Underwater

A number of houses in Southern Queensland are literally underwater at the moment, with torrential rains bringing huge floods. But we've just discovered that a lot of houses in the United States are underwater in a different way.

We had visitors last weekend from Reno in Nevada, a state with a population of around 2.7 million. Beth is a broker with Morgan Stanley and she commutes to the adjoining state of California to work at her office in San Francisco. Nevada and California, along with Arizona, Florida and Michigan are the states hardest hit by the housing bust in America.

After she arrived on the Diamond Princess cruise boat, we showed Beth around our fair city and our various house styles - villas, bungalows, cottages and in-fill townhouse developments. She mentioned how so many houses in Nevada were "underwater" and explained that this is the term realtors and bankers use to indicate that the size of the mortgage is higher than the value of the home. The term we use is here is "negative equity".

Nevada has 13% unemployment and 70% of its homeowners with a mortgage are "underwater", so the problem is enormous. Having no job and being "underwater" are the 2 biggest drivers of foreclosure and handing the house keys back to the bank.

They still call Adelaide home

For many years, Adelaideans have seen our best and brightest talents head east to further their careers, or because they couldn't find the right job here at home. The widely held view in the past was that these professionals would be lost forever to the big smoke. However, a new trend may be emerging, because we have observed that some are being lured back.

Within our friends and network in the last couple weeks, "s" and "t" a medical doctor and insurance executive have returned after 10 years in Melbourne and have purchased a lovely character home in the Adelaide Hills. "e" and "a" a human relations consultant and international airline pilot are building a new house and have just returned from Sydney with their baby girl "t". "j" another Sydney based international airline pilot has acquired a fabulous cottage in an inner city suburb and is also Adelaide bound with his partner "s" very soon.

The returnees are all in their late twenties or early thirties, and have cited lifestyle reasons for coming back. Although the examples are anecdotal, the intent amongst our friends is consistent and clearly shows how liveability can outweigh any big city benefits like salaries or job opportunities. This is highlighted by the fact that the pilots regularly visit famous cities around the world, yet Adelaide is still their number one choice.

There are happy parents all round, approximately $1.8 million spent in our property market, and we can look forward to another $500,000 to $600,000 per annum in income staying in our local economy!

PS: Just before finalising this article, we've discovered that another young couple "n" and "s" who came here to work in academics and research at Adelaide University, are planning on staying in Adelaide permanently. They grew up in Singapore and studied in Boston, but would rather live here because of ... you guessed it ... the lifestyle.

Does Chinese demand really boost Adelaide?

We keep reading articles in our local/national press quoting real estate agents saying Chinese investors are buying up houses in our eastern suburbs, supporting growth in this area. Although this sounds very positive and upbeat, it is not very accurate.

Australia has rules governing foreign investment which exist in the Foreign Acquisitions and Takeovers Act 1975. Generally foreign nationals cannot buy second hand or established houses and apartments, although there are some exceptions, including permanent residents, spouses of Australian citizens, and temporary residents such as international students who can buy established homes as their principal place of residence. The bulk of overseas property investors are therefore restricted to buying 'brand new' properties, usually in recently developed apartment buildings.

So it is doubtful that there is a massive demand for established eastern suburb houses from Chinese investors, when in most cases it would not be permitted under foreign investment laws. We think that the stories may be an attempt at manufacturing confidence in order to get a listing, rather than based in reality.

If it's too good to be true...

We recently received a seemingly attractive offer to lease a commercial property that we manage - a 10 year lease with 2 x 10 year options. It was from "Bon Levi" a Western Australian "Fitness and Wellness" company who want to use the premises for "relaxation massage". According to the application, it is established in all the Australian states, will expand to New Zealand, and plans a February international launch for offices in Paris, London, Brazil, Mexico and Italy!

Upon closer inspection however, our suspicions were raised when we saw that they wanted 6 months rent free, and the application looked like it was written by someone who went to "scam school", with an immoderate number of words underlined or capitalised to make them look IMPORTANT.

We googled "Bon Levi" and found out that he is aka Ron Frederick aka "Ron the Con", one of Australia's most notorious fraudsters whose resume includes numerous convictions and jail time for fraud, stealing, breaking and entering, and aggravated assault! His speciality is setting up elaborate franchise operations that inevitably collapse, leaving investors with nothing. What amazes us is that even though he is so well known, he continues to use his own name and still manages to delude enough people to keep these schemes going.

20 Hindmarsh Square Adelaide - a flurry of activity

Settlements started happening at 20 Hindmarsh Square on 29 December last year, and we have been appointed as property managers for a significant number of investor purchasers. Most of the apartments we have listed are one bedroom apartments either overlooking the square or high up in the building with great hills views to the east.

The apartments are breaking new ground with rentals being achieved of up to $430 per week for 12 month leases on an unfurnished basis. This is a function of very strong market demand and a product that is premium quality.

The one bedroom apartments have generous sized balconies, and many have an ensuite bathroom, a guest powder room and a separate laundry/utility room. Residents have full use of a heated pool, steam room, gym and spa accessed at level 2 and located in the adjoining 5 star hotel.

The demographic trend for these apartments is young medical practitioners relocating from interstate/overseas or young professionals and post-graduate students from Saudi Arabia and the United Arab Emirates.

Click here to see more photos

Click here to see our rental listings in the building

Click here to see our sale listings in the building

The World's Tallest Building

The Burj Khalifa (formerly known as the Burj Dubai) officially opened last week, and measures in at some 828 metres over 160 floors!

20 Hindmarsh Square in Adelaide, which has also just been completed, is approximately 45 metres high. So even if you stacked 18 of them together, the resulting structure still wouldn't be as high as the colossal building in Dubai.

The Burj Khalifa sits as the centrepoint in an 11 hectare garden and contains over 1,000 apartments, a 160 suite hotel, 37 floors of offices and a 4 level club. The apartments were sold off the plan and apparently you can buy one now at 50% less than the price at the height of Dubai's property boom in 2007!

2010 Adelaide Apartment Predictions

Here we are at the start of a brand new decade, and the big question that interests us is: "What will happen to apartment values in the City of Adelaide over the next 12 months?"

Our educated guess is that the better quality apartments in the middle price range will increase by around 6.5% to 8%. This means that a well located 2 bedroom, 80 square metre, apartment with a secure carpark that sold for $470,000 in December 2009 could sell for around $505,000 in December 2010. A 110 square metre with 2 bedrooms, 2 bathrooms, secure carpark, storage cage, and a good size balcony in the same time frame could go from $650,000 to $705,000.

The macro factors that influence capital growth in the City apartment market include:

• Apartment supply. It looks like there won't be many new buildings completed during 2010 because developers are still having a tough time securing funds from the banks which are demanding a lot more equity contributions and very high levels of pre-sales. If supply of new apartment stock diminishes, price increases for existing stock can occur.
• A tight rental market. The rental demand for apartments in the city remains strong. It is underpinned by the international student market as well as the professional couples and corporates attracted by our vibrant city lifestyle, security, and the facilities offered by modern apartment buildings.
• Baby Boomers. Each year we see more of them coming into the City to live. The "lock and leave it" appeal of apartments, and the cafe lifestyle continue to be the strong drivers for this demographic.
• Good investor returns. Interest rates have gone up, but so have rentals, and buying an apartment as an investment is still a very big part of the city marketplace. This includes country buyers as a future city base or for the kids if they migrate to the city for uni at some time in the future.
• Consumer confidence. This is the feel good factor and our perception of how we feel about ourselves and our confidence in our economy. We are looking ok on this one but sentiment can change quickly and when confidence drops, people stop spending and buying apartments.