If a vendor won’t meet the market, the property will not sell

If a vendor won’t meet the market, the property will not sell

By Catherine Cashmore
Tuesday, 20 September 2011

There was a very interesting article by Chris Vedelago in The Age on Sunday concerning listings in Melbourne that have been hanging on the market for an extended period of time, and have subsequently dropped significantly in price.  I’ve often commented how good property will sell well in any market, and it’s an adage that carries a lot of weight.  Therefore, considering the catchy headline “The strange cases of the good houses that just won’t sell”, it’s worth noting in more detail why these Victorian listings in question haven’t sold, and whether we can attribute it to the current doldrums surrounding the real estate market, or if there are other factors to take into consideration.

2506/83 Queensbridge Street, Southbank, has reportedly been on the market since October 30, 2010. Listed initially at $2.15 million, the asking price has now reduced some $500,000 to $1.65 million. This property regularly features on SQM’s top 10 most discounted list. The property is a luxury penthouse apartment with a family-sized interior and views extending to Mt Martha.  Situated on the border of what is now considered the world’s “most liveable city”, it’s also in an area serviced by the best amenities Melbourne has to offer – so why hasn’t it sold?

Melbourne’s Southbank – once an industrial area – was initially converted into a high-density, high-rise city, in the 1990s as part of the urban renewal program.  Purchasing in a penthouse may sound like the lap of luxury, however it’s a common misconception and subsequently there is a very limited buyer market for this type of development.  Typically when built, high-rise developments will sell at the lower levels before the upper levels.  This is because buyers like a sense of relativity.  There’s something rather unnatural about being perched up high.  Even though the adverts spruik stunning city views and close proximity to inner-city amenities, if you dip into the archives and read about the experiences of residents who have lived in these developments, they often paint descriptions akin to living in a hotel room rather than a ‘”home”.  The lifestyle lacks a sense of community and can be very sterile – therefore there are often reports of renters not fulfilling their promised term of tenancy, units having high turnover rates, or views being built out – (not to mention the high owners’ corp fees which generate into the thousands – the higher up you are, the higher the bill).

This unit is right next door to Crown Casino.  The location may be OK for a holiday destination, but how many home buyers would want a large casino on their doorstep? Apartments like this are always sensitive to market movements and traditionally suffer high volatility. They appeal to a luxury elite market (often an Asian market who are more adept to high-rise living) and considering the global tribulation  we’ve experienced in recent times – there’s obviously not going to be a queue of buyers lining up for this type of development.  It passed in earlier this year for $1.35 million on what was reportedly a genuine bid – with a reserve of $1.6 million. The last comparable apartment to sell in the block went for $1.1 million at the end of the boom in 2007.  Therefore if you factor in the rises and falls the million-dollar-plus market has experienced since 2007, $1.35 million wasn’t a bad achievement!  After a year of marketing obviously the vendors aren’t under pressure to sell; therefore they may be able to hang out until we move into the next upturn of the property cycle and buyer activity increases.

23 Gallica Close,  Niddre Situated 13 kilometres north west of the city, this property was initially listed on April 23, 2011 for $1,195,000, however the price has now reduced to $890,000. The house itself is unusual to say the least.  The room dimensions are compromised by a circular design, and it’s quite obviously something that would only appeal to the “odd” property buyer.  Furthermore, the street is on a very steep gradient, which further reduces its appeal.  I recall attending an auction in this street some years ago and struggling to stand upright or even obtain a secure foothold. Trying to sell a house like this in a soft market is always going to present a challenge – and even more so if not priced correctly.  As is typically the case when properties are overpriced, the vendors have only held the home for a short period of time.  This property was last purchased in March 2008 for $900,000.  They’re obviously hoping to cover their expenses and get a profit on the price they paid, however with a property like this, it’s not going to be easy in the current market.  It’s now listed for auction with a price quote of $890,000-$960,000.  Maybe it will have better luck finding a buyer as we move into the warmer months.

118 Carpenter Street, Brighton This might sound like a dream address.  After all, it’s close to Brighton’s top shopping strips, walking distance to middle Brighton train station, and in a suburb that’s tightly held because of its bayside appeal.  Considering it’s only 11 kilometres away from the CBD, you may be wondering why it hasn’t been snapped up.  Take a closer look and you’ll also see it also backs onto a train line, has a small land size for the area, and is situated next to a funeral parlour.  The home was initially listed on June 4, 2011 for $1.15 million, however after a few weeks and no result, the price was reduced to $890,000. Unfortunately it’s another example of vendors trying to get a profit after only a short period of ownership.  The house was initially purchased just over a year ago for $850,000 and therefore it’s unreasonable to expect a much higher price considering our current flat market conditions.  However in this case the price reduction worked.  The house sold earlier this month on September 2nd for a result just in excess of the last quoted price.

