. 9) the wave of ‘capital growth’ created by the Boomers over the past 40yrs is ‘cresting’ – capital growth will be achieved by only the best ‘surfers’ in the years ahead. 10) in the USA the exiting Boomer demographic totals 78 million people; significantly compounding their existing massive problems. Similar percentages in Europe as well.

        So, capital growth may not be the panacea to ‘all things wrong’ in the western world as the population ages. Acquiring properties where the rental yield alone can repay the debt over the next 20yrs seems SMART to me. Cheers.

      • texac1 says:

        Thanks Kevin. Some interesting opinions particularly your thoughts on Sydney property’s geographic and planning constraints, for someone like me who looks in depth at Brisbane only I tend to look at the other capitals from a broad point of view, but it does support my somewhat cynical view that Brisbane should have been built 80 kms south or 100kms North – would have brought about similar geographic constraints to Sydney (and also would have meant we were built on the beach!!!).

        I agree with you that “passive” property investors should undoubtedly get into high yielding properties. However, I am conscious of making it too simplistic in nature for time poor investors out there, as high yield does not = security! Otherwise we should all be buying into one or 2 trick mining towns and pay for them in 5 years!! I realise that you are clearly not advocating that type of investment but you understand my point.
        Consequently, in my opinion it is equally important to be considering capital growth as an important driver for rental prospects, but not to use it to pay the bills!!!!!

        My mantra would be to:

        1. identify areas where capital growth is likely to occur
        2. use normal demographic and economic drivers to evaluate the risk with each one
        3. buy high yielding properties in these areas

        With that in mind I think it is important for all people interested in property to be aware of what the broader market is likely to do and have a good understanding of the traditional drivers for property Capital Growth and rental yield growth, so they can choose properties with the best chance of success!

      • Kevin Lee says:

        Hi texac1 – looking forward, instead of relying on past performance (taking into account the demographic change about to unfold), the danger for most people will be in believing that capital growth is a ‘given’ no matter what property they invest in.

        If they invest for cash flow in capital cities & large towns – like Orange in NSW – where the population is going up not down and infrastructure is improving, then the ‘bonus’ would be capital growth.

        Those people who buy a property and expect it to ‘double in value’ simply because “that’s what always happens in property” may find that capital growth disappoints them in the years ahead. Cheers.

  5. Jeff Murray says:

    Please give your honest opinion on Cairns property.

    • Jeff here is 25 ways to say shit

      1. Poop
      2. Poopie
      3. Shit
      4. Green apple splatters
      5. Doodie
      6. Dookie
      7. Popping a turtle head
      8. Pinching a loaf
      9. Pinching a butt muffin
      10. Going to the potty
      11. Turd
      12. Manure
      13. Bowel Movement (BM)
      14. #2
      15. Crap
      16. Diareah
      17. Dump
      18. Something barking at the back door
      19. Floating a sea pickle
      20. Logs
      21. Linkin’ Logs
      22. Baby ruth
      23. Skat
      24. Droppings
      25. Feces

  6. in short the next ten = capital growth bonus, rental return real, maximise rents/tax adavantages and hold for minimum of ten years, even more – and a must in any strategy is future proofing (making sure that you buy something that will get you the highest chance of returning your capital outlay rather than return on your capital) – kevin’s comments here ring very true to me – search the missive archives for more, cheers all

  7. AB says:

    Enjoying the opinions being offered here, and as a rookie investor, finding these blogs extremely informative – so cheers for that Michael.
    One question. Looking at Brisbane as my investment area – do you think Chermside is a smart place for a first-timer to get into the market? Let’s say I’m after a 2-bed unit for 400k…

  8. Kevin Lee says:

    AB – try to find a property or properties that have a decent rental yield. Will a $400k unit in Chermside generate $550-650 per week in rent? That’s the sort of rental income you’ll need in order to have the tenant pay the loan off for you over say 20yrs. I’m helping stacks of people do this in Sydney (2x units for $400k) and regional NSW & expect that these types of property exist in every capital city & major regional area across the country. Check my website at Smart Property Adviser for loads of info on this. Cheers.

  9. Mark Kelly says:

    A really informative article. Thanks again.

  10. mat says:

    Hey guys have just set up smsf and looking to purchase property for around 3ook first time investor thinking of using a buyers agent though prefer to have a go myself anybody reccomend good agent or point me in the right directionas to towns cities i should be looking at currently cheking out Orange.Maitland
    Wyalla. Mackay also looking for a financial planner accountant specialising in property plus a mentor any help would be much appreciated cheers mat

  11. […] but as we reported recently there is some good news afoot, especially in Brisbane, where the market is starting to turn.  And in spite of lingering negativity, and a changing prognosis for the way forward for the […]

  12. […] as we wrote about Brisbane turning the corner a month or so back, the Gold Coast seems to be following suite.  It isn’t […]

  13. […] as we wrote about Brisbane turning the corner a month or so back, the Gold Coast seems to be following suite.  It isn’t […]

  14. […] fewer listings in the market compared with this time last year, is a pretty good indicator that the market is turning.  Read on for more good news, if you […]

  15. Jacques says:

    What’s up, just wanted to say, I loved this blog post. It was helpful. Keep on posting!

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