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Effects of large supplies of apartments on existing stock

Discussion in 'Property Market Economics' started by Jerome, 11th Aug, 2015.

  1. Jerome

    Jerome Member

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    Hi all,

    Disclosure: I have an 80's IP (unit/apartment) in Indooroopilly, Brisbane QLD.

    I am seeing a huge amount of cranes building large apartment block developments from Brisbane city, through Auchenflower, Milton, Toowong, Taringa and Indooroopilly. This stock is going to be online within 1-3 years.

    Given the large injection of supply, it makes sense to me that the value of my apartment will drop unless demand rises to match or exceed the supply.

    Are my thoughts correct, in general? I'd love to discuss.
     
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  2. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Unless your unit has some uniqueness to it, I would say your assessment is spot on.
     
  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    It may raise the value of your property, if the newer apartments are selling for say $100K ea more than yours is currently worth.

    However, they may poach your tenants too - and cause higher rental vacancy for you.

    Maybe a reno of your older one, to make it more attractive might be prudent sometime before the new ones come online?
     
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  4. Befuddled

    Befuddled Well-Known Member

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    I think what you might see in the short term is some CG as a result of these new apartments because yours is comparatively cheaper and thus more attractive price-wise.

    When they come online vacancies will rise, rents will stagnate or even fall. Prices will also stall or fall.
     
  5. Jerome

    Jerome Member

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    Thanks for the feedback guys. It seems like timing is an important aspect of the situation.

    I hadn't considered the possibility that they may cause a temporary increase in value (relative). But I am very aware that the yield could drop due to excess supply.

    If anyone has more views I'd love to hear it. I searched quite a bit for some info and nothing was apparent so I'm sure other's will find this information useful.

    I am also looking at doing an reno on it. I'd like to turn it into a 3bed2bath from a 3bed1bath, but strata makes it difficult.

    Cheers
     
  6. willair

    willair Well-Known Member Premium Member

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    The same is happening in Coorparoo , the big demo's are just about finished and the cranes are just about to go skywards from the start of logan rd up too the old myers site,so it would be the same in your area,and most would be OTP investors..

    But rather then be like a pack of seagulls all flying in for the same chip on the beach,your unit may well not drop in value depending on when your entry time was??,and as you will see over the next year the focus will change from multi levels walk-ups for investors to building owner occupier products two bedroom units are everywhere ,but 2-3 years ago any developer had the same mindset how many units can I fit on the 813 sqm;s now from the ones I drink with it's different the question is now how many up-market townhouses can fit on the block that maybe will be the shift,they already know upfront there is a stronger demand for townhouses then otp plan units
    but this is only my opinion and only from the letters I get each week ,most want the sites for townhouses 1 year ago it was multi level walk-ups,the end margins may be to low for walk-ups, townhouses are a different item,and you don't want to be the last to sell in a development street..

    Or look up on goggle maps street view of I think the number is 42 Mollison St South Brisbane 304 sqm;s I think from my data base ,when titles holder don't sell,they just build up to the boundary then your stuck between two massive buildings..imho..
    don't think like a pack of seagulls all diving for the same chip on the beach..imho..
     
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  7. Big Will

    Big Will Well-Known Member

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    Plus the massive shopping centre behind it so really 3 rather large buildings.

    Is that house used for residential purposes or is it commercial now (e.g. doctors)?
     
  8. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    I was driving down Southern Cross Drive near the Moore Park SupaCentre last weekend to see hundreds and hundreds of new apartments going up , this is at Waterloo area, i cant believe they will get a CG nor good rental.
     
  9. Gingin

    Gingin Well-Known Member

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    Joy of being old. I was living/renting in dulwich hill nsw in late 90s . Same conditions you are describing.Old apartments went up in value and so did rents in area to just under the new ones asking. Vacancy was lower on the older.
     
  10. Jerome

    Jerome Member

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    Thank you all for your opinions. They are definitely giving more insight into the situation than I've been able to find myself.

    It would appear that a massive amount of apartments/units are being built in Brisbane. I wonder if it might result in a Melbourne Docklands type of glut, and what the implications of that would be.

    It's also good to get some historical perspective. I just wonder if the sheer number of developments will cause a glut, bring values down across the board, rather than allowing the pre-existing stock to increase to near comparative prices for the new stock.

    What kind of tactics have you seen/used in similar situations to get the best outcome possible?

