property buyers' newsletter

Welcome to our March 2007 Melbourne Property Buyers' Newsletter.

Topics Covered

Market News 
Last Year
Some of what we have bought
Agent under-quoting
High end homes, some regional properties and many apartments
Some client thoughts

Market News

For once we say believe what you read in the papers - the market has started with some incredible buyer force, in some cases panicked demand; and with stock levels now seemingly stabilizing at levels a lot lower than say 3 years ago (sort of like our water) this has resulted in price jumps. How much? 10% from December would be a figure that many in the know would not disagree with. Add this on to the 20% jump last year, and if you have been overseas for 18 months you just wouldn't recognize things on your return.

Are these increases across the board? Well no, not every good home in the inner area has gone up 10% in a few months. Outer, regional, townhouse and apartments have not seen that kind of jump in price (but they also do not have a limited supply base as inner city family homes do) - so demand may have increased but there are still oversupply issues preventing big price increases.

Not every property has gone up the same AND there are many examples where two similar places are quoted $800,000+ and one goes for $1.1 Million and the other $880,000. Why? Three main reasons:

1. Buyers are into one place but not the other for hard to fathom reasons
2. Selling agent skill
3. One property is genuinely better than the other

We cannot emphasize enough that maybe reason 3 is OK for the $220,000 difference but reasons 1 and 2 mean you are paying too much and this in time will take the gloss off the purchase, especially when you come to resell in say the reported average of 7 years. Get some advice before you go in with a massive pre-auction offer which a lot now seem to be advocating. On a million dollar home maybe you can live with a $20,000 premium but $200,000 is another story.

Anyway if you are in the market you know prices are rising. How does the market work and how do you manage it?

1. Overall long term trends.
2. Short term Peaks (e.g. post last election 2004 and now) and Troughs (e.g. Spring 2003).
3. Market segments such as units, houses, commercial all play to a different tune.
4. Suburb segments etc e.g. 10,000 sq ft was hot hot hot in Hawthorn last year, and yet Bayside was not flying for this kind of property - This year in Sandringham, Hampton, Brighton 10,000 sq ft properties are the new gold bars. Big land is at a premium.
5. Individual sales - one month there maybe 2 or 3 other buyers - the next month there is only 1 buyer (you) - meaning you may pay less in the second month because of no competition - of course you could still pay the same or even more if you were up against a skilled selling agent and you were not getting professional advice on negotiation.

 
So, what to do?

1. Keep cool, price spikes cannot be sustained.
2. Set reasonable upper price limits - but understand you need to meet the market to buy now. Perhaps be a little more flexible if it's a good property.
3. Reassess the property, price, position mix if you don't want to overstretch yourself. E.g. look a little further out, go for a slightly smaller property.
4. Don't give up, because long term not owning your home doesn't make any sense - at least in Melbourne, Australia in the last 80 years.
5. Consider hiring a Buyer Advocate - if they can't deliver what you want it hasn't cost you anything.

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Last Year

Finally we are starting to see some press stating exactly what happened in the top end of the market last year - it boomed. While the stats readers were proclaiming a quiet year, those that were looking for $500,000 - $2,000,000+ homes knew this was garbage. From our first newsletter last year we were showing you examples of very strong upward price activity in the upper end. This information was allowing our clients to get a clear handle on the market and buy when appropriate, while many others missed out through lack of knowledge rather than lack of desire or resources. So why did the stats readers and the uninformed press get it so wrong for so long?

It is not that difficult to fathom - people who make comments from looking only at stats on the property market such as Median Price figures (while having no actual experience in buying on a daily basis) are simply not getting the full picture. If we sound a bit fired up it's because we have to counteract this misinformation when talking to our new clients; in particular clients from overseas.

The Median price statistic is the middle price in a list from lowest to highest. On a small list of only a few properties you can get major distortions.

Month One Suburb Sales	Month Two Suburb Sales
$100,000	$90,000
$200,000	$180,000
$500,000	$750,000
$3,000,000	$2,900,000
$5,000,000	$4,500,000
Median Price: $500,000	Median Price: $750,000

Is it fair to say there has been an increase in property prices across the board of 50% in the above example? No, in fact the $750,000 might have been a lot better property than the $500,000 one, and in fact there may have been a small decrease in prices paid overall. This is an extreme example designed to make a point - many credible data analyzers use far bigger samples - but they can still be inaccurate.

Median prices are also not reflective of certain segments when large across the board samples are used. An extreme example below - just to show a point

Melbourne Sales 2005	Melbourne Sales 2006
$345,000	$345,200
$356,000	$357,000
$367,000	$367,000
$368,000	$369,000
$378,000	$378,500
$379,000	$381,000
$389,000	$394,000
$389,500	$399,500
$1,000,000	$1,215,000
$1,020,000	$1,265,000
$1,025,000	$1,325,000
Median Price: $379,000	Median Price: $381,000

These stats would show a less than 1% percentage increase - yet it does not reflect the 20% increase in prices on properties sold at over $1 Million.

