No surprise over the weekend. The Melbourne market continues to defy doom and gloom. Even with a record number of auctions, clearance rates remain above 70%. But the real numbers to look at are the total number of sales. Up over 1300 reported sales amongst unprecedented volumes of property on the market.
This categorically shows that the underlying factor of massive demand with a dramatic undersupply of total available properties will mean property prices in Melbourne will continue to steadily climb over the next five years. At the next state election in another four years I can foresee housing being a, if not “the” key election issue that will decide who will govern the state.
Whilst we may see the RBA leave rates on hold tomorrow due to consumer sentiment and other states property markets not fairing as well as Melbourne’s, it will not be long before the underlying pressure puts rates up again.
Investors who are looking for the safety of property need to watch out for property spruikers; Those “advocates” who will tell you “you can have your cake and eat it too”. I was reading an article last week where an advocate said there was no correlation between high rental returns and potential capital growth. What she forgot to mention is risk! If there were properties that have a positive cash flow, excellent capital growth and were “as safe as houses” then every one of these would instantly be bought by every major superannuation fund in the world. No non institutional investor would ever get a look in. The only way to get high rental yield and high capital growth is increase risk: i.e. Buy where capital growth is not usually found and hope for the best (regional areas, mining towns, outskirts of major capital cities etc)
Can some high rental return properties achieve good capital growth? Of course! Do some long shots win the Melbourne cup? Yes! But you are strongly betting against the odds. You may end up tying up your deposit funds in areas that “may” start to return capital growth in ten years, but more than likely will not. Does this mean you have lost money? No, it just means you have not made any.
Take the example of two different suburbs and their respective 30 year history of growth. Elwood has long had stable rental returns and good capital growth. If you purchased a property for $500k and received rent at $350 per week, even with no rental increase for 10 years, whilst you would have an average shortfall of $200 per week, if you sold the property, paid Capital Gains Tax, agents fees and the shortfall in rent each year etc you would pocket a little over $920,000.
Conversely, Melton has an average annual growth of around 7%. And whilst you could never get it, let’s look at a rental return of $700 per week, double that of Elwood (this is simply to show a positive cash flow, no matter how unlikely it is to get it). If you used the same purchase price of $500k, or bought 2 properties at $250k, you would be looking at about $10 per week positively geared (in other works you would not have to find any money each week). After 10 years if you sold the property and paid Capital Gains Tax, agent’s fees, the extra money you have received each week in rent, you would have around $407,000.
If you go for the high yield option, you will miss out on two things. Firstly, whilst you have not lost money, it is the opportunity cost that hurts; you will be $500,000 worse off. Secondly it is very difficult to grow your property portfolio, as your equity is growing very slowly. If you had the Elwood property, most banks would lend against this property within a couple of years. As the rental return grows, this would allow for a further property whilst costing you no more out of pocket. The exponential effects are astounding.
The argument that most “advocates” will use to go after high yield is the fact they can get you finance easier. They can buy these properties very easily: WHY!!! Because the smarter investors are not buying them!! If you can get high growth and afford to negative gear then you will be substantially better off in the long run.
If you are think about purchasing a property either for investment or to live in please feel free to contact our office. There is no obligation and the first meeting is free.
Monday, May 31, 2010
Tuesday, May 25, 2010
Market Comment - Monday 24th May 2010
It doesn't take a rocket scientist to know there is a change in the market. It does however take an astute property analyst to work out how to take advantage of the situation. Most people are worried about the proverbial "bubble" and when will it burst. The stock market is bananas and property has to be next. This is absolutely wrong. Steven Keen was promoting the 40% decline in property prices after the stock market crash in 2008. Everyone is now saying the market will crash similar to the latest stock market "correction". The catalyst for each is totally different.
The stock market runs far more on confidence, politically intrigue, yields, tax credits, profit & loss statements and balance sheets. These are more international than national as well and are far more intangible than record of fact. The Melbourne property market is about population, number of properties and number of people per dwelling. In other words physical attributes.
