One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.

Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.

The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" />

Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.

Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.

The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.

Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.

The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.

That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.

The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.

"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" />

Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.

The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.

The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.

According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.

The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.

A significant component of the proposal is the revitalisation of Blue Street Plaza.

The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.

Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.

Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.

Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.

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fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.

Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.

The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.

Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.

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FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.

Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.

Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.

Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.

The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.

The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.

The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.

<img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" />

The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;

PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.

The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.

Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.

"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.

Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.

A major focus of the design has been the public domain.

The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.

The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.

Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.

Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.

Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.

Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a>

Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.

[smartcode_project:default project_id=30959 project_image_fid=292863]

It has since quietly assembled its next wave of projects.

Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.

[smartcode_project:default project_id=152095 project_image_fid=373685]

The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.

Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a> 
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First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.

At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.

The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.

[smartcode_project:default project_id=152022 project_image_fid=375528]

Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.

The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.

"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.

[smartcode_project:default project_id=152022 project_image_fid=375531]

The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.

The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.

[smartcode_project:default project_id=152022 project_image_fid=375524]

Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.

Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.

[smartcode_project:default project_id=152022 project_image_fid=375530]

The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.

The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.

The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.

"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.

"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."

Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.

[smartcode_project_cta:default project_id=152022]

Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

Not all apartment amenities are immediately visible.

Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.

Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.

Online shopping has been one of the biggest drivers of that shift.

Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.

For apartment residents, however, receiving those deliveries isn't always straightforward.

Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.

Australia Post's Parcel Locker network is one response to that shift.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe>

Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.

The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.

That growing presence reflects a broader change in how apartment buildings are being planned.

Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.

It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.

For buyers comparing apartments, these everyday details are becoming part of the decision-making process.

Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.

Parcel delivery is joining the apartment amenity checklist

Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.

The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.

Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.

<a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.

"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.

"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."

The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.

The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.

<img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" />

Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.

"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.

Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.

Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.

Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.

New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.

IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a>

First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

Michael Matusik

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The Sunshine Coast market has finally entered a recovery.
<a href="https://matusikmissive.com.au/wp-content/uploads/2014/05/Sunshine-Coast-area-image-for-missive.jpg"><img class="alignnone size-full wp-image-7270" src="https://matusikmissive.com.au/wp-content/uploads/2014/05/Sunshine-Coast-area-image-for-missive.jpg" alt="Sunshine Coast area - image for missive"></a>
It has been a long time coming.  The Sunshine Coast, unlike other markets across south-east Queensland during the previous market upturn, didn’t necessarily overheat property value-wise; but instead, it was more hit by a collapse in tourism and retail spending, plus new residential development.
These three industry types were, historically, some of the major employers on the Sunshine Coast.  The Sunshine Coast, up until recent years, has suffered from a lack of ‘employment depth’.
Game changer
However, the new infrastructure being delivered around the Kawana area – namely the hospital and associated uses – is a game changer adding employment strength to the Sunshine Coast, whilst also helping to reduce the cyclical nature of its employment.
Today, close to 165,000 people are employed on the Sunshine Coast.  Over the past twelve months, 14,000 new jobs were created on the coast.  A total of 32,000 new jobs are expected in the Kawana area on infrastructure and housing build-out.  In 2001, unemployment on the Sunshine Coast was over 11%.  Today, it is less than the Queensland average.
The Sunshine Coast, in short, is creating new jobs and with this essential change comes an increase in population growth, a rise in dwelling starts, more sales, a lift in rents and a return to price growth.  Some large increases in dwelling prices are expected.
Price growth and demand
Our borrowing capacity analysis suggest that once interest rates normalise (increase) in coming years, dwelling appreciation on the Sunshine Coast will slowdown, but end prices are unlikely to drop unless variable mortgage rates rise over 7%.
Another big plus to the Sunshine Coast property cycle this time around is the undersupply of new stock and also the very tight local rental market.  The supply of property for rent is extremely tight.
The Sunshine Coast now has – and this might surprise many – a relatively young demographic profile.  Whilst it does have a growing retirement and age-care related market, these two buying segments are quite small when compared to the size and growth expected in the young renter and first home buyer markets.  Furthermore, the downsizing market is expected to contract in size and impact over the next 10 years.
<a href="https://matusikmissive.com.au/wp-content/uploads/2014/05/SC-Report-P-13.jpg"><img class="alignnone size-full wp-image-7255" src="https://matusikmissive.com.au/wp-content/uploads/2014/05/SC-Report-P-13.jpg" alt="SC Report P 13"></a>
These demographic shifts will see the need for more affordable property and more accommodation for a young rental market.  This will fuel the need for more one and two-bedroom apartments.
Price points
The key thing here is affordability.  Investors should look to buy property priced largely under $400,000 for second-hand stock, under $500,000 for new apartments and under $600,000 for new house and land.  At these price points, property should be met with consistent rental demand and attract owner-resident buyers on resale.
The Sunshine Coast property play moving forward is more about jobs and buying what I call “capital city stock”, rather than lifestyle coastal property.  So beachfront, top-end, luxury homes might not make the best investment on the Sunshine Coast for the next cycle or two – the underlying demographics don’t really support such.
Our modelling suggests a growing need for more residential construction on the Sunshine Coast; this will further help increase employment.  Yet in contrast, given the polarisation of the demographics – young markets and older ones – our Property Pulse™ reading suggests that the Sunshine Coast’s net housing demand will settle back (at a high level) in coming years.
This suggests that after this recovery and upturn, dwelling price growth is likely to be more subdued.
Final word
So, now looks like a good time to buy a Sunshine Coast investment.  Prices should increase over the next 12 to 24 months.  Rents are rising.  Investors need to buy affordable, mainstream rental property, not lifestyle-orientated stock.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
Photo courtesy of Wikimedia.
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michaelmatusik-49YzLvdmNv

