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The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


Category Archives For: Property Buying Tips

Buy vs Rent

One way to determine affordability is to look at the difference between renting and buying a property. A common measure throughout the world is to use the House Price vs Rent Ratio.


Just like analysing a business of a company share price,  the House Price vs Rent Ratio can help give a property buyer a measure as to whether they should buy a certain property or not.

We’ve looked at some of the key inner city areas, and the ratios that exist in each of those suburbs. The data in the table to the right has been gathered from the 1st of April to the 31st of July,  a third of the year 2012. Interesting findings are below…

  • Lowest Average Price: Kensington at $693,885
  • Highest Average Price: Hawthorn at $1,582,833
  • Lowest Average Annual Rent: Kensington at $25,351.13
  • Highest Average Annual Rent: Middle Park at $38,640.64
  • Lowest Ratio: Brunswick East at 25.08
  • Highest Ratio: Hawthorn at 45.45
  • Despite having the lowest Rent and Prices, Kensington does not appear to be the lowest ratio.

A Rent vs Buy ratio of over 31 is really making renting more favourable overall.


Which auction are you bidding at?

We get the odd frustration from having an auction operate under a different formula from the standard Schedule 1 auction (explained below).


A few weeks ago, we were bidding on behalf of a client for the property 74 Falconer Street North Fitzroy (above).  Half an hour before the auction,  we were made aware that one of the owners of the property were intending to bid at their own auction. The sale situation was a deceased estate.

A number of siblings were the beneficiaries, and one sibling wanted to buy the property from the other siblings.  They used an open market strategy – and we ended up being out bid by that sibling at the auction.

It was a disappointing situation. We felt that the entire campaign should have mentioned this in the marketing material, rather than buyers being made aware just 30 mins prior to the auction.

As a guide to these confusing situations, we’ve included below the different types of auctions, so buyers can be best informed about these and what they mean.

By law, the estate agent must display the auction rules 30 mins prior to auction. The auction can either be Schedule 1, 2, 3, 4 or a schedule 1 with an alternative.

Here is the breakdown:

Schedule 1:

The most common auction in Victoria. A schedule 1 auction allows the agent to place a bid on behalf of the vendor however no co-owner bidding to take place.
The alternative to schedule 1 is exactly the same listed above with no vendor bidding at all.  This is the purest auction possible.  However,  most auctions will not use this.

Schedule 2: 

Where 2 co-owners own the property,  one co-owner may bid for the property plus the auctioneer may also take a vendor bid on behalf of the owners.

Schedule 3: 

The property has 2 owners or more,  and some (but not all) co-owners may bid for the property.  The auctioneer may also take vendor bids.

Schedule 4: 

2 or more co-owners own the property. All co-owners may bid on the property however vendor bids cannot be taken by the auctioneer.
This can be a marriage situation were both husband and wife and bidding for their own property together with the open market!

A good tip for property buyers is to always look at the rules of the auction before they intend to bid.  Even take a photo with your smartphone to ensure that the auction you are bidding on is a pure auction. Owners bidding on their own property can distort the price paid to unrealistic levels and you don’t want to be left buying a property, at a figure that isn’t market driven.


The Value of Light

We’ve always known the importance of good natural light. Apart from the benefits of vitamin D on health, natural light just feels good. It helps make a home “feel good”. Natural light is instinctive to human nature, and the importance of natural light during winter comes at a premium – especially when one is trying to buy their home.

At Secret Agent, we’ve researched to determine whether a clear correlation could be established between average/median house prices and the orientation of the backyard. Our first hunch was that North facing backyards would yield higher prices. This is because a north facing backyard is generally the ideal orientation to capture full light. We have based our data on the quarter from 1st April to 30th June and have used Brunswick, Richmond and Hawthorn to help validate our hypothesis.

These suburbs proved to be excellent samples as they fulfilled the following criteria:

  • High turnover rate for the suburb.
  • Comprised mostly of consistent home type sales (Period Homes)
  • Located in the inner city.


In Hawthorn, West facing backyards had the highest selling prices followed closely by the North. The full Hawthorn statistics are to be released in Secret Agent’s upcoming “The Secret Agent Report” – our research guide. This report will have a Natural light index depending on the orientation of the property.

 

Further Observations

In both Brunswick and Richmond, backyards which have a North facing orientation had the highest average prices for the quarter.

Hawthorn had a higher average price for West facing backyards, with the North (backyards) as a very close second.

North facing backyards surprisingly also had the lowest $/sqm average of all orientations in Brunswick. We note that 6 sales changed hands that were located on busier streets which helped pull back the average $/sqm rate. We also noted that the block size (North facing backyards) were larger in general.

Average price for Brunswick: $725,414

North facing backyard average (Brunswick): $858,000

North facing backyards command a premium of 18.3% more

Average Price for Richmond: $951,029

North facing backyard average (Richmond): $1,105,750

North facing backyards cost 16.27% more

We note that suburbs such as Brunswick tend to have larger block sizes with regards to North and South orientations. Furthermore, single fronted sales were more prevalent with either a West or East facing rear orientation.

