The vintage of Brisbane real estate

After Wednesday’s CPI announcement I received a phone call from a friend who I consider a perma-bull on houses. We have had many verbal jousting matches in past years about the future of housing and I doubt very much during those discussions whether I was listening to him or he was listening to me.

The CPI number seemed to have changed all of that. He has finally decided that I may have been onto something with my rants about debt dynamics and demographics and that he may well be a little over-exposed to the risk of a housing downturn. He owns a couple of investment properties in Brisbane. I am sure that he is not in too much trouble given that he purchased his first investment property in 2001, but he did ask me an interesting question which I promised I would get back to him on. He asked me “What year did I think that the market in Brisbane back to?”.

By this he meant in what year would you have to have purchased a house to see a profit if you sold it today. This is obviously a very difficult question to answer because it is affected by all sort of factors including the street , the suburb and various attributes of the house itself and so on. But accepting those caveats, and understanding that this would obviously be a rough guess I thought I would take on the challenge of trying to get an understanding in broad sense of which year the Brisbane market had rolled back to at this stage of the downturn.

The hedonic index produced by RPData is a good place to start as it attempts to do adjustments for some of these things. It suggests that prices are back at late 2008/early 2009 prices.

However this chart is just about percentage change in index adjusted prices. It ignores additional transaction costs such as stamp duty and real estate fees and other factors such as interest payments. These really can only be estimated by looking at individual transactions in more detail. Given previous discussions I have had with my friend I knew he would want a little more information that just one graph.

So I decided I would just go through recent sales lists in various suburbs and check any house that had a previous transaction price that was near or below the previous transaction. In doing so I thought I would get a fair estimation across Brisbane of where the market was at in a broad sense and this would also give me some additional data on individual transaction that I could show my friend. I purposely ignored any suburb that I knew had been effected by flooding in January because I wanted this to be a realistic estimation given that I knew none of his houses were in these areas.

Given that RPData’s chart suggests a target of early 2009 I thought I would start with first home buyer areas as it would be easy to find recent sales in those areas that also had a previous transaction during that period.

I started in the south-west brisbane suburb of Forest Lake

23 Scarlet Place Forest Lake

Date Publication Property Type Price
01/07/2011 Government Notified Sale (Normal Sale) Dwelling $305,000
24/08/2010 Government Notified Sale (Normal Sale) Dwelling $308,000

17 Baxter Cresent Forest Lake 

19/05/2011 Government Notified Sale (Normal Sale) Dwelling $305,000
25/07/2008 Government Notified Sale (Normal Sale) Dwelling $311,000

8 Robusta Place Forest Lake

09/05/2011 Government Notified Sale (Normal Sale) Dwelling $420,000
31/07/2008 Government Notified Sale (Normal Sale) Dwelling $425,000

It looks to me that that forest lake is definitely hovering around early 2008 prices, with some marginal losses over 3 years. If we add in stamp duty and agent fees these are likely to be loss of around $12 K-$20K over 3 years ignoring interest payments.

North lakes in Brisbane’s north east is another first home buyer hotspot.

14 Dusky St North Lakes – Ouch

23/05/2011 Government Notified Sale (Normal Sale) Dwelling $534,999
08/05/2008 Government Notified Sale (Normal Sale) Dwelling $595,000

9 Crawford St North Lakes – Double ouch.

17/05/2011 Government Notified Sale (Normal Sale) Dwelling $476,000
17/10/2007 Government Notified Sale (Normal Sale) Dwelling $540,000

What is also interesting about that property is that it is an example of over optimistic vendors having to meet the market. The advertising record for that property is as follows. The final sale price was $73K under the initial asking price.

03/05/2011 For Sale Online Listing – Agent House Offers Over $499,000
04/04/2011 For Sale Online Listing – Agent House Offers Over $519,000
07/03/2011 For Sale Online Listing – Agent House Offers Over $519,000
15/02/2011 For Sale Online Listing – Agent House Offers Over $519,000
01/02/2011 For Sale Online Listing – Agent House $549,000

3 Hare street North Lakes – This house looks as if it was built some time in 2008.

17/05/2011 Government Notified Sale (Normal Sale) Dwelling $410,000
05/12/2009 Government Notified Sale (Normal Sale) Dwelling $432,000

3 Carmody Parade North Lakes

10/05/2011 Government Notified Sale (Normal Sale) Dwelling $447,000
31/10/2008 Government Notified Sale (Normal Sale) Dwelling $450,000

21 Trump Circuit North Lakes – A 2009 new build

07/05/2011 Government Notified Sale (Normal Sale) Dwelling $525,000
08/09/2009 Government Notified Sale (Normal Sale) Dwelling $540,777
25/06/2009 Government Notified Sale (Normal Sale) Vacant $207,500

So it would seem that North Lakes has actually fared worse. There are some properties with significant losses over recent years and I think it is fair to say that this particular suburb is looking at a vintage of late 2007 on average.