Sunshine Coast recovery has been a long time coming

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In short, very much so.
There is a lot of flak running around about dwelling prices at present.  It’s ‘budget impact’ this, ‘unemployment’ that.
Yes, dwelling price growth has slowed in recent months, but price growth is seasonal.
The important thing is to take the long-term view and don’t get spooked by the monthly and especially weekly reporting on price movements.
Publishers of property-related magazines or media property editors in general, will tell you that one of the hardest things they have to do is to find something fresh to write about each issue.
To help fill their publications, they write about the latest price machinations. The data houses don’t help matters when they release daily/weekly dwelling price indices.
Take a look at these two charts.
<a href="https://matusikmissive.com.au/wp-content/uploads/2014/05/HP-11.jpg"><img class="alignnone size-full wp-image-7240" src="https://matusikmissive.com.au/wp-content/uploads/2014/05/HP-11.jpg" alt="HP #1"></a>
<a href="https://matusikmissive.com.au/wp-content/uploads/2014/05/HP2.jpg"><img class="alignnone size-full wp-image-7241" src="https://matusikmissive.com.au/wp-content/uploads/2014/05/HP2.jpg" alt="HP#2"></a>
The first shows annual price movements; the second, quarterly changes in dwelling price.
In most cases, the middle and end of the year appear to be strongest when it comes to price growth. This makes some sense, given the end of the financial and calendar years and when you take into account when most new listings occur in Australia.  Many investors like to buy before the 30 June, whilst owner-residents often like to be in their new digs by Christmas.
Things do, however, get stuffed up a bit when we have a late Easter, as was this case this year; and for certain once-off events – like an overly reported hard budget or a pending federal election (2013).
So the statistics suggest to me that price growth is strongest in the June and December quarters (usually) and weaker during the March and September quarters.  The figures also show that sales volumes also follow suite, though not as dramatically so.
In contrast, new property listings seem to be higher during the March and September quarters each year.
Again, this makes sense as decisions about moving are often made during the Christmas break – so listings increase soon thereafter and as most real estate agents will tell you, spring is a great time to list a property for sale – and yes, many look to list at time of the year – as spring is often a good time (especially in our southern markets) to display property for sale.  It gives buyers enough time to settle and move in before Christmas.  And so the cycle continues.
It is this increase in listings and subsequent sales that often leads to high price growth results, especially when demand exceeds supply.
Don’t get me wrong, the property cycle is set to slow down over the next 18 months or so, depending on when interest rates next rise.  Revisit what we said earlier this year <a href="/expert-insights/investing/whats-going-to-be-the-x-factor-in-this-property-cycle">here</a>.
But for mine, much of the current commentary about house prices is just seasonal fluctuations – or as <a href="/news/rba-housing-bubble-alarm-bells-should-be-ringing-despite-may-price-correction-christopher-joye">Christopher Joye described last week</a>, “an air pocket” rather than a “descent”.
Regardless, it is always best to take a long-term view when it comes to property – sale volumes; supply lines; prices and rents all “sawtooth” within the wider property cycle.
Think of a circular saw.
An annual review of price growth is adequate. You will drive yourself around the bend looking at more frequent fluctuations.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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How seasonal are dwelling prices?

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As many readers know, Brisbane City is well into a residential recovery.
<img src="/images/2014/05/22/matusik%20may%2022%20one.jpg" alt=""> 
This recovery started late last year.  It followed a long stagnation period, which was needed, as the market had overheated during the 2001 to 2008 upturn.
Brisbane values appreciated something in the order of 230% over that seven year period.
Where to next?
This time around, values are expected to lift, but mildly in comparison.
Potentially, house values could rise by another 11% and attached property values – especially in Brisbane’s middle-ring suburbs – by as much as 19%.  This takes into account the current low interest rate setting.
The meaning of recovery
Yet this recovery is more about being able to sell your property, rather than how much will it appreciate.  Our borrowing capacity analysis suggest that once interest rates normalise (increase) in coming years, dwelling appreciation across Brisbane will slowdown and even potentially see price falls if home loan rates rise to over 7%.
Like many areas across the country, Brisbane’s current recovery and pending upturn is likely to be short in duration this cycle, with the market peaking in late 2015/early 2016, depending on interest rate movements; employment trends and dwelling supply.
Future housing demand 
Brisbane City has an aging demographic profile.  Increasingly, much of the housing market across the Brisbane City area will be looking to downsize and/or retire. This will fuel the need for more attached homes; often smaller in size than traditional detached housing. The catch-cry is “place for space”, meaning that buyers will be looking to live in quality projects, in established urban areas.
c Interestingly, the first home buyer segment and even the upgrader market is unlikely to grow as much in size as those downsizing, suggesting that resale supply of baby boomer-first generation homes may exceed demand (first time buyers and those upgrading).
Prices and rental growth
Prices for second-hand stock could fall post 2016; and/or many looking to downsize will choose (reluctantly) to not sell and continue to age in place. More affordable infill stock would alleviate this potential market segment mismatch.
 <img src="/images/2014/05/22/matusik%20may%2022%20two.jpg" alt="">
Whilst remaining a large demographic group, with a 24% market share, the young rental market (tenants mostly of inner city apartments) is expected to contract in coming years.
This comes at a time when record numbers of new apartments are being built across Brisbane’s inner city.
Prices and rental growth for new apartments are likely to be subdued until the excess new supply is absorbed.  This may take several years and is likely to take place between 2016 and 2018.  The second-hand apartment market is likely to be hit the hardest, especially when it comes to rents.
Property DNA
Many of the market fundamentals – the city’s property DNA so to speak – look quite healthy over the next decade.  These include population growth; job creation; household incomes; relative affordability; renovation activity and infrastructure delivery. 
Matusik Property Pulse™ 
It may be best, if viewing Brisbane for residential investment, to buy something that would suit an aging demographic.  Something attached maybe, rather than a traditional detached home.
Also, given the aging demographic profile, our Property Pulse™ reading suggests that Brisbane’s net housing demand is close to peaking and will settle back (at a high level) in coming years.  This means subdued, not accelerating, price growth.
 <img src="/images/2014/05/22/matusik%20may%2022%20threwe.jpg" alt="">
The Matusik Property Pulse™ measures the size and direction of the largest (in terms of money spent) home buyer segment in the Australian real estate market, being the 40 to 44 year age group. There is a very strong correlation between the size and direction of this market segment and property sales; price and rental growth.
Final word 
Increasingly, Brisbane should attract high rents.  Rental returns are likely to be the major driver behind Brisbane residential investments in the coming decade.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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The Brisbane market recovery: Where to next?

