Apartment in Brisbane...brains trust I need your help!

I know your gut instinct is to say avoid apartments in Brisbane, but hear me out.

I know Brisbane all too well (have a few IP's there, lived there for 12 years, and I'm a forum regular), I know about the oversupply, I know how bad things are so I'm not ignorant about this situation but a deal has popped up that's made me take notice.

Background: I'm helping a friend buy, budget is about 380k. We're looking at townhouses instead of houses because you can't buy a house on that budget. We're leaning heavily towards a higher quality place in BCC as opposed to Logan. I know you can buy a free standing house in Logan for that price but our strategy is for quality - near shops, transport etc. I can't stress to you how central to our strategy it is to buy near shops - we aren't looking at anything more than one block away from a major shopping centre. Anyway, 3 bedders in good areas like Sunnybank Hills, Runcorn etc. right next to major shopping centres or plaza's is about $410k - $430k, but if you're willing to go 2 bedder then 380k literally 1-3 streets from major shopping centres is definitely possible based on my extensive research.

Anyway we were never in the market for an apartment, but an off the market property has popped up that has piqued my interest. It's a freshly renovated, top floor, 2 bedder red brick in a complex of only 14 that is literally 1 street away from Carindale shopping centre. They wanted over 400k but have revised to about 370-380k due to the apartment oversupply (the owner actually said the oversupply problem is why they are willing to accept less for what it would have listed for a few years ago). I checked historical sales and this seems to be what neighbouring properties were selling for about 2-3 years ago so it seems this has been factored in already.

So it has a lot going for it, positives:

1) It's not a big high rise behemoth, it's a small complex
2) It's in the suburbs, not CBD
3) It's stunningly close to a major and sought after shopping centre and public transport
4) It has no pool or elevators
5) A roughly 10% discount due to market oversupply

Cons:

1) We're quite confident we can buy a townhouse for the same budget in a really good area, so the property my friend ACTUALLY wants is still within reach
2) It's ultimately still an apartment in Brisbane...
3) No pool, but for some reason the body corporate is still 2.5k p/a (let's assume for now that there aren't any major issues causing this, if we were to make an offer it would be subject to review of strata meeting notes)


Neutral:

1) Freshly renovated means nothing with the recent changes to the depreciation rules. But I've listed this in "Neutral" because I never allow small things (below 10-20k) to influence big decisions.


Thoughts?

 

probably worth explaining a little more on why that is your strategy. What do you actually want from a property? cash flow or capital gains? low fixed costs? do you ultimately want to live in it at some point? Are you in a position to loose money if it comes to it?

IMO, apartments of any kind in Brisbane are just about the worst thing you could buy right now. More oversupply in that stock than anything else in Australia. Your reasons only help you as a landlord, but are meaningless to a tenant. As a tenant, if I were given the choice between an old walk-up block in the suburbs or nabbing a reduced rent brand new secure apartment with facilities, no question I would go the latter so you are not immune to the effects of market saturation.

That body corp is also high, enough to eat a good 15% of your weekly rent income. To me it sounds like its more of a case of "buying because you can afford it". Based on what you've said, I can't see any investment-grade merit.

 

Capital gains is what's important. Cashflow less so, but at the same time my friend isn't willing to go deeply cashflow negative to justify things. Slightly negative is fine.

It will begin as an IP but may convert into a PPOR one day.

And yes the body corporate is surprisingly high for something that doesn't have a pool or elevators.

When I'm investing, I always have a very specific strategy and there's always temptations that pop up...threatening to lure me away from that strategy. I'm sure everyone has experienced this before. There's always that property that comes up from left field that make you wonder "hum...is this worth a small deviation from plan?". I'm really questioning myself whether this is one of those moments. Is it a small deviation or a huge one? That's the part I find difficult to be objective about in times like this. Strategy wise, it's almost perfectly on track - near shops, within budget, small complex...except it's an apartment not a townhouse. Everything else ticks the right boxes.

I think ultimately the question comes to this: how similar are CBD behemoths compared to suburban red bricks? I know oversupply will hit EVERYTHING but just how close are they, long term? I'm struggling to be objective about this. My view is CBD apartments will take the hardest hit, then suburban apartments, then red bricks, then townhouses and then free standing houses will be at the bottom when it comes to impact.

 

Interesting scenario. Sounds from the arguments you raised that the risks are higher for the apartment. So the question is what CG upside do you hope to get from taking the added risk.

It might help to try to quantify it with some very basic calculations. Here's what it might look like on some very optimistic calculations (which exclude mortgage interest, rental income, negative gearing and tax on proceeds)


The assumption (or hope) must be that growth in Carindale apartments will be higher (due to location) than Sbank Hills townhouses (as otherwise you wouldn't bother - or maybe this is your question?).

Given this, the question comes down to how long is the timeframe? To me, holding for 10 years would justify the risk more than say holding for 5 years. And that's on the basis of the above optimistically projected growth rates.

 

I'm not across the Brisbane market but in general, consider who would be living there. if they would live there because its cheap and convenient, then its appeal is based on being cheap so probably not a candidate for price rise.

IMO the problem with units is that as soon as an area starts going up, developers get on it and release new stock at a price point that puts a ceiling on older stuff. Brisbane, much like perth, is just starting to see what suburban development looks like and there are a lot of properties suited for redevelopment. townhouses are a bit safer because less of them can be built in the same space, and also they are more family friendly which opens up a bigger buyer pool.

 

Buy an apartment near a railway station & shops.....Not just shops in the burbs. Stick to the fundamentals and you will be shielded by downswings. I always buy properties I can sell quickly in any market..I learnt that lesson the hard way in my early years.

 

Brisbane apartment builder CMF Projects goes into voluntary administration - ABC News (Australian Broadcasting Corporation)

 

A 10 % discount might be tomorrow's market price.
Where's the upside? Capital risk and little chance for CG.
Jaybean you know better, go to the back of the class.

 

Hearing about 2br apartments near the city for 250k though sounds very tempting to buy... same thing in Sydney would start from around 750k+

 

Brisbane apartments are like crack. Everyone knows they are a bad idea but still quite a few people are tempted to have a taste.

Buy a house

 

But they are cheap...they must be lower risk right...

 

the 250k apartments are usually not the high rise. They are usually older smaller complexes.
They do represent a good buy in the apartment stock imo, as long as there are no building issues with it. They also might need some refurb thouugh- but usually not too much.
You will find them in most inner city neighborhoods like coorparoo. They will be hit by the overall brisbane city high rise unit volumes, but not that much.
Give it a update to appeal more to tenants with more modern fittings. the med term and longer indications are excellent for these.

 

agreed. I too have learnt this the hard way. I also like the idea of buying liquid assets (as liquid as can be) in an illiquid asset class such as RE. The issue is that liquidity will ALWAYS come at a cost. This is in any investment class.
Costs could differ, eg high prices or less potential growth rates or high supply in neighboring areas, etc...

 

generally, the longer its held, the greater influence location has on the value.

 

Yes, agree. eg, you buy OTP or a new house and land package. If you buy this product in the middle of nowhere vs. the same thing near infrastructure, in the beginning they will probably have similar prices/slightly differ, let's say 15%. But 20 years down the track, the less well positioned one will probably not sell for as much gain as the better located one. The better located one could be more than double the value of the other one. Land generally appreciates... and well located land even more so.

 

Actually a lot of the new ones are quite expensive even with a discount
I mean for Brisbane prices.
Worst deal ever

 

I wouldn't go so far as to say excellent but I agree with all your other points actually quite living like living in those ones to the old ones