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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 25 June 2015

Brisbane apartment DAs halve in the March quarter

Brisbane apartment boom

It has been abundantly clear that Brisbane has been approving "dwelling excluding houses" (i.e. units, apartments, townhouses) on a rip-snorting and record-breaking scale in the year to April 2015, leading to widespread fears of oversupply.

As a result of this structural shift towards medium-density approvals, construction and living, we have been seeing new communities springing up in suburbs which once were only home to factories or commercial lets. 

I live in one of them myself. 

Overall, there are more than a few "characters" around these parts, it's pretty lively at times, but it's very convenient as I can walk to my office in the city, or to the gym, or for a take-away curry (vegetarian). 

I rather like it.

The chart below depicts the latest ABS approvals figures, with "units" here actually referring to "that which is not a house", with Brisbane surging well beyond 14,000 on a rolling annual basis.

Supply, supply, supply

With 3,200 apartments due to come online in the second quarter of the year according to Urbis, there will be plenty of downward pressure on Brisbane apartment rents in 2015. 

Brisbane apartment sales in Q4 2014 punched at record levels at some 1,500 from 111 projects.

I looked here previously at some of the construction that was underway in West End and South Brisbane, by way of one example.

In its Q4 2014 Brisbane Apartment Insights report, Urbis mapped out what is blindingly obvious to anyone who lives in the inner north as I do, with seemingly every second block under development in certain locales.

In Q4 2014 the greatest number of unit sales in the inner north took place in Newstead and Bowen Hills, at 49 per cent and 35 per cent of total sales respectively.

Where I live in Fortitude Valley the more notable developments are set to include FV Flatiron (354 units), Valley House (297), Belise (228), Broadway on Ann (247), Brooklyn on Brookes (216), Cambridge Towers (161) and Oxford Towers (158). 

Oh, and the Mosaic apartments, which are already "open for business".

That's quite some roll call, and there are more boutique developments besides that I haven't listed here for fearing of sending my blog readership to sleep.

Newstead also has significant new developments including Mode (157 units), Newstead Towers (314), Unison (279), Waterfront (99) and 10ak (91).

Meanwhile Bowen Hills lazily accounts for Madison Heights (308), Showground Hills (356), the Skyring (263), the Yards @ North Yard (208) and Canterbury Towers (195), among others.

There is also a certain level of redevelopment taking place at Teneriffe, although on a considerably smaller scale.

The below graphic from the Q4 2014 Urbis report explains why I prefer suburbs such New Farm for property investment.

Being almost fully built out, the leafy green and established suburb of New Farm has comparatively very little in the way of new supply in the pipeline, with the exception of a couple of boutique blocks.

Source: Urbis

My investment philosophy in this respect I explained in a little more detail here.

Brisbane development applications slow in Q1

It is worth nothing here that the more influential market players - the Mirvacs, Lend Leases and the Cavcorps of the world - are far from dumb.

In fact, the largest developers have teams of researchers and understand the market far better than part-time property pundits on blogs and websites.

For this reason we should expect to see development applications from the big boys pulling back in 2015.

And indeed Urbis noted in its Q1 2015 report that development applications dropped sharply in from 4,810 in the December quarter to just 2,574 in the three months to March.

In turn this easing of DAs should flow through to approvals and completions. 

Summarily, the big surge in approvals should pass its peak in due course, which is a very positive sign for Brisbane's property markets, although it will take some time for the supply to roll through and the new supply not set to peak until the early part of 2016.

On the ground

As for what's happening on "on the ground" in inner Brisbane?

Commentators love to generalise depending on their weltanschauung, but lets see if I can make a few observations here.

Falling rents? In some cases, yes, I have seen that over the past 12 months.

Rising vacancy rates? Certainly that too. 

I've particularly noticed a proliferation of "for lease" signs outside the front of many older style apartment blocks, as one might well expect, the older units being somewhat unappealing compared to all this shiny new stock.

What about Chinese buyers "locking up and leaving" new units?

Yep, definitely some of that too.