Whilst May has been one of the busiest on record, the clearance rate has remained well above 70% and this, in 2007 and 2008 this would have seemed great, but for some commentators they are seeing this as part of a crash. There are enough people trying to purchase property at the moment to keep the number of sales well above 1000 per week. It doesn't really matter whether this is by auction or private sale. We will see total sales carry through at or above 1000 per week until about August when they may start to trend back up. However for the time being the buyers will have it a little easier than the vendors for a while.
For those of you who are trying to purchase without the help of a trained, professional buyer’s advocate, you need to understand how much “wriggle room” there is in a deal. This does not mean you throw down a number to the agent and walk out hoping he calls you in a few hours or days to accept our offer of 10% below market value. He probably won’t. Negotiation is a two edged sword. Whilst pass ins at auction are now becoming extremely prevalent, vendors still have relatively high expectations for their properties. If you think that you are the only person who is interested in a property because it passed in to you, then you will be wrong most of the time. Whilst you are in the “box seat” for a short period of time, it does not mean you have a guaranteed purchase at any price.
If the property has passed into you after an auction, most agents will offer up a reserve. This number is either acceptable or it is not. This is your “first right of a deal at the vendors reserve” This number may not necessarily be the absolute minimum number the vendor will accept, however refusing it can allow an agent to speak to other parties. Be very careful how you handle the initial offer / counter offer after the auction. This is usually where the tone of the negotiation is set.
If you are not 100% comfortable negotiating a deal with an agent, consider using a professional on your side. Just remember the other team, the vendor, is. If you are thinking of purchasing property this year please feel free to give us a call for a no obligation meeting to discuss how we can assist you.
Ian James
The stock market runs far more on confidence, politically intrigue, yields, tax credits, profit & loss statements and balance sheets. These are more international than national as well and are far more intangible than record of fact. The Melbourne property market is about population, number of properties and number of people per dwelling. In other words physical attributes.
Whilst May has been one of the busiest on record, the clearance rate has remained well above 70% and this, in 2007 and 2008 this would have seemed great, but for some commentators they are seeing this as part of a crash. There are enough people trying to purchase property at the moment to keep the number of sales well above 1000 per week. It doesn't really matter whether this is by auction or private sale. We will see total sales carry through at or above 1000 per week until about August when they may start to trend back up. However for the time being the buyers will have it a little easier than the vendors for a while.
For those of you who are trying to purchase without the help of a trained, professional buyer’s advocate, you need to understand how much “wriggle room” there is in a deal. This does not mean you throw down a number to the agent and walk out hoping he calls you in a few hours or days to accept our offer of 10% below market value. He probably won’t. Negotiation is a two edged sword. Whilst pass ins at auction are now becoming extremely prevalent, vendors still have relatively high expectations for their properties. If you think that you are the only person who is interested in a property because it passed in to you, then you will be wrong most of the time. Whilst you are in the “box seat” for a short period of time, it does not mean you have a guaranteed purchase at any price.
If the property has passed into you after an auction, most agents will offer up a reserve. This number is either acceptable or it is not. This is your “first right of a deal at the vendors reserve” This number may not necessarily be the absolute minimum number the vendor will accept, however refusing it can allow an agent to speak to other parties. Be very careful how you handle the initial offer / counter offer after the auction. This is usually where the tone of the negotiation is set.
If you are not 100% comfortable negotiating a deal with an agent, consider using a professional on your side. Just remember the other team, the vendor, is. If you are thinking of purchasing property this year please feel free to give us a call for a no obligation meeting to discuss how we can assist you.
Ian James
Tuesday, May 18, 2010
Market Comment - Monday 17th May 2010
The clearance rate has taken up residence in the 70% zone. The whole market is faltering. Economists and market analysts will soon be talking about 40% drops in the market place again. AND AGAIN THEY WOULD BE WRONG!!
There were over 1100 sales for the week and although this was down on the 1300+ last week, it is still a huge transaction week for May. There are still two more weeks in May to go and I would expect the clearance rate to remain below 80% but if the sales numbers continue at this rate, then the market is actually not cooling off.
Whilst we have seen a lessening of the ridiculous bidding at auctions seen throughout March and April, properties are still selling, and selling well. If a property is worth $1.2M then it is highly likely to sell around $1.2M. not $1.3M which occasionally happened earlier this year. For both Vendors and Buyers alike, the calibre of your agent will now become paramount.