Obviously these two particular suburbs are newer areas so there is a possibility that they are not the norm. However it turns out that it is very easy to find example all across the city in areas that have relatively high levels of transactions.

21 Hartley Crescent Redbank plains

06/04/2011 Government Notified Sale (Normal Sale) Dwelling $285,000
30/08/2007 Government Notified Sale (Normal Sale) Dwelling $290,000

Charlotte Towers – Level 35 – 3509 – Brisbane CBD

17/04/2011 Government Notified Sale (Normal Sale) Multi-unit $310,000
23/04/2007 Government Notified Sale (Normal Sale) Multi-unit $348,000

Unit 91, 132 Alice Street – Brisbane CBD

15/04/2011 Government Notified Sale (Normal Sale) Multi-unit $455,000
18/10/2006 Government Notified Sale (Normal Sale) Multi-unit $445,000

M on Mary – Unit 3903 -3 Bedroom Apartment – Brisbane CBD

08/04/2011 Government Notified Sale (Normal Sale) Multi-unit $750,000
16/02/2009 Government Notified Sale (Normal Sale) Multi-unit $780,000
10/08/2005 Government Notified Sale (Normal Sale) Multi-unit $745,000

51 Henderson St Camp hill

25/05/2011 Government Notified Sale (Normal Sale) Dwelling $637,700
18/12/2009 Government Notified Sale (Normal Sale) Dwelling $650,000

31 Benbek Circuit Sunnybank hills

25/05/2011 Government Notified Sale (Normal Sale) Dwelling $326,000
04/08/2008 Government Notified Sale (Normal Sale) Dwelling $329,000

36 Daniel Street Lota 

23/03/2011 Government Notified Sale (Normal Sale) Dwelling $350,000
09/08/2004 Government Notified Sale (Normal Sale) Dwelling $349,000

and just to prove it is still possible to almost break even over 4 years – 9 Aydon Crt Keperra even if they did want offers over $550K

06/04/2011 Government Notified Sale (Normal Sale) Dwelling $508,000
02/04/2007 Government Notified Sale (Normal Sale) Dwelling $472,500

So it looks to me that RPData’s broad index is probably about right on average for pricing, but we then need to remove another 6 months or so for additional transaction costs. In terms of profitable transactions it seems that on average you would have had to purchase a property in Brisbane before June 2008 to still be profitable, but this is obviously a very rough guess. There are obviously some suburbs that are not doing so well, including the CBD, but I suspect that there are some inner-city suburbs that are holding their values well. It is however harder to tell in some of the upper-class suburbs because there are so few transaction that meet the criteria. Most of the recent transactions that I can find in these suburbs have a transaction history that looks like this.

18/05/2011 Government Notified Sale (Normal Sale) Dwelling $700,000
14/03/2001 Government Notified Sale (Normal Sale) Unknown $120,000

Although this is quite enlightning in terms of just how much credit issuance has grown over the last decade, is not particularly useful when attempting to estimate the market’s current value.

This is obviously completely unscientific and risks the fallacy of data mining. I am sure there are examples that do not follow the rule. But with the Queensland economy in stall and interest rates looking as though they have an upwards bias I remain doubtful this situation is going to improve any time soon.

Just so you know, this is why I didn’t include flooded suburbs –  19 Leybourne Street Chelmer

27/01/2011 Government Notified Sale (Normal Sale) Dwelling $410,000
27/03/2009 Government Notified Sale (Normal Sale) Dwelling $587,500
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Comments

  1. Wasted Opportunities

    Surely you should be including inflation and opportunity costs, say for returns on placing the capital in term deposits rather than in the house? That would put you significantly further back than 2008 in many places I would imagine.

    • WO,

      Doesn’t that just add more assumptions to the mix (LVR, stamp duty concessions, imputed rent, interest rate, FH vendors grants) which just muddies what DE is writing about.

      I agree they should be considered but not necessarily in the above analysis.

    • >Surely you should be including inflation and opportunity costs, say for returns on placing the capital in term deposits rather than in the house? That would put you significantly further back than 2008 in many places I would imagine.

      I agree WO, but as Mic says these are things that are assumptions based on the particular people in the transaction. The net outcome of a transaction is very different for someone who has an LVR of 25% than 80%, but that isn’t something I can really estimate. Either way though it looks pretty bad out there.

    • Wasted Opportunities

      You’re right, the LVR has an influence on this calculation so you can’t really be specific, but a couple of scenarios are worth considering.

      Take the 25% LVR example for a $400,000 home. It would obviously be ridiculous for this person to take out a $100k home loan and put the money in term deposits (and they couldn’t get home loan rates anyway). But if this person invests their $300k at 5%, over three years the opportunity cost is $47,000. This money is lost holding zero-growth property. Holding the property (interest only) also incurs $24,000 in interest costs over three years at 7.5%. Total interest+opportunity costs $71k

      For the 80% LVR, you would have an 80k deposit, losing $12,000 in opportunity costs @ 5% for 3 years, plus around $77,000 in interest repayments @ 7.5% for 3 years. Total interest + opportunity costs $89k.