Anyhow, back to our point.

In the Valuer General (Government) database we find that 139,448 pieces of information were recorded last year between Jan 1 and December 31, 2006. Of those 139,448 pieces of information, less than 21,000 related to properties over $500,000, and less than 4,700 related to properties over $1 Million.

In other words the median price statistical analysis action takes part around sale number 69,724 (the middle piece of information) and that was well below $500,000. We know last year there was a bit of movement in property prices at those levels (which is mainly inner city apartments and outer area homes) but nothing like what was happening in the more affluent suburbs last year. The market at the high end seemed to move around 20% on a good $500,000 or $1M home in a good suburb in a good position. By year end it was worth $600,000 or $1.2M yet Melbourne median prices did not show this.

We are not all that different from some other countries. A recent market comment from Garrington Buyer Advocates in London, UK:

"Many of the factors which combined to drive UK house prices up in 2006 - a strong domestic economy, a healthy stock market, significant levels of inward migration (235,000 last year of which 45% now live in London), considerable foreign investment as well as a distinct shortage of homes being built compared to demand - look set to remain the case for at least another year.

We do not anticipate a repeat performance of last year (where prices rose by over 20% in the most prestigious areas of London - even up to 30% recorded in some cases), but nevertheless with the City now employing 335,000 people and over 4,200 of them taking home windfalls of £1M or more, the market is off to a hectic start."

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Some of what we have bought since our last newsletter

• Seaford - Scott St
   
• Moonee Ponds - Dean St (See Picture Below)
   
  
   
• Berwick - Rydaldene Way (See Picture Below)
   
  
   
• Sorrento - Collins Pde
   
• Seaford - Northcote St
   
• Queenscliff - Queen St (See Picture Below)
  
  
   
• Black Rock - Prospect Gve (See Picture Below)
   
   
   
• Carlton - Drummond St (See Picture Below)
   
  
    
• Yarraville - Cecil St (See Picture Below)
   
   
   
• Mitcham - Rothwell Ct
   
• Elwood - Selwyn Ave
   
• Yarraville - Mackay St (See Picture Below)
   
  
   
• St. Kilda East - Carlisle Ave
   
• Heidelberg - Brown St
   
• Caulfield East - Moodie St (See Picture Below)
   
  
   
• Prahran - Mary St
   
• West Footscray - Essex St
   
• Seaford - Fortescue Ave
   
• Prahran East - Highbury Gve (See Picture Below)
   
  
   
• Brighton - Winmarleigh Ct (See Picture Below)
   
  
   
• Brunswick - Bishop St
   
• St. Kilda West - Alexandra St
   
• Lower Templestowe - Balmoral Ave
   
• Moonee Ponds - Dean St (See Picture Below)
   
  

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Agent Under-quoting

The market is rife with under-quoting at the moment, some deliberate, which is completely unfair as it damages the vendor as well as the purchaser who needlessly puts time, effort and money (inspections etc) into a property they had no chance of getting. But rather than just complain lets see if we can understand and then manage it -are we trying to change the world (agents information to buyers) or are we trying to buy homes. Poor quoting often helps a well prepared buyer as its scares off other buyers when they think the going is getting tough when in fact the going is just getting to where it should be.

1. In a fast rising market such as this, when the selling agent lists a property at say $800,000 - that means the owner will sell at that - e.g. before Christmas and the February/March market moves - then the agent has got his vendor at $800,000 and although he understands the market is $900,000 he has no reason to adjust his/her quote because the vendor will sell at $800,000. This results in under-quoting as it relates more to what the vendor will sell at rather than what the buyers will buy at. Hence the saying a property that is listed well, will sell well.
    
2. In some cases the agent is protecting (as he should) his client by seemingly quoting low - e.g. some properties they quote at $800,000 and go to $1.1M others of seemingly similar characteristics quoted at $800,000 just get to $880,000. Sometimes an agent is not sure and is remembering his training - "quote 'em high watch 'em die - quote 'em low watch 'em go". This is fair enough to some extent, after all the agent is genuinely working for the vendor.
    
3.  If an agent does quote them a bit under e.g. $800,000+ and it gets $920,000 but was on the market at $870,000 within the 10% rule then they are seen by the law and their industry and the vendors to be doing their job. And they are, if they have built momentum for a few buyers towards $900,000 and then one or two fought it out to $920,000.
    