The permanently darkened units arouse the suspicions, of course, but it's actually the leaflets advising of fire alarm tests which remain wedged in doors for weeks on end that are the dead giveaway.

Either that or I have some seriously anti-social neighbours in my block!.

Indeed, one wag with a black felt pen highlighted this very Chinese investor issue last week at a development on the Valley-Newstead border, daubing half of the site with observations of a rapier-like wit...although I think the word he was grappling for in this instance was "laundering".

Ghosts in the machine?

For all this, the doom and gloom spruikers endlessly pushing the "ghost cities" tagline are wrong.

In my opinion, any such oversupply will be a temporary issue.

Yes, there is a fair proportion of permanently empty units - and I don't suppose that this will change any time soon - but generally speaking these inner city suburbs appear to be filling up fast, with more and more people like me trading place for space. 

It's a generational shift that is well underway.

Come down to the Newstead Gasworks on a Sunday evening and you will find the place throbbing with activity, mainly comprised of younger people (this is another generational shift, by the way - in our twenties we'd never have socialised in a place without an ample supply of beer on tap, almost as a matter of principle).

It felt kind of rude to photograph people eating burritos, drinking coffee at Max Brenner or frolicking with their toddlers in the park of a Sunday night, so you'll have to visualise it, but there are a great many signs of life in these inner suburbs, even late into the evenings. 

And despite the apparent bubble in cafés and restaurants sprouting up, remarkably enough you'll find yourself lining up impatiently for coffee from 6am on the weekend, with queues out the door and around the corner if it's sitting down for scrambled eggs that takes your fancy.

Interestingly, it is definitely not all young, childless Aussie couples around here. 

My neighbours advised me that they are planning to have a baby and stay in their apartment (conveniently my lease will have "expired" by then - ha!) and this is not at all unusual in these parts today.

In terms of the age thing, I'm the wrong side of 35 myself, so I don't think I can qualify as "young" any more, yet I don't stand out around these parts as being particularly old. 

There are many people of middling age opting for apartment dwelling.

There are also a great many migrant families in the area, mainly hailing from Asia if my eyes, ears and intuitions are working correctly.

It seems to me that migrant families are very much adopting the medium density living thing and taking it all in their stride, perhaps another win for the major developers and their research teams?

Population flows and demographics

Despite this, I don't think that these are trends which change absolute population flows into Brisbane's outer suburbs or satellite urban hubs.

The stats and research show that some of the strongest absolute population growth is often to be found in the Moreton Bays, Wide Bays, Logans and Ipswich-es of SEQ.

I do wonder, though, that if so many of the best and brightest young people - and even more middle aged professionals like me - are choosing to live within a few kilometres of "the action" and the CBD, whether we will see adverse impacts on outer suburban median incomes. 

Moreover, who will buy the quarter acre plot 45 minutes from the city two decades from now? 

Someone will always choose that option, sure, but the relative demand for that property type may be considerably lower.

And while not wishing to white-ant Joe Hockey's blasé assertions, I think it would be fair to say that the quality of much of Queensland's dwelling stock is, erm, rather mixed.

Streets in the sky

In case it wasn't obvious, as a relative newcomer to the Sunshine State I'm trying to run the full gamut of Brisbane experiences, having already done the inner suburban Queenslander thing for six months, and am presently enjoying the delights and not-such-delights of the ever-entertaining Valley lifestyle.

As such, keep an eye out next month for a short video piece on the subject of life in a CBD Skytower.

I've often wondered what it's like, and have stayed in some of the serviced apartments for a month or so at a time - but I want to see the whole Meriton thing in full swing.

At more than $4k per month, the first word that springs to mind is "dear" (or should that be "oh dear"?) although in truth I'm not on the cheapest deal. 

Stay tuned for that.


A raft of data out later today (see links for more analysis of each release).

Releases due out this morning include the Job Vacancies figures for May 2015 today, as well as the Household Finance and Wealth figures for Q1 2015 and the Australian Demographic Statistics for December 2014.

Lots to look at!