      There is obviously a difference, and the bigger borrower is worse off, but even someone with an 75% deposit has holding costs close to the 20% deposit, since the interest/opportunity ratio balances things out.

      That’s not even counting that I reckon most of you fellas on this site could do much better than 5% p.a. with that juicy deposit.

      (Sorry for delayed response, busy day…)

      • Wasted Opportunities

        Oops those interest calcs are a little off, but the main point is no matter how big your deposit, these costs are significant even over a short timeframe, using indicative interest rates.

  2. Housing Troll

    Am I missing something or is the simple prognostication just retracing to Y2000 prices adjusted for inflation?

  3. Brisbane and Perth are classic examples of property bubbles driven by the overvaluation of property market “fundamentals”. The more obvious the positive local property market fundamentals are (e.g. proximity to services, train stations access, new shopping centre opening) the more specufestors notice them and compete in that market, and overbid each other to get a slice of the rapidly rising market.

    In this case Brisbane & Perth have been identified as markets due to be boosted by the Mining Boom and have since their property prices overinflated accordingly. While those cities are benefitting economically from mining dollars and that will have a positive short and long term boost to property values, current prices have clearly overshot by some distance, and will likely overshoot on the way down too.

  4. I’d be interested to see a detailed analysis of inner city suburbs; 1. there should be enough transactions in these areas to provide a useful analysis; 2. just how resilient are these areas to price falls (esp since I am hopefully soon to be a buyer in inner south side Brisbane!)

    Would be great if onthehouse.com.au provided a way to export their data en masse!

  5. I have been doing a similar process for prices on the Gold Coast…

    Find similar results which do vary from area to area, but in general it seems recent sales look like they are in line with 2006-2008…

    I need them to get back to around 2002-3 for it to make sense for me to buy!? Trying to save like mad anyway, so no matter what happens I can make decisions on what I want to do with my money…

  6. This article is something of a coincidence. Was just talking to a co-worker yesterday arfternoon who is resigning. She and her husband own an investment property in Brisbane (Morayfield). They bought around two-and-a-half years ago for $430 000. They are hoping to sell it and make enough money to pay it off plus pay out the remainder of the loan on their PPOR here in Gladstone – around $130 000.

    I don’t know many details about the house itself, other than that it wasn’t flooded and they have recently spent a substantial sum doing it up 9( she didn’t elaborate other than to say “substantial”). I think it was a 4 bedroom job.

    After all the transaction fees and costs and rennovation money, I suspect that they will need to sell the Morayfield IP for perhaps $580 000 – $590 000 + in order to walk away debt free and owning their home up here outright.

    I’m not sure I like their chances.

  7. innocent bystander

    you’re right “it is affected by all sort of factors including the street , the suburb and various attributes of the house itself and so on”
    but based on personal experience here in Perth I know some properties are back at 2005/2006 levels whereas others are at 2009 and others are still finding their level cause they can’t get a sale there is no sale price to compare!

  8. I work in the real estate market and have for the last 15 years. Answer is somewhat price range specific as drops have been different depending of price range. But basically prices are around 2006 levels before the crack up that was 2007. No doubt prices have further to drop. Could be a whole lot, could be a little. Some basic realities the mainstream are yet to come to terms with; RBA rate is decoupled from commercial funding realities (in both directions of travel), LVR’s matter to buyers ability to pay – and do not relate to the direct price of money, and, exchange rate is killing the top end of the market, Government incompetance is killing the bottom end of the market. Go figure.

  9. Great analysis. I think those prices still have some way to fall – I bet if you repeated a similar kind of analysis in 12 months time some of these current sales numbers will look positively glowing.

  10. Have a look at the Sunshine Coast. The economic drivers, tourism and construction are dead. Hundreds of properties on the market competing with with half developed estates, and more in the pipeline. A rent search for Nambour listed over 100 properties. A single street in Twin Waters has 30+ properties listed for sale. A unit there is for sale for $397,000 fully furnished, purchased 2003 for $430,000. The outgoings (body corporate, rates, agents fees etc) give a nett return of about 2-3% without allowance for vacancy rates.
    When you compare this to the risk free rate of return for say 5 years (7%+), and allow for the buying and selling costs then you need growth rates of 20 -30% over 5 years just to match this risk free return yet alone compensate for the extra risk you take on. A $400,000 property probably needs to be worth $600,000 after 5 years and this is highly unlikely. At some stage vendors must capitulate and drop their prices, maybe a couple of interest rate rises and further economic deterioration may be the trigger. I heard of a $1.5 million property at Coolum being sold for $700,000.