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I am often asked how one can predict residential price growth. 
Well, the only way I know how – with any form of logic and indeed, accuracy – is based around borrowing capacity. 
Spare borrowing capacity by itself doesn’t automatically mean the prices will rise; nor does over-borrowing – in isolation – result in prices falling.   
But what often comes true is that if there is spare capacity in concert with tight supply, rising sales and improving buyer confidence, then prices often do rise.  Of course, the reverse also applies. 
So which major Australian markets have spare borrowing capacity?  Which ones are already pushed to the limit?  Read on….
Assumptions 
In a similar vein to our <a href="https://matusikmissive.com.au/2014/04/15/6858/" target="_blank">recent</a> missive on housing affordability, we have made some assumptions. And in this regard we did the following: 
<ul>
<li>Went to the 2011 Census for each capital city and found the median family household income.</li>
<li>Worked out – via average weekly earnings – which are updated by state/territory twice each year – how much, by proxy, family incomes may have risen since the last census.</li>
<li>Applied a basic online ‘how much can I borrow’ calculator using a principal and interest loan; 30 year time frame against several levels of interest.</li>
<li>Used AFG’s mortgage index to determine the average loan to value ratio for each state/territory.  We used this to determine the average level of deposit in each case.</li>
<li>Recorded dwelling prices by capital for all dwellings according to the latest release from RPData.</li>
</ul>
Interest rate settings
We used five interest rate settings.
<ul>
<li>5.2% – which is the average rate for a current three-year fixed loan, according to the RBA.</li>
<li>5.95% – which is the current average variable rate, again according to the RBA.</li>
<li>6.25% – which would represent a 0.25% movement upwards in the cash rate, based on the current average variable rate.</li>
<li>6.5% – or a 0.5% movement upwards in the cash rate.</li>
<li>7.5% – or the average variable interest rate over the last 20 years.</li>
</ul>
Our aim
Our aim here is to find out two things: 
<ul>
<li>The degree of potential price movement based on today’s record low interest rates</li>
<li>The possible impact rising interest rates would have on borrowing capacity and its potential impact on prices</li>
</ul>
So here are some of the results – all for March 2014.
Sydney
Median dwelling price                                                          $762,000
Median family household income                                           $97,500
Maximum borrowing capacity at 5.2%                                   $675,000
Maximum borrowing capacity at 5.95%                                 $620,000
Maximum borrowing capacity at 6.25%                                 $600,000
Maximum borrowing capacity at 6.5%                                   $585,000
Maximum borrowing capacity at 7.0%                                   $530,000
<address> </address>
Melbourne
Median dwelling price                                                          $669,000
Median family household income                                           $93,500
Maximum borrowing capacity at 5.2%                                   $590,000
Maximum borrowing capacity at 5.95%                                 $550,000
Maximum borrowing capacity at 6.25%                                 $525,000
Maximum borrowing capacity at 6.5%                                   $515,000
Maximum borrowing capacity at 7.0%                                   $465,000
 
Brisbane
Median dwelling price                                                          $482,000
Median family household income                                           $89,750
Maximum borrowing capacity at 5.2%                                   $590,000
Maximum borrowing capacity at 5.95%                                 $545,000
Maximum borrowing capacity at 6.25%                                 $530,000
Maximum borrowing capacity at 6.5%                                   $515,000
Maximum borrowing capacity at 7.0%                                   $465,000
<address> </address>
Perth
Median dwelling price                                                          $615,000
Median family household income                                           $105,750
Maximum borrowing capacity at 5.2%                                   $680,000
Maximum borrowing capacity at 5.95%                                 $625,000
Maximum borrowing capacity at 6.25%                                 $605,000
Maximum borrowing capacity at 6.5%                                   $590,000
Maximum borrowing capacity at 7.0%                                   $535,000
 
Australia 
Median dwelling price                                                          $500,000
Median family household income                                           $82,250
Maximum borrowing capacity at 5.2%                                   $555,000
Maximum borrowing capacity at 5.95%                                 $510,000
Maximum borrowing capacity at 6.25%                                 $495,000
Maximum borrowing capacity at 6.5%                                   $480,000
Maximum borrowing capacity at 7.0%                                   $435,000
Potential price direction
Dwelling prices in both Sydney and Melbourne, even at today’s low interest rates, appear to have overshot the average family’s capacity to pay. 
Our analysis suggests, based on a 5.2% three year variable interest rate, that Sydney’s current median dwelling price of $762,000 is 19% more than most living in Sydney can afford.  This ratio is 16% in Melbourne.
In contrast, and again using a 5.2% interest rate; Brisbane’s dwelling prices could increase by up to 14% before maxing out the average Brisbane family’s borrowing capacity.  Perth has about 9% spare capacity; and on average across the country there is about 7% potential dwelling price growth, given the present low interest rates.
Adelaide, Hobart, Darwin and even Canberra have some room to move – based on spare borrowing capacity and current low interest rates – when it comes to dwelling prices.
Rising interest rates
Rising interest rates could see price falls.  This is especially the case in both Sydney and Melbourne and to some degree in Perth, Brisbane and Canberra.  
A 0.25% lift in interest rates could see a 1% fall in Australian house prices.  A 0.5% lift in interest rates could mean a 3% to 5% fall in real estate prices is possible.  If variable interest rates went back to their longer term average of 7.5%, the dwellings prices could fall by as much as 10% Australia-wide.
Could rise and fall
Now they could fall; just like they could rise further across much of the country, given the current low interest rates.  
As said at the beginning, a range of other factors – supply, sales direction and confidence for example – also impact on a residential market’s direction.  
Additional factors
As seen in the case of Sydney and Melbourne – and as is now starting to emerge in Brisbane’s inner city new apartment market – several additional factors are pushing prices beyond even the maximum price levels rationalised by historically cheap interest rates.  
These include:
<ul>
<li>Chinese buyers seeking a safe harbour for their money and attracted, to some degree, by our favourable exchange rate.</li>
<li>Demand from self-managed super funds – burgeoning from the current ability to borrow for residential assets and by the banks pushing SMSFs to borrow, to help fuel their credit growth.</li>
<li>Human exuberance – we are like lemmings – there is no other way to describe it.</li>
</ul>
Final word
At present, purchasing power or the amount you can afford to borrow at prevailing low interest rates, is a major determinant of current dwelling values.  If buyers choose to max out their borrowing capacity, then dwellings prices across much of the country have got some way to grow yet.
Other factors have and are continuing to push some local price points beyond what’s rational. Interest rates, in time, will normalise.  Those markets which have broken logic are very likely to see price falls.
Buyers should be thinking about the worth of a dwelling based on a more normal interest rate setting, before bidding on it.  Investors need to think about local rental returns rather than inter-city price comparisons. 
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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Residential price predictions: Which major Australian markets have spare borrowing capacity?