1/9 Albert Place, Hoppers Crossing, – Situated 23 kilometres west of the CBD, Hoppers Crossing isn’t one of the most sort after locations in Melbourne.  However the median house price in this area is currently $330,000 and considering this is $260,000 below the metro median, it’s obviously going to attract buyers looking for affordable options within a commutable distance to the CBD.  There’s nothing quintessentially wrong with this property, however it does have a rather unusual looking blue facade that won’t hold wide appeal.  It was initially listed May 27th for $545,000 however it’s now advertised at $400,000-$425,000. It’s on a subdivided smallish block of land and yet homes in the same street, on larger blocks of land, have been selling in the mid $300,000 – that’s some $100,000 less than the current advertised price range.  Therefore until the vendor is willing to “meet the market”, it’s unlikely to achieve the desired result.

It’s always hard to be completely accurate assessing a property’s worth without viewing it, however we live in one of the most transparent real estate markets in the word and there is a myriad of information available to help home buyers assess comparable value before they dig into their wallets.  Purchasers are generally taking a cautionary approach to property buying.  Vendors who need to sell have been forced to “meet the market”, and if they’ve held their homes for an extended period of time, they have no doubt made a profit upon the initial purchase price.  However those that aren’t under pressure to sell will have to hold out for better times if they want to achieve the ‘wish’ price many of them are still expecting. Good property will sell in any market, but poorly located homes that are generally overpriced won’t!

Catherine Cashmore 

Property is a long-term game

Property is a long-term game

By Catherine Cashmore
Tuesday, 13 September 2011

Statistics are beginning to show an increase in the number of property investors taking advantage of what has widely been spruiked as a “buyer’s market”.  Not only is this evident in the increased numbers of buyers lining up outside open for inspections and attending auctions, AFG (the country’s largest mortgage brokering group) reported their mortgage sales hitting an 18-month high in August – that’s some $2.7 billion, with 38% going directly to property investors. Owner-occupiers are also on the increase, and according to the ABS, they have been for the past four months.  Even first-home buyers are coming back to the fold.  Mortgage Choice recentlyreported a marked increase in first home loans making up 35% of all loan approvals in June compared with an average 27%.

Considering all the evidence points towards purchasers increasing, not decreasing, why then is turnover 20% down on this time last year and also roughly 6% lower than this time during arguably the worst period of the GFC in 2008?

It’s true there’s still a lot of overpriced stock and vendors not willing to reduce expectation.  These are the vendors who don’t need to sell, and therefore can afford to hang out for weeks on end hoping some hapless purchaser will love the home so much they’d be prepared to pay a premium.  Vendors love reaping the benefit while the market is suffering unsustainable booms such as the 20% rise we had at the beginning of 2010 – however these booms are always followed by market corrections as part of the typical ebb and flow of the property cycle and thus leave many unprepared to moderate expectation. It’s easy to spot the overpriced listings – just watch for the properties that change agency hands every four to six weeks as each agent attempts to “educate” the vendor on price.  In the end agents often have no choice but to shed the listing and concentrate on the stock they can sell.

However, there’s another problem hounding the market – an abundance of poor-quality stock marketed principally for investors and has little attraction for owner-occupiers.  It’s an old adage in real estate, but one that holds up to scrutiny:  “Good real estate sells well in all markets” – and in the current market there’s a surfeit not ticking the right boxes – hence the reason turnover has been so low. There’s plenty of stock available, but with the emphasis firmly focused on low quality rather than low quantity.

The Australian Housing and Urban Research Institute recently reported that 25% of investors sell within a year of purchasing. The exact reasons for such a high percentage is not specified, however it’s a concerning statistic and an indication large numbers are not seeking the right advice.  If a vendor is trying to sell after only one or two years of property ownership, a market correction can have serious implications on their profit and loss scenario. It’s one of the reasons property ownership should always be viewed with long-term spectacles. Until you’ve held property through all stages of a market cycle, you can’t call yourself a seasoned investor and you risk your best intentions of property ownership failing miserably.

Building wealth in property has its key firmly locked in long-term capital appreciation and considering owner-occupiers principally fuel the market, it’s imperative to focus on property that holds lasting appeal for this demographic. Get this formula right, and even on the sliding side of the property cycle, losses will be minimised and gains maximised.  However as a property investor you’ll face a mine field of advice from financial advisors, sales agents, property planners, developers, not to mention numerous magazines and books all promising the road to riches – and never more so than in a downward phase of the property cycle. Some advocate buying apartments, others land, and everyone has their own opinion on the “hot” suburbs.  But understand that there’s no one golden egg to property investment, and everyone’s individual needs must be assessed based on their own financial circumstances.  Furthermore, the landscape has changed rapidly over the past few years with a marked increase in high-rise accommodation marketed mainly at investors, over standard single-level subdivisions, which is where most home buyers would rather locate.

However, it may not be wise to hold back, because if you think we’re heading for further falls any time soon, think again.  We live in a country with a rising population, where the best seats in our major cities have been taken and no one’s all that eager to move into the outer-metropolitan or regional areas where land is arguably overpriced due to hefty development overlays.   The housing market is both fragmented and fickle.  It’s made up of individuals like you and me with different needs and different budgets. Each piece of real estate has its own intrinsic quality – and with a lack of good stock, it’s reasonable to assess that there are always going to be areas of the market that outperform.