More and more property will pass in. More properties will have one buyer not four. Selling agents will be left sorely wanting if they are not prepared to negotiate. Buyers however, need to understand the real value of the property they are going after. If they do and they are adept at negotiation then the number of sales will continue to set records this year.
If you are considering purchasing a property you should consider the advantages of using a buying agent. We have access to property data that members of the general public cannot access, such as private sale data (ie properties that were not auctioned). We can give a very accurate appraisal of the property you are considering. We are also professional negotiators. Most people will purchase maybe 2 or 3 properties in their entire lives, we are involved in hundreds every year.
Please feel free to call for a no obligation first meeting.
There were over 1100 sales for the week and although this was down on the 1300+ last week, it is still a huge transaction week for May. There are still two more weeks in May to go and I would expect the clearance rate to remain below 80% but if the sales numbers continue at this rate, then the market is actually not cooling off.
Whilst we have seen a lessening of the ridiculous bidding at auctions seen throughout March and April, properties are still selling, and selling well. If a property is worth $1.2M then it is highly likely to sell around $1.2M. not $1.3M which occasionally happened earlier this year. For both Vendors and Buyers alike, the calibre of your agent will now become paramount.
More and more property will pass in. More properties will have one buyer not four. Selling agents will be left sorely wanting if they are not prepared to negotiate. Buyers however, need to understand the real value of the property they are going after. If they do and they are adept at negotiation then the number of sales will continue to set records this year.
If you are considering purchasing a property you should consider the advantages of using a buying agent. We have access to property data that members of the general public cannot access, such as private sale data (ie properties that were not auctioned). We can give a very accurate appraisal of the property you are considering. We are also professional negotiators. Most people will purchase maybe 2 or 3 properties in their entire lives, we are involved in hundreds every year.
Please feel free to call for a no obligation first meeting.
Tuesday, May 11, 2010
Market Comment - Monday May 10th 2010
Some of the market commentators have seen a 78% clearance rate as a sign the market is faltering. There were over 1300 properties reported as sold to the REIV last week. This only happened 8 times last year and only 3 times in 2008. The last time there were 1300 sales in a week was before Easter.
It is true the very top end is becoming more difficult for vendors. Anything over about $2M is unlikely to be attracting large numbers of people bidding. There are usually one or two interested parties for each property and the selling agents who know their “stuff” are seeking to negotiate privately more and more.
Properties under $1M the still had exceptional clearance rates. The private treaty sales even higher! Whilst most of the outskirts of Melbourne in the new estates may take a hit due to interest rates rising, the inner city properties out to about 15 – 20km will continue to grow regardless of the interest rate increases. I have stated this before, and I will state it again: the only statistic that will change the level of demand for inner city dwellings will be the Unemployment Rate. This, and the job growth is the major factor that controls immigration and therefore by extension, population growth. This is the major factor causing dramatic increases in house prices.
It is more and more important to get good advice when purchasing property in Melbourne. Many vendors have dramatically unrealistic expectations for their properties. As a purchaser you must keep yourself informed as to the current trends in the market place.
Please call if we can be of any assistance to you buying a property in Melbourne
Ian James
It is true the very top end is becoming more difficult for vendors. Anything over about $2M is unlikely to be attracting large numbers of people bidding. There are usually one or two interested parties for each property and the selling agents who know their “stuff” are seeking to negotiate privately more and more.
Properties under $1M the still had exceptional clearance rates. The private treaty sales even higher! Whilst most of the outskirts of Melbourne in the new estates may take a hit due to interest rates rising, the inner city properties out to about 15 – 20km will continue to grow regardless of the interest rate increases. I have stated this before, and I will state it again: the only statistic that will change the level of demand for inner city dwellings will be the Unemployment Rate. This, and the job growth is the major factor that controls immigration and therefore by extension, population growth. This is the major factor causing dramatic increases in house prices.
It is more and more important to get good advice when purchasing property in Melbourne. Many vendors have dramatically unrealistic expectations for their properties. As a purchaser you must keep yourself informed as to the current trends in the market place.
Please call if we can be of any assistance to you buying a property in Melbourne
Ian James
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