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Several have claimed, in response to our recent posts, that Queensland’s rising population growth, fuelled by interstate inflows from both Sydney and Melbourne, will create a ‘mini-real estate boom’ in south-east Queensland.
Could they be right?
Well, sadly, the stats tell a very different story.
Just spend a few seconds looking at the three charts below.
<img src="/images/2014/04/14/matusik%20april%2014%20one.png" alt="">
<img src="/images/2014/04/14/matusik%20april%2014%20two.png" alt="">
 <img src="/images/2014/04/14/matusik%20april%2014%20three.png" alt="">
One would think that rising house prices would get more residents to start leaving both Sydney and Melbourne.  But maybe it is more than just this that matters.
Migrants, mostly – from interstate or overseas – need to work.  Unless more jobs are created in Queensland and wages start to accelerate, then Queensland’s population growth will continue to slow.  As we have been saying for some time, the key to a sustainable Queensland recovery is job and wage growth.
Amenity is higher in Sydney and Melbourne – it is and don’t bother trying to argue otherwise. There is nothing wrong with Brisbane; I have chosen to live here.  It just hasn’t got the 24/7 lifestyle that the southern capitals offer.  And that appears to be increasingly important to many.
Climate alone doesn’t cut it anymore.  In fact, it never did – jobs and lower taxes attracted most interstate migrants in the past.  Those attracted mainly because of Queensland’s weather were often the underemployed or unemployed.  Yet, increasingly these days, it would appear that even the down and out prefer to live somewhere else. 
So Queensland’s population growth - my recalcitrant correspondents – maybe isn’t doing what you think it is.  Fewer people are migrating to Queensland from interstate than ever before.  In contrast, population growth is increasing in NSW and Victoria.
Now, we do expect more to move north from Sydney and Melbourne as their housing markets peak.  But this ‘priced-out of home’ movement northwards looks like it has lost a lot of its previous oomph.
Queensland’s declining market share of interstate migration – as the third chart clearly shows – has been a long trend.  Something is amiss; a past connection broken.  Maybe it cannot be fixed.
In short, it looks like there is no magic influx coming to float Queensland’s real estate boat.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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No magic interstate migrant influx coming to float Queensland’s real estate boat

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So the talk is that NRAS might be stopped in the upcoming May Federal Budget.
For mine, this is one government scheme that really works for the building industry and low-income households.
We have worked on several NRAS-based new projects.
I support the media blast by Metro and the UDIA.
Read on to see what we wrote about NRAS back in 2011.
To my surprise, very few investors (and sadly fewer property gate-keepers) know about NRAS.  And if they know something about it, then they are dismissive of it.  And mostly – I feel – out of fear and/or ignorance.
Yes, like most government schemes, what NRAS is and its merits, have been poorly communicated.  And in some instances, its application further entrenches its incorrect “welfare housing” persona.  But overall, it is a great scheme and too few investors (and developers) are taking the $10,000 annual rental subsidy seriously.
<blockquote>
For mine, NRAS is one government scheme that really works for the building industry and low-income households.
</blockquote>
So what exactly is NRAS?
The National Rental Affordability Scheme (NRAS) is a federal government initiative designed to tackle the issue of affordable housing.
NRAS is not a public or social housing programme, but rather a tax incentive to provide quality housing at below market rental rates.
Run in conjunction with state governments, NRAS aims to induce more investment in the lower price range of the residential construction and rental market by offering inducements to investors who participate in the scheme.
NRAS offers property investors a tax-free incentive for each property while participating in the scheme for a maximum of 10 years.
Currently, this incentive is $9,524 per year for every NRAS dwelling an investor owns, comprising a federal government contribution of $7,143 per dwelling, available as a refundable tax offset; plus a state or territory contribution of $2,381 per dwelling per year, as a cash payment or in-kind financial support.
In return, rents for NRAS dwellings must be charged at no more than 80% of the market rent valuation and there is to be a maximum of one rent increase for each dwelling each year.
In Queensland for example, the state government maintains a list of NRAS-approved tenants, who must meet strict eligibility requirements.
When a vacancy occurs, eligible rental applicants are referred to approved tenancy managers who manage NRAS properties on behalf of owners.
Standard residential tenancy laws apply to NRAS properties just as they do for any private residential investment.
In other words, the same rules regarding evictions, maintenance obligations and responsibilities of tenants apply to NRAS tenants as they do to other tenants in the private sector.
Rents are indexed annually in line with the percentage change in the rental CPI component, except in years four and seven when independent valuations are required.
And, importantly, investors may exit the scheme at any time with appropriate notice and without any financial penalties.
In general, NRAS projects are well-located in terms of jobs, amenities and public transport.  And in general, the design and quality of NRAS dwellings compares favourably with any private non-NRAS dwelling.
NRAS properties often co-exist within developments with other non-NRAS product.
Some of the points of difference that NRAS offers to property investors are:
<ul>
<li>All the benefits of a normal investment property with added annual tax-free government incentives</li>
</ul>
<ul>
<li>Investors can apply property expenses, non-cash deductions and allowances against a lower assessable rental income, increasing the gearing benefit</li>
</ul>
<ul>
<li>More than 1.5 million Australian households are eligible to rent NRAS properties, hence vacancy risk is negligible</li>
</ul>
<ul>
<li>Tenants are selected on their potential to be good tenants and their capacity to meet strict eligibility requirements</li>
</ul>
<ul>
<li>In many markets, NRAS properties often deliver a cash flow positive investment</li>
</ul>
<ul>
<li>Importantly, self-managed super funds can purchase</li>
</ul>
<ul>
<li>NRAS dwellings are private property – no government holds or caveats.</li>
</ul>
So here we have a scheme that shows many investment properties as cash-flow positive in the first year – and these are more often than not backed up by impressive (well by residential property standards) independent financial analysis.
What’s not to like here?  You are making money from day one; providing affordable rent for those that are finding it a bit hard; have a ten-year rental guarantee (assuming the government doesn’t water down or scrap the scheme); hassle free-management (on paper at least) and a box of chocolates from the government every year.
It appears to tick all the boxes.
Several of our developer clients inform us that their NRAS product is now the first to sell to investors.
Yet the banks are scared of it and will only finance 70% of the purchase price.  Some banks flatly refuse to be involved.  So, too, do too many solicitors, accountants, loan brokers and real estate agents.
True to form, valuers are discounting end prices by 20% – one assumes because the owner can only charge 80% of market rent and most valuers won’t include a subsidy when determining value, despite it coming from the government and being a 10-year programme.
Yes, NRAS is somewhat new; it hasn’t been that well communicated and it is a government-funded subsidy.  But welfare housing it isn’t and gone are the days where one’s residential investment strategy was as simple as “buy and forget”.
Our mindset is that property investors will need to look for every break they can get.
NRAS is a break worth considering.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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NRAS is an investment break worth considering

