Market Comment - Monday April 18th 2011

It was great to read the excellent article from Chris Vedelago in Sunday’s Age. We have written many times since 2007 about clearance rates and what they actually mean. VERY LITTLE. If you have a voluntary system where agents are averse to letting the public know when they are not selling properties under the hammer, you can never expect to get an accurate picture of what is happening in the market place.

The majority of the properties we purchase at JPP are advertised for public auction. That is because about 75% of what we purchase is within about 25kms of the CBD. On an annual basis, JPP would purchase around 20% - 30% of the properties we buy, actually under the hammer during an auction. Of the seven properties we were going after last weekend, three were purchased Thursday & Friday, one passed in and was negotiated at auction on Saturday and two were purchased under the hammer. We were outbid on the other one. We purchased 2 from 7 under the hammer yet all were advertised as sold at auction in the papers.

The Herald Sun’s Saturday headline “Bubble Bursts”. To look at a very small segment in the quietest quarter of the year and say the bubble has burst is a beat up. There was 8.7% growth between the same quarter in 2010 and now. So over 12 months, and this is still a small time frame, we can see the market is still very resilient. Are we expecting to see growth at 20% this year, of course not! But the top third of suburbs in Melbourne will still perform at about 8% or so.

Investors are coming back into the market but will not spend money on rubbish. Smart investors are always buying when the market is flat. A property that is poorly presented, overpriced, or has a badly managed campaign may not only struggle to get a reasonable price, but may not sell at all. Most investors are looking for long term capital gain. This means they look for properties that have the best attributes that cannot be changed, such as location, good orientation and easy access to rail transport and public amenities. Investors will still pay fair money for these properties.

Population growth again was in the papers last week. And although the population growth is slowing, it is still substantially outperforming numbers of properties being built. Whilst the Supply continues to outweigh Demand, property prices will continue to rise. It is not a guess, nor is it a real estate agent talking, it is simple economics.

Is it easy to know exactly what the market will do? Of course not, if anyone knew the future, Powerball would be very boring!!

If you are considering a purchase of a property please feel free to give us a call or drop into one of our information nights

Ian James

Market Comment - Monday April 11th 2011

It’s very hard to go a week without numerous reports hitting the headlines suggesting a possible market crash. Despite facts being stressed concerning our population surge and shortage of ‘useable’ housing, a minority find a public voice to beat the drum of impending disaster. No market or investment is risk free, which is why it’s important to protect and minimise risk through a carefully strategized plan prior to making any financial decisions. Weekly we witness buyers bidding at auctions with the heart rather than the head, often paying above market value to secure the house of their dreams. However the market we’re experiencing at present is a perfect ‘negotiators’ market’, and with a little patience and the right advice, its possibly the best market to step into before we start to see prices creep upwards once again as stock diminishes as it always does during the winter months.

In a balanced market, it’s important for vendors to keep expectations at a conservative level if they’re to be assured of a successful result. Agents are reporting good stock for the next month, however as it diminishes we’re likely to see competition push property prices higher (all be it at moderate levels), as our inner and middle ring suburbs suffer once again from low supply and continuing high demand.

However anyone thinking the market is about to crash would have done well to accompany us on the auctions this weekend. We attended 5 auctions – all had huge crowds, multiple bidders, and achieved above average prices which proves we’re a long way from the doom and gloom scenarios often spruiked by the bubble ‘naysayers’. Considering there has been a lot of stock on the market of late, it’s no surprise to see a plethora of second home buyer’s either upsizing or downsizing, as many sell before they purchase, and this is the main force behind

However although some of today’s results proved positive for a number of vendors, there is still plenty of stock on the market for buyers to take their pick - and with good negotiation skills - healthy opportunities are there to take advantage of.

3 Central park Rd, Malvern East – Is a beautiful 5 bedroom Edwardian house on a corner block of 925 sqm. However with a heritage overlay it was only ever likely to attract interest from home buyers rather than developers. A crowd of at least 150 people attended this auction. Quoted at 2.5 – 2.7 Mil and with such seemingly healthy interest, the auctioneer didn’t waste any time in asking for an opening bid right at the top of the range. He many have unwittingly priced out a few bidders who were hoping to start at a more conservative figure, and when no one offered to step forward, he placed a vendor bid of 2.7 Mil and invited jumps of 20K increments.