4. Other agents who are lazy or incompetent or simply less than frank who quote $800,000+ when it is obvious that it is going to reach $1.1M really do their clients a disservice as well as the industry. They are hurting their clients because some of the bidders are attracted to the $800,000+, think it is going to $900,000, panic at $1.0M and drop out; but could have afforded to push it beyond $1.1M if they had been guided correctly. Agents that lift their quotes during a campaign verbally and/or in writing and who do this well and with justification do add real value to the process for the vendor.
    
5. The market is strong at the moment and if an agent is quoting $800,000 thinks it's a chance at $900,000, is on the market at say $880,000 and for no reason buyers push it past $1.1M then the selling agent has not done anything wrong in law or ethically. If an agent repeatedly does this then you wouldn't hire them - because they don't understand buyers and this is bad for the vendor.
    
6. And finally if you're a buyer without representation or an understanding of how the market works and you are constantly missing out, then get some representation yourself - hire a Buyer Advocate. For two reasons: 
   1. You will get a good handle on what might really happen so you can prepare prior to auction day e.g. $800,000+ and its going over a Million, and
   2. You can avoid looking at an $800,000+ quote, assume it is going to $1.1M like others - offering $1.15M before hand and be $275,000 over the next buyer at who was only at $875,000.

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High end homes, some regional properties and many apartments

We have developed this little illustration below to show clients how (in figure 1) a normal market works and how the land component drives the growth.

Figure 1.

In figure 2 below, this is how the growth can stagnate on a property which has a high building content - such as a new building, some sea change properties, a high rise apartment or some regional homes.

Even when median price growth rates are looking OK for an area, if you buy a home that has poor land content characteristics, your growth prospects are generally not as good as a property in a similar area with good land content.

Having said that - "so what if lifestyle is you're only desired outcome" (of the three possible outcomes from property: Cash flow, Growth and Lifestyle)? Well our response is usually a bit strong - if you are independently wealthy then no problems; but if your home makes up a significant part of your wealth and you buy a property now with poor growth prospects for purely lifestyle reasons then unless you are dying in that home what happens when you what to upsize for kids or downsize for lack of kids or simply move because its time for a change?

Answer: to buy another home that has accelerated in growth at a faster pace than yours means you now need to make lifestyle changes to be able to afford your new home. E.g. cutting into savings that you were using on the trip, the kids school fees, new car whatever. When you are buying, sure think of your lifestyle now, but also think of your lifestyle in 10 years time. Buy smart!!


Figure 2.

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Some Client Thoughts

Hi Sam,

Firstly we would like to thank you and Ian for the professional manner in which Prospect Grove was purchased.

I have spoken to a number of real estate agents and people both inside and outside of the Black Rock area, and all of then agree that we have saved ourselves between 15 and 20 thousand dollars by using your service, not only have we saved ourselves this money but it also took away the stress, the unknown and the dealing with real estate agents.

Meagan and I have no problems in recommending you and Ian to others looking at purchasing property.

Thank You once again
Craig and Meagan Riley

Dear Ian,

I met with Ian for the first time in January '07 to seek help in procuring my first investment property. As in an investor, you hear so many people say that your very first purchase is one of the most important decisions you'll ever make in your investment career. 

I did some number crunching and concluded that the fees payable would be some sort of insurance money to guarantee that I get the "right" property at the "right" price. Frankly, I would've been quite happy if Ian was to negotiate that amount he wanted to charge me off the purchase price :) 

The "right" property came along in late February in the form of a private sale. To cut a long story short, it took exactly 48 hrs from the moment I inspected the property to the time I signed on the contract. There was no way I could've made a $360,000+ decision so swiftly and decisively as a first time investor had I not felt so overwhelmingly confident with the advice from Ian.

Two days later, a VERY similar property couple of streets down sold at auctioned for $424,500. Now that's good business for any investor!

Best regards,
Tim W

Dear Kelly

Thank you for the flowers. They are lovely, and as of now are wafting up sweet, sweet fragrance throughout our unit.

We all are very pleased and excited about this house. We will surely be happy in this home for many years to come. Thank you for your intuitive and professional act on this negotiation. You have been an immense help, and an absolute delight; more than we could have hoped for. 

Kind regards,
The Quan family

Mal, First of all thanks for the flowers and all your help. Sam and I both feel we got the million dollar treatment for only a $500 dollar house.  Things played out so much better then we expected and you and your team have made it into every retelling of the story to date. I wouldn't hesitate to recommend James Buyer Advocates to anyone else looking to purchase a house. Sam didn't sleep for 2 days she was so excited. Regards, Ross Davies

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Kind Regards

Mal, Kelly, Ian, Sam, Antony, Chris, Peter, Craig, Adam, George, Julie and the team.

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Contact Us

If we can help you with any buying advocacy matter, or one of your clients/friends is in need of independent, qualified property advice, then please call us on 03 9596 8822 or email enquiry@jpp.com.au Our website is www.jpp.com.au.

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