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I must be missing something here.  I have been told that I am slow.
But for the life of me I cannot see how the recent price growth in Sydney and Melbourne (up 15% and 12% respectively over the last 12 months) is anywhere near sustainable.
Nor can I see how the median Australian house price (which apparently is $535,000) is just over four times the disposable average family household income.  That would mean that on a gross basis, the average Aussie family earns about $175,000 each year.
Hmmm, something must be amiss.
Experiment
Each article i write is kind of like an experiment.  Topics are chosen often because the common rhetoric doesn’t seem to add up.  Sometimes they get picked because I like to disagree.  Many more are actually written than published.
In most cases we go back to basics – “explain it to me like I was a five year old” – it worked for Denzel Washington in the movie, Philadelphia, and it works for us too.
So in this regard we did the following:
<ul>
<li>Went to the 2011 Census for each capital city and found the median family household income 
</li>
<li>Worked out – via average weekly earnings – which are updated by state/territory twice each year –how much, by proxy, family incomes may have risen since the last census.  There was a big variation between each city. 
</li>
<li>Determined disposable income (gross wages minus tax) using an up-to-date (2013/14) online calculator. 
</li>
<li>Recorded dwelling prices by capital for all dwellings; houses and attached product according to the latest release from RP Data. 
</li>
<li>Used AFG’s mortgage index to determine the average loan to value ratio for each state/territory.  Overall, the average equity is 32% on recent home loans according to AFG. 
</li>
<li>Applied a basic online mortgage calculator using a principal and interest loan; 30 year time frame and 5.95% variable interest rate (the average rate, according to the RBA). </li>
</ul>
Our aim here is to find out two things:
<ul>
<li>The current dwelling price to income ratio for each capital, and 
</li>
<li>The proportion of disposable family income needed to pay the average mortgage in each city today. </li>
</ul>
Now that sounds pretty logical, right?  No silly things like prices versus nominal GPD; nor is income determined by national accounts.  Just a simple comparison between what we say we earn; what we have left over, in theory at least (as day to day expenses just seem to be escalating far beyond CPI), after tax; and how much a dwelling costs to buy.  Importantly, it is measured on a city by city basis.
So here are the results – all for March 2014.
Sydney 
<table style="width: 523px;" border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td width="433">
Median dwelling price
</td>
<td width="90">
$762,000
</td>
</tr>
<tr>
<td>
Median detached house price
</td>
<td>
$818,000
</td>
</tr>
<tr>
<td>
Median attached dwelling price
</td>
<td>
$585,000
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
Median family household income
</td>
<td>
$97,500
</td>
</tr>
<tr>
<td>
Median disposable household income
</td>
<td>
$72,000
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
Ratio - dwelling price to disposable income
</td>
<td>
10.6
</td>
</tr>
<tr>
<td>
Ratio - house price to dis. income
</td>
<td>
11.4
</td>
</tr>
<tr>
<td>
Ratio – attached price to dis. income
</td>
<td>
8.1
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
% dis, income needed to buy dwelling
</td>
<td>
50%
</td>
</tr>
<tr>
<td>
% dis, income needed to buy house
</td>
<td>
54%
</td>
</tr>
<tr>
<td>
% dis, income needed to buy attached
</td>
<td>
38%
</td>
</tr>
</tbody></table>
Houses are very overpriced; attached property is heading that way.
Melbourne
<table style="width: 523px;" border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td width="433">
Median dwelling price
</td>
<td width="90">
$669,000
</td>
</tr>
<tr>
<td>
Median detached house price
</td>
<td>
$699,000
</td>
</tr>
<tr>
<td>
Median attached dwelling price
</td>
<td>
$498,000
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
Median family household income
</td>
<td>
$93,500
</td>
</tr>
<tr>
<td>
Median disposable household income
</td>
<td>
$69,500
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
Ratio - dwelling price to disposable income
</td>
<td>
9.6
</td>
</tr>
<tr>
<td>
Ratio - house price to dis. income
</td>
<td>
10.1
</td>
</tr>
<tr>
<td>
Ratio – attached price to dis. income
</td>
<td>
7.2
</td>
</tr>
<tr>
<td>
 
</td>
<td>
 
</td>
</tr>
<tr>
<td>
% dis, income needed to buy dwelling
</td>
<td>
50%
</td>
</tr>
<tr>
<td>
% dis, income needed to buy house
</td>
<td>
52%
</td>
</tr>
<tr>
<td>
% dis, income needed to buy attached
</td>
<td>
37%
</td>
</tr>
</tbody></table>
Like Sydney, Melbourne’s houses are very expensive and attached property is heading the same way.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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Price growth in Melbourne and Sydney is not sustainable