A good 7 mins later and almost looking as if it would pass in with no interest, two bidders stepped up to take the challenge. The price made its way to 2.82Mil before the action ceased. The pause to go inside and talk to the vendor’s failed to see it placed on the market despite the price being a good 100K above the quoted ‘interest’ level. The agent - giving the well-used excuse of what a hard decision it is for the owners to make a choice after 33 yrs of residing in the home, and assuring the crowd it wasn’t far from being placed ‘on market’ - enthusiasm diminished. The property passed in, only to be sold later via negotiation for 2.86 Mil. (Price undisclosed)

Just round the corner – 28 Wheatland Rd is a property that couldn’t quite match the prestige of Central Park Rd, but attracted an equally large attendance. This 3 bedrooms, 1 bathroom, un-renovated Edwardian, on 601 sqm of land, had a quote range of 1.4 – 1.5Mil. The opening bidder, who had taken time prior to the auction to question the auctioneer openly during his pre-amble on the risks of purchasing a property in case it was vandalised prior to settlement (!) - tried his luck at opening the event well below the quoted range at 1.1Mil. He was quickly outbid by the agent with a vendor bid of 1.35Mil, and from there on 3 bidders took the challenge pushing the price upwards until it was placed on the market – without pause to consult the vendor – at 1.45Mil The pace didn’t slow, and the house sold under the hammer for 1.490 Mil. (For once within the quoted range!)

29 Carlton St in McKinnon quoted at 1.020 to 1.120 Mil – is a beautifully renovated Californian Bungalow, on 460 sqm of land with 5 bedrooms, and therefore was always going to attract a large crowd of home buyers. Situated in the heartland of the McKinnon School zone – a very tightly held neighbourhood with little stock - the crowd easily bordered on 200. There were four buyer advocates in attendance, none of which were successful for very good reason. Opening on a genuine bid of 1.1Mil, this auction literally ‘flew’. In no time at all the property was placed on the market at 1.25Mil however that wasn’t the end. How any valuer will price this one is beyond me. Three buyer advocates didn’t even bother placing a bid as two buyers took the bit between their teeth to push the result way passed market value to a whopping result of 1.417 Mil. The highest price achieved so far this year in McKinnon.

Catherine Cashmore

Market Comment - Monday 4th April 2011

The market is beginning to tread water. Coming into Easter we still have a huge amount of property on the market which has been slowly selling when the vendor meets the market. The REIV has issued the clearance rate at 61% but this will almost certainly drop into the 50’s when the 117 auctions with no result are tracked down and added to the clearance percentage.

The market is fragmenting. Over $1.5M is beginning to soften. There are many properties still on the market that have failed to sell at auction and seemingly, no shortage of vendors still happy to try their luck. Whilst the best properties are still selling with multiple bidders, the properties that are overpriced, or simply presented at their best, are struggling to sell. This leaves more supply than demand and vendors in greater difficulty than they have been in to sell for the past 6 months.

The $400 - $1M market is by far the strongest. This is the investors’ market place of choice. This segment has multiple bidders going after multiple properties. This is the strongest performing segment over the past decade and should hold the least risk for investors going into the next decade.

We have seen the Australian Bureau of Statistics come out with the population statistics for the year ending June 2010. For all the naysayers who believe the housing market is about to fall into a screaming heap and drop 40 - 60 per cent, just have a look at the population increase in Melbourne and the HIA is saying the building of residential property is slowing. Melbourne’s population has increased 605,000 people since 2001. This is the fastest growth in the country, and faster growth than any other time in history.

With the supply of dwellings falling and the population increasing, rents will go up, property prices will go up, and our children will find it hard to purchase their first home, anywhere but on the fringes of the CBD. It will be up to our state and federal governments to assist these people, however it will be up to market forces to determine what a 2 bedroom apartment 5 kms from the CBD will be worth in 10 years’ time. In my opinion it will be easily over $1M

We can talk about the US housing crisis, where their unemployment has taken a beating, where their home loans are “non-recourse” and where they built a ridiculous amount of homes and then sold them to people who could not afford them, but none of this has occurred in Australia, specifically Melbourne.

This is not like a carbon tax, where you can like it or not. You can believe it or not, you can vote for it, or as in our case you can not! This is market forces on an essential element of our natural lives. Breathing, eating and then shelter. It does not matter whether you rent or wish to buy, you need a roof over your and your families head.

Property prices will fluctuate over short periods of time, however over the long term we will continue to see property prices grow at approximately 7%-10% throughout Melbourne. The top third of suburbs will be at 9% - 10%

If you are considering purchasing property please do not hesitate to call us or drop in for a chat.

Ian James

Director

JPP Buyer Advocates