Market Comment - Monday March 30th 2009

With a clearance rate of 77% on only 390 auctions and private sale negotiations sky rocketing to 735 last week, a number only topped once last year (751 in first week of march), we can see the market is moving in a very positive direction. With the exception of the Labour Day weekend over 1000 properties per week were sold throughout March. And they are not solely in the first home buyers’ realm. There has been a 10% increase in total sales this week compared to the corresponding week last year.

When there are plenty of people interested in a particular property then going to auction can be sensational. A property on Saturday in Heidelberg, unrenovated 3 bedroom 1 bathroom home on normal land size, quoted over $500k, went under the hammer. In front of a couple of hundred people, there were at least ten people bidding. The auctioneer announced the property “on the market” at $560k. The property sold under immense competition for $702,000 to the delight of both vendor and auctioneer.





If you want to visit an open for inspection at the moment, be ready for the queues. A three Bedroom townhouse in Doncaster quoting $400k+ and you had better not be in a hurry.

At auction with enough competition the desired price is usually met or exceeded. But more and more agents are retreating to traditional “sale by negotiation” methods. Don’t be fooled by advertising lines like “Sale by set date” or “Sale by Tender” or “Sale by sealed offer”. Almost always there will be a small disclaimer saying “Unless sold prior”. This is the case with an auction as well.

It is now almost universally agreed that prices on properties below around $1.5M have stabilised or are likely to increase in price. If you wish to purchase an investment property, your first home or trade up into a more expensive home after getting a sensational price selling your own existing home, then you had better be prepared for some serious “one on one” negotiations with some very experienced negotiators.

In any negotiations, whether it is buying a house, negotiating a divorce settlement or trying to free hostages, one of the key steps is to place a professional negotiator between the two decision makers. Every good real estate agent does this. When was the last time you negotiated in front of the vendor? This is one very simple but incredibly valuable lesson to be learnt when negotiating for hundreds of thousands of your dollars. Representing yourself in your own negotiation is as intelligent as representing yourself in court.

If you want to know more about negotiation or would like to purchase a property in Melbourne well please give me a call or write a comment.

Ian James

Market Comment - Monday March 23rd 2009

Finally the media is starting to look past the clearance rate to the numbers of properties sold. This week’s sales of 1082 properties leaves only Labour Day week as the last time in 5 weeks turnover has dropped below 1000.

I was invited to speak at the Geelong Property Expo yesterday and one of the questions I was asked continually but in a different fashion was, ‘If the first home owners boost drops off in July, will the market drop”. There was an academic on the news last week from western Sydney who said the market would drop at least 20% and probably more. He went on to say we were looking at a US style housing failure.

He was obviously looking for some sound bite publicity. First home buyers, whilst very prevalent in the mark place have only moved from 17% to 24% yet the market has increased from an average turnover of fewer than 950 per week to 1073 per week over the last 5 weeks. These figures are the REIV reported data. Everyone who has any money and a secure job is flooded to the housing market.

What other investment can offer a 4.5% yield whilst historically through recession still looking at 10% growth over the long term. You can’t get that at the bank, and I don’t know anyone rushing out to increase their share portfolios. Bricks and mortar have always been the cornerstone of wealth creation. This year is a little different to others. Loans are cheap and returns are excellent.

A property for $500k bought now should be revenue neutral within a year or so and should still appreciate around 5- 8% this year and over the next ten I believe should be in excess of 10%. You only need $130,000 in equity (not cash) to be able to achieve this. If you buy good property in good locations for the right price you will do well.

Call us for a no obligation meeting to discuss your next investment property. If you are a first home buyer or upgrading your home we can help you save time, money and effort.

Ian James

Market Comment - Monday March 9th 2009

We have seen another surge this week in sales in Melbourne. Sales were up 1.3% on sales for the same week last year and only retreated back 30% on last weeks sale numbers. This time last year Labour Day weekend showed a reduction of over 40% on the previous week. Don’t be confused by solely relying on the auction clearance rates or numbers of auctions. The market is changing and auctions are no longer the preferred method of selling, even in Melbourne!

People are putting their money in the only safe bet in town right now. And they are proving it in droves. Good land in good locations with tenantable, or the ability to easily renovate to be tenantable, properties are selling very quickly. Whilst the banks maybe making many margin calls a day on people who invested and leveraged heavily in the stock market, those who have leveraged to buy residential property near the Melbourne median price would not be getting those calls. In fact with the increase in value over the last 5 years, most people who have bought property in Melbourne are leveraging to purchase more property now.

Under a margin loan arrangement, it is the investor's portfolio of shares or managed funds itself that provides security for the loan. The risk is that market fluctuations reduce the portfolio's value to a level where it no longer provides adequate security for the loan. Once values of shares have fallen far enough so that the ratio of the loan to the portfolio value exceeds the maximum set by the lender, it will step in and make a "margin call".

The lender will ask for additional funds or assets to reduce the loan size and bring the loan-to-valuation ratio (LVR) back below the maximum. If investors are unable to make the extra loan repayment in cash, they may be forced to sell part of their investment.

Melbourne residential property prices close to the median will have dipped only a couple of percentage points in the past twelve months compared with the stock market shedding about half its value and substantially more in some cases. This year I believe property prices under $600k will grow by 5% - 10% based on supply vs. demand.

Anyone with cash can buy residential property in Melbourne and get between 4-5% return on investment, whilst getting good long term capital growth. Only some very special bank accounts are offering above this return and there is no potential capital growth beyond the yield.

Anyone with equity can borrow at around 5% for residential property; this will be almost fully covered by the rental return allowing for a secure capital growth at a leveraged rate which should not attract margin calls.

Good property is both hard to find and then very difficult to purchase. JPP Buyer Advocates can assist you in purchasing good property at the right price. It doesn’t matter whether it is to occupy or as an investment; buying good property will bring good long term results.

Give us a call or drop us an email. Our first meeting is absolutely obligation free.

Ian James