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Living in compact housing is becoming more popular across Australia due to our changing demographic makeup and lifestyle expectations.
Demography
Every second household in Australia currently supports either one or two people.  Let me repeat, 51% of households, according to the 2011 Census, held just one or two people.
It is forecast that this proportion of one and two person households will rise.  Some estimates are that two-thirds of Australia’s homes will support singles or couples within a generation.
We are not just talking about the Gen Y rental markets here, but owner-resident households too.  This trend is even more pronounced for aging baby boomers and their first generation parents.
Lifestyle
Our time-short lifestyle is making the increased commuter time from ‘home’ to ‘work’ to ‘play’ (whether by car or public transport) less acceptable.
The increasing cost of long private commutes (petrol, car maintenance and insurance etc.) and the need for several cars is making the idea of a ‘go-card’ and public commutes/walking/cycling more appealing.
<blockquote>
The most important consideration in any new investment property purchase is who is likely to be the next owner after you.
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The lag in infrastructure provision to outlying new suburbs is adding additional strain on a public which increasingly wants more now.  Waiting for things (like neighbourhood services and amenity) is no longer part of our creed.
We, as a nation, by and large, seem happy to trade ‘space’ for ‘place’.
Creating place
I often repeat this simple phrase – “density needs to be offset”.
If we are going to live in a more compact dwelling space, then that space itself, and what surrounds it, needs to better than if our home and private yard was much more voluminous.
I am not staying that detached homes are potential dumps or that living on acreage is akin to being in a pigsty*, it’s just that the room for error is far greater in tight confines.
If I have learnt anything from watching those property shows on Foxtel, it is that space is often working against you when it comes to small builds.
Better buying
Compact housing design, like for apartments, must be clever in its use of space; finishes; building amenities and services.
One of the keys to better housing investment is to match the aspirations of the resident now and into the future.  The most important consideration in any new investment property purchase is who is likely to be the next owner after you.  It’s the next buyer who determines your capital growth potential and in most cases it is best if that next buyer is an owner-resident.
So what are some rules to buying a better compact dwelling?
<ol>
<li>
Space  Now this may sound like an oxymoron, but one should always buy as much space as one can afford.  There are basic human dimensions that can only be compromised so far.  For example, living areas must allow for residents and guests to easily move around.  One needs to be able to walk around a queen sized bed.   You do need to do the three S’s (shower, shave and s… well you get the picture) in a bathroom.  Kitchens aren’t just places for Clooney coffee machines, they need workable bench space, multiple storage options; good lighting and a full suite of appliances. 
</li>
<li>
Natural light and ventilation  Think energy efficiency.  The best way to do that is via natural light and ventilation.  All glass should be full floor to ceiling, designed to ensure privacy. 
</li>
<li>
Ceiling height  Space should not only be judged on floor area, but also by ceiling height.  It’s the perception of space that is important, not just the overall metereage. Buy apartments with a minimum ceiling height of 2.6 metres, over 2.7 metres is better still.  
</li>
<li>
Lighting and ceiling type  Down lights recessed into a plasterboard ceiling.   The plasterboard ceiling creates an air gap between the concrete slab structure and room itself.  This creates an important acoustic barrier that lessens noise from the apartment above.    Make sure there is enough lighting in the kitchen; bathrooms and laundry area. 
</li>
<li>
Hard floor finish  Carpet is out and tiles or timber is in when it comes to living areas.  Carpet in bedrooms is still strongly favored. 
</li>
<li>
Great kitchens  The kitchen is usually the ‘centerpiece’ of one’s home.  But when it comes to compact living, the kitchen’s status has lifted to ‘showpiece’. Let’s get a bit specific here, kitchens should incorporate:  Stone bench tops and high quality splash backs;  Designer cupboards and drawers – in fact the more drawers the better;  High quality appliance package with cooktop, oven, range hood, dishwasher, convection microwave and refrigerator – yes a microwave and fridge;  Good task lighting is vital  
</li>
<li>
Functional bathrooms  When it comes to local moves, one of the most cited reasons why is that the bathrooms weren’t practical.  Bathrooms need to have:  Sizable showers with detachable shower rose;  Mandatory WC;  Vanity with sufficient storage and shelves; Floor to ceiling tiled walls;  Natural light and direct ventilation if possible – i.e. operable windows;  Several towel rails;  Include stand-alone bath if space permits  
</li>
<li>
Separate laundry  A dedicated laundry area that is well ventilated and capable of linen and appliance storage - in fact the more storage the better.  
</li>
<li>
Storage Think about those designer closet advertisements you see in the weekend papers or on TV.  Storage is king when it comes to compact living.  The better the storage space the better your tenant and owner-resident resale appeal.  And this is the one area that most developers – like nearly all of them – don’t do well.  Sadly, most aren’t even interested in addressing this issue.  
</li>
<li>
MPR  One bedroom apartments – for example - can sometimes be a room short.  A small multiple purpose room or study has a variety of uses for a one or two person household.  It should be large enough to have a single bed, study desk and some robe space. 
</li>
<li>
Good sized balconies  A well-proportioned balcony not only allows for outside private entertaining, but allows the ‘outside in’.  The balcony should be able to accommodate a six seat table setting and room for a small BBQ.  A glass up stand is much better than a solid balustrade. 
</li>
<li>
Aspect and view  The most preferred aspect is north, but there are occasions where south, east and west can have a more appealing outlook and view.  An inviting view is a strong lifestyle and resale benefit. 
</li>
<li>
ASC  All living areas and all bedrooms these days should have individual air-conditioning.  Key card or intercom security to building and apartment floor is also mandatory.  Any new compact home should be capable of access to the NBN or broadband wireless. 
</li>
<li>
Car parking  One car per apartment is the minimum required to have future owner-resident appeal.  When it comes to the provision of visitor car spaces, one per four apartments is ideal. 
</li>
<li>
Lifts  Lifts and their operation are vital when it comes to apartment living.  A good lift service with access to basement carpark is one lift per 50 apartments. 
</li>
<li>
Recreational facilities  Residents and guests always appreciate a common area incorporating a swimming pool and deck.  Other meeting areas are also highly regarded.  A great foyer works wonders but gyms are better done offsite these days. These rules apply always.  But become vital when looking at buying in a crowded market.  Our property pick <a href="https://matusik.com.au/files/2013/03/Matusik-Property-Picks-March-2014.pdf" target="_blank" style="line-height: 1.3em;">rules</a> also apply.
</li>
</ol>
Good investing.
*I live on acreage in Brisbane’s west and let me tell you space allows one to hide a multitude of property sins.
Our thanks go to John Egan, <a href="https://www.eganprop.com.au/" target="_blank">Egan Property Solutions</a>, for his collaborative contribution to this article.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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The rules for buying better compact housing investments 

