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

17 Baxter Cresent Forest Lake 

8 Robusta Place Forest Lake

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

9 Crawford St North Lakes – Double ouch.

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.

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

3 Carmody Parade North Lakes

21 Trump Circuit North Lakes – A 2009 new build

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

Charlotte Towers – Level 35 – 3509 – Brisbane CBD

Unit 91, 132 Alice Street – Brisbane CBD

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

51 Henderson St Camp hill

31 Benbek Circuit Sunnybank hills

36 Daniel Street Lota 

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

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.

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