 
33 Rosslyn Street West Melbourne.

Big north facing windows allowed this property to have outstanding natural light. Our research suggests that the value in this property is not just about the amount of accommodation, style of property or location; elements such as light also add value to the property.


Off Market

The latest market conditions have created nervousness for many owners, they’ve become a lot more cautious about adopting a full blown marketing campaign.

So the rise of “off market” sales are increasing rapidly, especially in the price range of $2.5 Million and above.

We’ve now noticed that in the inner city for example, more sales are being made through “off market” channels than advertised ones at present.

This creates a whole new world of discreet sales, handshake deals and confidentially agreements.

So what are the benefits of “off market” transactions for buyers and sellers?

  • Privacy kept in tact
  • Home only open to the most qualified of buyers
  • Buyers can negotiate free of any public street theatre
  • Terms of agreement can be much more creative
  • Prices kept confidential
  • No large marketing commitments

Cooling Off

Recent changes in the cooling off laws have been a huge helping hand to property buyers in private negotiations.

We’ve noticed a number of instances were buyers are “cooling off” on bigger sales. Some agents are now having to have 3 sleepless night until the “cooling off” period ends.

Benefits for buyers include:

Having an opportunity to guard themselves against “impulse buying”.

Disadvantages for sellers:

Selling before auction (if outside the three business days before auction period) is now slightly more tricky.

Prospective buyers were asked to waive any cooling off periods by way of disclaimer – now vendors could find a “cooling off” period could hurt the sale and cost many marketing dollars in the process. It’s hard for an auction campaign to reignite after being sold before auction, and then back on the market again after a buyer electing to “cool off”

We could see a lot more emphasis on the calibre of the offer being made and were the purchase capital is coming from than in the past. Example: Two similar offers are placed on a property. An owner may be more willing to elect to take a lower bid, if the purchaser was seen as more sound and stable.An estate agent appointed to sell will require more skill than before in advising their client.


Pockets of Resistance; where are they?

Well,  it looks like we’ve hit the point of household de-leveraging in Australia.  Instead of credit expansion and mortgage growth we are entering a phase of people paying down their debts.

This seems like good news but it will have a profound impact on areas that have high levels of debts.  A slowing down of new entrants into the market will mean downward pressure on pricing in many areas.

For instance,  it’s been reported today that the suburb of Melton now has a delinquency rate of 3.37%.  You get bet your bottom dollar that prices are going to come under huge pressure in this area and it’s probably just the start of large price falls.

Now Melton is considered part of the ‘mortgage belt’.  So what about the higher priced areas?

Areas like Brighton and Hawthorn show incredible strengths in booming times.  The demographic is normally not shy of high debt ratios and tends to have a high level of people working in the financial industries.  Evidence included ‘margin call selling’ in 2008.

In 2008 we noticed these example suburbs as ones that experienced rather large price falls as with many others.

In making investment decisions from here on out,  I’d be looking at the pockets of resistance.  The pockets of resistance are areas with low debt burdens, therefore they are not forced into selling when the conditions are not favourable.  When buying,  always be thinking about selling.

Conservative, low turnover and close to the city are good signs.  I’d put areas like South Melbourne, Carlton North, North Melbourne and Toorak in this camp.  While areas like South Yarra, Brighton and Hawthorn would be areas that can increase rapidly yet drop quickly when the hype departs.

Also factors are the types of property being sought. New apartments in Carlton in my opinion are going to get clobbered over the next 6 months.  Yet a solid Art Deco apartment in Parkville is going along just fine.

In buying resistant property,  the area and type of property need to be carefully chosen.  If I could offer one opinion however,  stay away from suburbs with an overall high debt burdens.  While you might be able to pull off a bargain,  just remember that one day you’ll be the seller, not the buyer.


New marketplaces continue to emerge

It’s fair to say that plenty is changing in the online market places between buyer and seller, as well as tenant and landlord.

More and more online products are launching which are helping parties reach each other directly.  One in particular is rent lord which can help find a new tenant by shared connections.  So you know Peter who knows Kelly who knows David who knows…

This is trying to build trust into the tenancy process.

It’s an interesting concept.


Self Managed Super Funds obtain more freedom

One rather noticeable change over the past 18 months has been increasing enquiry from people taking control of their own super and acquiring property as part of that fund.

We’ve often found a number of frustrations in relation to clients.

For starters,  the ATO had ruled that SMSF (held by the buyer) could not borrow any money from any sources to improve their properties.

As you could imagine,  this made things challenging.  Many inner city places require a new bathroom or kitchen and this meant great opportunities were being ignored.

A new ruling yesterday has relaxed this.  SMSF’s are now allowed to renovate as long as money comes from within the fund.

This might help change those seeking to use super as a vehicle to buy real estate now more attractive.


The Power of Collectables

Alastair who works with Secret Agent talks about the power of collectables.

He often asks whether a property is a collectable or not.

The one thing that we’ve noticed with the current market is that the ‘collectables’ are still highly sought and a premium will still be paid.

Collectables can include period homes,  art deco apartments and property with something that little bit extra special about them.

Are you looking at collectables?