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Given the amount of rhetoric about the housing cycle of late and the typical mudslinging that eventuates, it feels like it’s time, again, to discuss the obvious – that there is a distinct residential property cycle in Australia. 
In short
Past cycles have averaged between seven and eight years in duration. 
They have largely been smooth affairs – only on rare occasions have they rapidly peaked and troughed. Also, I cannot find – on an Australia-wide basis, going all the way back through more than a hundred years of data – when a current market low fell below a previous trough.
But I do think that residential cycles will get shorter and that they will become more ‘lumpy’.  Future lows might even drop below past furrows.  There is also likely to be less growth on an annual basis, throughout an entire cycle, than in the past.  
But essentially, what drives a property cycle and how it behaves is unlikely to change.
Cycle 101
Past cycles suggest that residential property appreciates by 8.5% per annum, with five years of upswing (where values lift by 11% per annum), followed by three years of downturn (where values drop by 5% each year).
A strong upswing is often followed by a hard downturn and vice versa.
Many things drive a property cycle – most of which are cyclical (no pun intended) – such as liquidity, economic growth, rising demand, investment returns, scarcity of supply and consumer confidence. 
But <a href="/expert-insights/investing/whats-going-to-be-the-x-factor-in-this-property-cycle">there is always a “factor X”</a> which builds influence and is often the key ingredient/s that causes imbalance.
At present these X-factors include SMSFs, Chinese buying, FIRB rules and the lower Australian dollar.  You can see these in operation in Sydney, Melbourne and emerging across Brisbane’s new inner city apartment market. 
Property clock
The property clock is a simple but effective tool which outlines where certain locations are positioned in the overall property cycle.
The graphic below outlines the key measures we use to determine a location's position in the cycle.
<img src="/images/2014/04/07/matusik%20april%207%20one.png" alt="" style="line-height: 1.3em;">
Locations are also influenced by the position of other markets on the property clock.  For example, sales activity and property values  in south-east Queensland (SEQ) often increase after values rise (and become unaffordable) in Sydney and Melbourne.  SEQ is an affordable alternative for investment to our two major southern capitals. 
Please note – that doesn’t automatically mean – as often is suggested – that values will automatically rise in SEQ as a result of overseas or interstate buying. More sales take place;  not necessarily price or rental growth. There is absolutely no statistical connection in Australia between investor origins and medium to long-term price or rental performance.
Many markets across Australia are in the recovery phase of the cycle. 
Barring unforeseen major changes in the Australian and world economies, we anticipate positive market conditions to exist for the next two years with a generic market downturn – driven by those cyclical factors discussed above – in about mid-2016.
Volumes and growth
History shows that much of the price and rental growth that takes place over the life of a property cycle mostly takes place during the recovery and upswing phases. 
The same applies to the volume of sales.
For example, assuming values rose $100,000, from trough to trough (i.e. over the typical past cycle of seven years), then up to 40% or $40,000 in gains would take place during the recovery and up to 75% or $75,000 during the upswing. 
Rents usually show a similar trend.
40% of the sales take place during the recovery phase, with a further 35% during the upswing.
Values and rents often fall, during the downturn. Sales volumes also drop.
Typically, there is some price and rental growth during a trough – but usually much less than inflation at the time. 
Sales volumes are also usually quite sluggish.
<img src="/images/2014/04/07/matusik%20april%207%20two.png" alt="" style="line-height: 1.3em;">
Now is the time
For many readers, now is a good time to act regarding buying an investment property. 
It is also a good time to buy and sell for your own occupation. 
It is really a self-fulfilling process.  We largely cannot help the property market reach a tipping point.  Once a market gains enough momentum, there is really no stopping it.  It repeats. It cycles. Best stop, as I am starting to sound too much like Rafiki from The Lion King.   
Short and bumpy and less
But keep in mind that the cycle might be getting shorter and the ride bumpier than in the past. 
I think shorter, because of the way digital media and all our gadgets influence our decisions.  Our confidence seems to wax and wane with far more frequency that in the past.  We scare so very easily these days; buy and sell on hearsay and increasingly get side-tracked away from some basic fundamentals.  Now I’ve morphed into Will McAvoy from Aaron Sorkin’s The Newsroom.  Enough already!
Bumpier because of the rising proportion of apartments and townhouses in Australia’s new housing mix.  This product is delivered in large chunks – not individually like detached houses.  This is especially the case when it comes to mid-to-high rise apartment towers.
Investors need to understand that there will be periods where – for short periods of time – supply exceeds demand. This trend is likely to take place on a more frequent basis than in Australia’s past. And this changing scene will, in turn, make us more anxious – leading to a shorter overall cycle.
Property cycles in countries and major cities that are dominated by attached dwellings and apartments, have a wilder property cycle than those based on more traditional detached housing. 
Less because of many <a href="https://matusikmissive.com.au/2014/03/05/opinion-slow-down/" target="_blank">things</a>, including already low interest rates; relatively low housing affordability compared to past cycles (i.e. high ratio of dwelling price to disposable income); low inflation, potentially deflation; employment uncertainty (less full-time jobs); ageing baby boomers; poorer (money-wise) overseas migration intake; budget deficits; peaked mining-related capex; economic and financial restructuring …this list is a long one. 
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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It's time for some basic property cycle 101