    As I see it, some of my options are:
    1. Renovate and compete with new stock - improving equity and yield with the risk of both being devalued by rising supply
    2. Renovate and sell before new stock arrives - improving attraction and possibly equity
    3. Sell before new stock arrives without renovating - realising any capital gains made
    4. Continue as is - watch and wait.

    I'm enjoying the discussion. Continue, please!
     
  11. Big Will

    Big Will Well-Known Member

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    With 80 units (I would assume with leases) it would be really hard to renovate them all before the new stock arrive.

    Which you could renovate when they become vacant and claim the depreciation on the unit as well and then decide to sell or keep renting.

    3 or 4 as it doesn't require the tenant to leave.

    What if the rents drop by $20 pw on all units would you still be okay?
     
  12. Befuddled

    Befuddled Well-Known Member

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    I think it's 1 x 1980's unit, not 80 units.

    I wouldn't try to do 1 because your "uniqueness factor" is the fact that your rental price is more competitive. Your target demographic is slightly different (ie: the budget conscious). New carpets/lick of paint is as far as I would go for a bit of a freshening up. Do you have a long term tenant there? Could ask what he/she/they want if you are so inclined.
     
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  13. Big Will

    Big Will Well-Known Member

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    ah misread lol I read 'I have 80 units'
     
  14. Jerome

    Jerome Member

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    Big Will - Yeah 1 x 1980's sorry. I wish I had 80 units!

    Befuddled - I have a tenant who has been long term, but looking to buy their own place soon.

    A couple of the units in the building have been bought and renovated recently. They aren't getting much extra rent though, $20 a week extra at best.

    Vacancy is very unlikely due to the positioning. However depending on rents, it could increase of fall. The building also has a high body corp due to having few units in the building, combined with a lift. Currently almost neutrally geared. I wouldn't like falling rents/increasing rates/falling value however, which is why I'm attempting to guage the effect on all this supply coming online in the next 1-3 years.
     
  15. chindonly

    chindonly Well-Known Member

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    Is there also a difference in that a lot of this new stock is very small in floor area?

    If your 80's unit is comparitively spacious, as many were, it could be an advantage.
     
  16. Bran

    Bran Well-Known Member

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    I like your style Big Will. You read and responded to this extremely casually.
     
  17. Jerome

    Jerome Member

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    chindonly - Yeah it has a decent size, which combined with the location and the neighborhood draft plan at the time was why I chose it. It was rezoned to support building up to 15 stories. For reference, it's 6 stories high.

    Looking at similarly located, newer units, they go for more despite being smaller in size. It would appear that size isn't necessarily an advantage that converts into higher value.

    With only 15 units, the BC fees are around 9k annually. It eat's into the yield quite a lot.

    Back on topic, it seems that we think it could go either way in regards to the new supply coming soon. I can't help but think that it's a large risk. From what I see and read we have the possibility of some pretty serious downwards pressure on rents and values coming in Australia.

    1. Mining downturn - even without the spot prices of our resources falling, the investment phase of the mining boom has completed. That means many, previously highly paid, workers returning without an income.
    2. Manufacturing - with automotive manufacturing leaving Australia, that's around 80,000 skilled workers left without an income.
    3. Large supply of units/apartments being built with completion in 1-3 years.
    4. Increased macro prudential - Higher rates for investor loans, higher LVR required
    5. Crackdown on foreign investment

    I'm sure we can add to the list. What positives do people see coming? As I see it:

    1. Investors in Sydney and Melbourne looking for better value in the other centers, particularly Brisbane.

    I'd like to hear everyone's thoughts on this as well.
     
  18. Heinz57

    Heinz57 Well-Known Member

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    A lot of the new buildings particularly in the Brisbane CBD and surrounds, are not viable to live in long term. Small, no storage, poor design, limited parking. I keep telling myself this building glut will have no impact on the value of my large riverfront PPOR unit. Some days I even believe myself.
     
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  19. sash

    sash Well-Known Member

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    Well Gunga Din....

    It goes like this.....I am buying units in streets where homes are North of $850k in Brissie.

    My reasoning is that the 6-8 blocks have land worth at least 150k per unit...to build a similar unit it would cost $350k minimum....they sell for 450k plus...so if you buy carefully you will do well.

    Find areas where they limit the height of unit blocks.

     
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  20. acorn123

    acorn123 Well-Known Member

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    @Jerome: 2. Renovate and sell before new stock arrives
    Do some cosmetic reno, and sell it to investors from Syd or Melb:D.
    No CG for a long time after new stocks on market.