Newsletter Archive

March 29th & 30th Weekend, 2008. Melbourne.

Million Dollar Melbourne.

Not a lot to report at the higher end this week as we had a fair run on good 2, 3, 5 million dollar homes before Easter.

One property that I enjoyed visiting last week was 29 Swinton Ave Kew. It had a magnificent entry and lounge room and some lovely art deco period features. However the home did not flow incredibly well and upstairs the bedrooms while quaint didn’t work well. Our Home Rating (click here for worksheet) of 29 Swinton Kew was 661/1000. At the auction there was not a lot of excitement and as expected it passed in on a Vendor Bid. It did however sell later for $1.8 million.

Overall the market at the top end has definitely eased and this is mainly due to reduction in the number of bidders per properties. Last year when we were buying properties we had multiple competition at all levels ( 6 million - Grange Road - there were 4+ bidders and Sackville St - over 5 million which we also bought had 7 bidders during the auction. This is important to understand if you get into a pass in situation and if we look at 26 Victoria Road Canterbury it had only one bidder, passed into that bidder but still sold for a very strong north of $4m undisclosed price.

A number of interesting upcoming sales in April which may  confirm once and for all where the market is headed for the next 6 months. In our opinion the market still has some strength at this level , albeit lower than last year so you do need to have a two prong strategy. One if its a pass in or interest in unproven and one if you have competition.

1st and 2nd Homebuyers

In the current market the number of bidders at auction has decreased. Is this good news for buyers?

At auction there is less competition amongst buyers with maybe one or two bidders. With less competition however there is a higher chance the property may be passed-in to you and this raises another area that you need to be competent in, the post auction negotiation. This is where your real estate homework will stand you in good stead. If not, how will you know if you are overpaying for a property. The $500,000 to $1,000,000 price bracket is very competitive and it is imperative that in this current market you are prepared to negotiate with the agent and vendor.

What do you do if nobody bids, the property is passed-in and you would like to buy the property? The most important issue here is you must make a bid to be in the running to negotiate after the auction. Matching the auctioneer's vendor bid will enable you to do this. As the final bidder this gives you  a certain time period (at the agent's discretion) to either meet the reserve or walkaway from the sale. Again this is  where your real estate knowledge will help you.

Strong results are still emerging for quality properties such as 110 Deakin Street Bentleigh East (above), auctioned by Hocking Stuart Bentleigh on Saturday, selling for $805,000. An excellent result in a residential street that carries substantial traffic.

Architectural advisory

Looked at several auctions on the weekend for properties that needed various degrees of renovation.

As you may be aware the market overall has eased a little for all homes and has eased a little bit more for homes in need of Tender loving care. That does not mean that there is no market for good quality properties in need of renovation. A good example is 4 Brook Street Hawthorn which was sold on the weekend under the hammer for $2.2m with four bidders. I went through this house earlier in the week and it found it to have a mixture of plusses and minuses. On the plus side ornate rooms with  tall ceilings, on the negative side south facing rear next to a block of flats. In the end $2.2m was a fair result as it would have got more without the negatives but it still sold well via a James Tostevin Marshall White campaign.

Another property I visited prior to auction was at 2 Lytton Street Kew. It sold on Saturday in excess of $3.2m and in my opinion this was a very strong price for the seller, and Nick Elmore from Jellis Craig is to be congratulated on the final result. The house itself was a 1980’s post- modern style in a good position with a north facing rear however it had a dysfunctional floor plan with numerous internal and external steps. It was not obvious to me how this dated house could be improved with anything other than the help a bulldozer. for essentially land value was , Considering the sale of a similar block size in the same street sold for under $3m in the peak of the market last year, the final result of $3.235m is evidence of a good selling result.

Investors

Buying an investment property – in this market.

If you are anything like me, a real estate tragic, the most exciting thing about a Monday morning is collecting the age from the front yard and looking at the weekend’s results. The figure that I find interesting is the clearance rate (this weekend 63%), and why how it is interpreted. In the newspapers, “Sold” at auction generally means sold under the hammer, sold three business days before the auction date, or sold by negotiation to the highest bidder after the auctioneer had passed the property in. This means the actual percentage of properties sold under the hammer could have been as low as 20 or 30% on the weekend.
Why is this important to you? For investors, it is all about the maths. Pay too much (i.e.: a poor negotiation on your part) and the ability to grow your portfolio is hampered by virtue of the fact that the equity in the property you paid too much for lags well behind. Similarly, buy in an area that you think is a real hot spot, because values have increased by 30% annually for the last 2 years. How about the last 10 years, or 25 years? Is this important? Yes. Over the last couple of years real estate has been very strong, but is it sustainable at that rate? Who knows? But probably not. Historical growth over a long period of time is a far better and safer indicator.

The difference is significant. Buying a $500,000 property in an area that realises 4% annual growth over ten years instead of an area that realises 10% annual growth over ten years could mean you are over $500,000 worse off (at 4% growth in 10 years it’s worth $740,000, at 7% growth it’s worth just under $1.0M and at 10% growth it’s worth nearly $1.3M). There are a lot of other factors to consider such as the amount of rent, depreciation on the building, depreciation on the fittings and fixtures, vacancy rates, body corporate fees, stamp duty (varies state to state) and management fees the real estate agent will charge you. All these costs significantly impact the cash flow of your investment on a year to year basis.

Two properties I looked on the weekend were 104 Hudsons Road Spotswood. We rated it at 749/1000 – click here for full rating. It sold for $543,000 under solid competition of 3 bidders which was above expectations with the reserve being $490,000.
The second property I went and monitored was 60 Illawarra Road Flemington.

This sold for 725,000 just above reserve of $700,000. Cute house with a nice feel that would rent well. North facing with good off street parking from front.

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