Million Dollar Melbourne

It's 6pm Saturday and we have been to 16 auctions (less than usual because there is a real shortage of $1 million-plus auctions that are worthwhile covering) and the James Clearance rate is 81 per cent.  

Please note our Chinese translation and Wormy to the right (our price opinion and a general guide to trends over $1 million-plus, nothing more.) 

The dominating issue of the week is stock levels. Iain Carmichael, a respected 20-year-plus veteran and director of Bennison Mackinnon, said today that this market has the lowest levels of stock, at the top end, in his memory.

James Redfern of Marshall White, also an agent of 20-years-plus, agrees and adds that prices are rising and, although we are not quite back to the peak, we seem like we will get there soon.

Jeremy Fox, director of RT Edgar, says buyers are starting to get stressed. How long do you wait? Do you pay up now or sit it out and hope prices will drop, which he adds, no longer looks like happening any time soon. He then mentioned two properties as evidence: 43a Berry St East Melbourne, a brand-new family home, quoted and on the market at $2.2 million, sold for $2.7 million; and 760 Drummond St Carlton (see our rating below), a terrace in need of significant renovation (we estimated would cost up to $800,000) and no car park. It was quoted and on the market at $1.1 million and sold for more than $1.8 million.

Let's focus on the demand and supply equation. Why are stock levels so short?

Well, first and foremost, the GFC has squashed the natural flow of the market and we are now in a Joseph Heller Catch 22 situation. The Catch 22 theory is "If you went to war, you were crazy and therefore you didn't have to go; but if you said you didn't want to go to war, you were sane and therefore had to go to war."

At the moment, potential sellers do want to buy. They need a place to live, but they can't find anything to buy, therefore they are not selling. There needs to be selling pressure to act but with interest rates so low and now a rapidly improving market (from a sellers view), there is the opposite pressure on sellers and that pressure is to hold. This means more and more buyers (eg overseas influences plus natural increases) are looking at less and less stock, therefore, through demand and supply, pushing prices up further. As prices continue to go up, the "pressure" on sellers to hold increases and even less stock is made available in the established homes $1 million-plus market. Catch 22.

Further insights

Increasing demand:
(1) Expats. Tim Picken of Jellis Craig said today that many of his recent buyer enquiries have been expats wanting to return home and he cited the sale of a timber double-fronted home at 9 Carrington St in Hawthorn (1.3 million-plus quote and sold for $1.685 million) as a prime example. Four of the bidders/bidders if they had a chance, were expats.

(2) If I hear how expensive Melbourne homes are one more time, I will go heee. Expensive compared to what? Certainly not to Chinese buyers. These are notes supplied from Su our translator.

• 1 million AUD in Beijing would buy someone only a middle-tier apartment, and definitely not a house as we know them here.


• It is quite common for Chinese parents to buy a house for their children living as international students in Australia when they gain permanent resident status. However, because the Foreign Investment Review Board recently changed its policies regarding foreign property ownership, many of these parents are now buying these homes while their children are still studying (and haven't gained permanent residency).


• The large majority of Chinese business people or investors who can afford to immigrate to Australia are very willing to spend more than 1 million AUD on a house.


• After the US, Japan, Britain, and Germany, China has the fifth largest number of millionaire households worldwide.

(3) Another interesting point re demand pressures was from Peter Kennett at Hocking Stuart:

• Last year: the GFC, kids growing, let's not trade up honey, let's renovate, find a builder, got one, let's start.


• This year: the GFC, kids growing .... can't find a builder, let's look for a new home.

Not sure we have noticed a builder shortage, but we will do some research over the next month.

Decreasing Supply:
(1) Richer people no longer selling
Peter Kennett makes another very interesting point. Of the six bidders and numerous other enquiries he had on 7 Cosham St Brighton (sold today for $2.97 million), the majority were looking to buy and NOT sell their home but to hold their current home as an investment, if they were successful. This means less supply of saleable homes.

(2) More

There are some other issues out there in Million Dollar Melbourne that relate to stock levels.

Buyer stress

Today the bidding process at auctions was sluggish - in many cases, it was not spirited and people tended to be grim-faced rather than excited. There's a feeling that people are loath to pay the prices being fetched at auction because they don't want to acknowledge that the market is rising, that the market has changed. But they're also accepting (being forced) that they have to put their hand up, otherwise they will miss out. People are realising that properties won't be falling in value any time soon, nor will they be falling into people's laps for a cheap pre-Christmas 2008 price today.

Old stock

When the market is rising, don't overlook old stock - properties that have been on the market for some time and that may seem stale. Properties tend to go stale generally for price reasons. But if the asking price has dropped or the market goes up or both, does that not then negate that price reason?

Older properties are selling in this market. In the past week, we're aware of six sales where the houses had been on the market for quite some time: one for eight months, one for six months and one for four months and so on. Properties in Balwyn, Hawthorn, Toorak, Malvern East and so on. Most were good houses and some received exceptionally high ratings from us, so it was simply a matter of matching price expectations with the market and then these properties sold. All of these have sold this week and all well over a million dollars; eg 53 Kinkora, 11 Crest, 4a Macgregor, 11 Torresdale and so on. This is also a sign of a rising market.

We bought old stock this past week. Yes, there is off-market, alerts and the auctions, but buying good homes is not all about a need for speed. To buy well, you need to look at all options.

A big thank you to Peter Small, director of Urbis, for his Another Point of View interview.

Thank you for the incredible response to our TV videos. Please keep saying hello at auction - we like it.

If you know anybody who wants to be an auction reporter, please let us know. You need to be able to use a camera, have a car and it's paid. We are looking to expand our auction coverage and we can't get to the outer areas, as well as bid and report on inner city auctions. One more thing - of course, it's a Saturday job. Please contact adam@james.net.au.

Architect Adam's article this week is on Andrew James's Gasgoine gem up for auction this coming weekend.

And, finally, a big thank you to editor Melinda Brown who helped greatly in putting together this edition of Market News.

Buy Well

Mal