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Everywhere it’s Brisbane, Brisbane and more Brisbane! - the hottest place on the real estate planet if you believe the evening news, real estate junkies and local pollies. 
But how ‘hot’ is Brisbane really? This week, let’s peel back some layers and have a peak.
A quick peak
The Brisbane residential market is in recovery.  It crossed the threshold from trough to recovery in the second half of last year.
But recent lifts in new dwelling and rental supply, plus relatively high levels of second-hand property for sale, have placed a brake on potential price and rental growth. These are cyclical issues, not structural ones.
Brisbane is set to enjoy a much awaited upturn - an upturn in sales mostly; not much in the way of price or rental growth.
Enough new supply
Don’t get me wrong, the demand for new property is high in Brisbane.
There is a current need to build around 7,900 new dwellings in Brisbane City Council each year.  Yet over 9,000 new dwellings were approved during 2014.  There are plenty more in the pipeline, with some estimates exceeding 20,000 each year for the next three to five years.  Ouch!
At present, most of Brisbane’s new housing starts are in medium to highrise developments.  Such development is warranted (demographics; changing lifestyles; downtown gentrification; cost of living/travelling and even rent/housing prices), but the limitations on providing other attached housing supply (see <a href="https://matusikmissive.com.au/2014/02/12/opinion-highrise-oversupply/" target="_blank">here</a>) are exacerbating the inner city apartment cycle.
Since 2006, there has been a need to supply 63,000 new homes.  The amount of new dwellings actually approved was 66,000.
In short, the Brisbane housing market is at equilibrium.  Whilst previously undersupplied – during 2009, 2011 to 2013 – the recent lift in new housing starts has more than filled this void.
<img src="/images/2014/04/02/matusik%20april%202%20one.png" alt="">
Falling rents
There are about 4,400 residential properties for rent across Brisbane City (20 kilometre radius from the Brisbane GPO) and this is more than doubled just two years ago.
The city’s overall residential vacancy rate is rising and is now sits at 2.6%.  The rapid rise in properties for rent is largely an inner city apartment issue; as already mentioned, supply has increased sharply in this area.
Two-thirds of the properties for rent across Brisbane are in inner city suburbs, with 1,800 vacancies as at late February 2014.  The inner city vacancy rate is 4%; it was 3.6% late last year and just 1.4% during much of 2012.
The Brisbane rental market is approaching equilibrium with a vacancy rate nudging 3%.  Until this excess rental stock is absorbed – which, given the ramp up of new supply could take some years - rental growth, especially for second-hand apartments, will remain subdued.
Rents are already starting to fall for Brisbane apartments.
 <img src="/images/2014/04/02/matusik%20april%202%20two.png" alt="">
High resale numbers too
True, the amount of resale stock on the market is falling; but the decline (so far) has been quite slow.  About 9,500 properties remain for sale, which presents about 3% of the total housing stock across the city.
We should see resale stock levels fall across the city this year, which in turn should see some price growth for detached houses and infill compact housing.  Apartment price growth, this cycle, is likely to lag.
Article continues on next page. Please click below.
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In summary, Brisbane’s housing supply line now exceeds demand.  Price and rental growth – especially for inner city apartments – is likely to remain very subdued.
The new apartment market – particularly when it comes to those ugly monolithic towers downtown – is now a very crowded space.  Investors need to buy into projects – and within them, an apartment – with a clear point of difference.
The rising tide, this cycle, isn’t strong enough – like it was during 2001 to 2007 - to float all ships.  Overseas and interstate investors, in particular, you have been forewarned.
Sales up
Brisbane is, at best, going to have a sales-led recovery.
29,500 residential sales are forecast for fiscal 2014.  We are anticipating 34,000 residential transactions during financial 2015 being: 1,400 land sales; 20,000 detached house sales and 12,600 attached dwelling transactions.  Rising sales volumes have been steadily increasing since 2011.
This is good news – and more sales need to happen – in order to absorb the high-ish amount of resale stock on the market.
<img src="/images/2014/04/02/matusik%20april%202%20three.png" alt="">
Rents down
Rents are rising for houses; flat for attached dwellings and already falling for some apartments.
Annual rent changes in Brisbane last year were: a drop of $10 per week for one bedroom apartments (-3%); -$10 per week for three bedroom apartments (-2%); No change for two bedroom attached and two bedroom houses; an increase of $5 per week for three bedroom attached (1%); +$10 per week for three bedroom houses (3%) and +$15 per week for four bedroom houses (3%).
Already high volumes of new apartment supply are forcing rents down. Tenants can afford more rent, but currently they have ample choice.
<img src="/images/2014/04/02/matusik%20april%202%20four.png" alt="">
Price growth?
Most price growth takes place during a property recovery and upturn – more on this topic next week – but during the recovery phase of the Brisbane cycle (calendar 2014), Brisbane’s residential prices aren’t likely to rise anywhere near as much as some are advocating.
Current median residential prices for Brisbane (again, the Brisbane City Council area) are - $310,000 suburban vacant land; $546,000 detached house and $406,000 attached dwelling.
We anticipate that these middle values could increase during 2014/15 to: $325,000 vacant land (up 5%); $580,000 detached house (up 7%) and just $412,000 attached dwelling (up 2%).
<img src="/images/2014/04/02/matusik%20april%202%20five.png" alt="">
Cycle and Structure
When you boil it down to its core, property investment is ruled by two things – the cycle and structural changes.
When it comes to things cyclical, Brisbane is in a recovery, but recovery in terms of price and rent growth is likely to be much milder than in the recent past.
The supply-demand imbalance, plus some limits of local housing affordability - exacerbated by local low wage growth - is placing a limit on how far prices and rents can grow.
We anticipate values to rise between 8% and 15% for detached houses and infill compact dwellings during the recovery and upswing (calendar 2016) phases of the Brisbane cycle.  We think this market will peak in early to mid-2016.  Price growth beyond these limits could see a harder downturn (late 2016 to 2018) than might otherwise be the case.
Some readers may deduce from this that detached houses are a better investment.  For a range of structural reasons, this may not be the case.  Demographics and value (affordability) are the two major structural influences.
True, there is more short-term upside for detached houses in Brisbane, but for mine, the longer-term safer bet is for an investor to buy something attached and somewhat unique, which has the capacity to be shared by tenants and sold – in time – to an owner-resident.
Visit Michael's <a href="https://www.matusik.com.au/" target="_blank">website</a>, read <a href="https://www.matusikmissive.com.au/" target="_blank" rel="nofollow">his blog</a>, follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank" rel="nofollow">Facebook</a> and <a href="https://www.twitter.com/michaelmatusik" target="_blank" rel="nofollow">Twitter</a>, or connect via <a href="https://www.linkedin.com/in/michaelmatusik" rel="nofollow">LinkedIn</a>.
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