Therefore, before you purchase take some time to think about what stands out about the property you’re interested in.  It could be located in the best street in the suburb, or situated on the largest north-facing block of land – have the best light and biggest balcony in the block, or hold the lasting attraction of period appeal.  Whatever the reason, be careful what you choose and if you do find yourself selling in a soft market, it’s more likely you’ll still come out winning.

Catherine Cashmore

Buyers are picky, but well-priced, well-located homes are in great demand

Buyers are picky, but well-priced, well-located homes are in great demand

By Catherine Cashmore
Wednesday, 07 September 2011

Spring is here, and it’s a buyer’s market isn’t it?  Well, not quite – we may have formally entered spring, but don’t be fooled – the traditional buying season doesn’t really kick off until after the AFL grand final.  No one wants to run an auction on grand final day, therefore we’ll see existing stock peter out as agents work to tie up any loose ends on properties already scheduled for auction, and a short delay  marketing new stock until we move closer to the event.

Media reports are still telling us house prices are softening – however this isn’t the case across the board. Although market has been suffering “low” demand, it’s not suffering “no” demand. Homes in the $500,000 to $800,000 “affordable” price bracket presenting quality are not only selling well, they are producing some difficult buying conditions for current property shoppers The last thing you’d expect to see in a cautious market is heated bidding and above average prices; however this is what’s happening in certain areas of the real estate landscape – principally the price bracket that attracts investors and the main demographic of home buyers.

This is partly due to continuing volatility in the stock market and a political landscape that is currently in disarray.  Therefore there’s been a slow but steady increase in the number of investors who have moved their attention towards more tangible assets (a number we’ve seen increase over the last three weeks as a company and a trend that seems to be playing out generally).  This isn’t surprising when you take into account there are 2,500 property trusts set up in Australia every week.  Moreover, the banks are awash with deposits, and as a result have been wooing investors with cheaper rates and lower fees for both fixed and variable loans.  The small increase in rental stock particularly in Melbourne (good news for tenants) is a direct result of this investor activity.

Therefore news this week from the Australian Housing and Urban Research Institute that 25% of investors sell within a year of purchasing is less than reassuring for anyone thinking of taking the plunge. Most mistakes are made when investors focus on property that is marketed principally for their demographic.  Small one- and two-bedroom apartments in high-rise blocks attract nice yields, but don’t generate much price appreciation.  This is because it’s owner-occupiers who fuel price growth, so choosing the right property in the right suburb is a case of appealing to those looking from a lifestyle perspective, as well as an investment perspective. Get this formula right, and even on the sliding side of the property cycle, losses will be minimised and gains maximised.  Considering the apartment market is currently awash with stock – with more in the pipeline – it’s therefore extremely important to proceed with care.

So what’s ahead for spring?  Well, it’s not going to be an easy ride.  It’s a common misconception to think of our housing market as a large living, breathing beast that rises and falls as a single entity.  However, the housing market is both fragmented and fickle.  It’s made up of individuals like you and me with different needs and different budgets. Each piece of real estate has its own intrinsic quality – unlike stocks, it’s impractical to put off buying, and then expect to quickly secure the exact replica of the same product a few months on at a reduced price. Part of purchasing well is understanding we’re in an “opportunistic” market. We live in a country with a rising population, where the best seats in our major cities have been taken.  No one’s all that eager to move into the outer-metropolitan or regional areas where land is arguably overpriced due to hefty development overlays. Therefore taking advantage of a buyer’s domain means being ready to act when you see something that represents a good long term acquisition – after all, you’ve got to be in it to win it.

Australia’s predicted surge of 35 million by 2050 – 8 million in Melbourne alone – suggests at the current level of growth, Australia is falling short of 40,000 homes a year.  That’s quite a statement and needs to be qualified considering demand for new homes is generally weak. In truth it’s not the amount of homes constructed that’s the issue, but the areas they’re located in. New housing is largely concentrated in outer suburbs – classic “mortgage belt” neighbourhoods. These areas are subject to affordability, attracting first-home buyers and low-income families. As such, demand fluctuates depending on economic factors such as the first home buyer’s grant, which is geared towards regional development and new home projects.  Demand for new homes is low not just because of the costs involved in building, but because of the negative aspects of living in suburbs with poor infrastructure and limited employment opportunities.

However, inner-city demand for housing is significant and rising, as anyone working at the coalface will tell you. The housing stock in areas where people want and need to live is not in abundance, and therefore with a rising population, it’s logical to reason that demand alone will once again force the price of well-located residential real estate upwards.  However the speed of those price rises will be moderated by affordability and in a two-speed economy we’ll see a widening split between rich and poor. As we move forward consumer sentiment is going to play a part in how fast prices rise.  Therefore if you’re purchasing now with the intention of selling in one, two or even three years’ time, you’d be better off renting and investing your money elsewhere.  However, if you have a long-term plan, open your eyes and take advantage of where we are now, rather than trying to predict the short-term future.

Catherine Cashmore