The Year in Review (2012)


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The Secret Agent Report - The Year in Review (2012)

December 2012 / January 2013

The Year in Review (2012)

In this edition, we cover some of the notable results that helped shape and define the year. Our research on underquoting analyses the widely accepted 10% rule – that is adding 10 percent to an advertised price in order to gauge what the property will actually sell for. The findings are interesting, and remind us of the complexities of the real estate industry. The Year In Review: A Message from the Founder – Paul Osborne Underquoting – The ’10%’ Rule Analysed 2012 Noteworthy Sales 2012 Winners & Losers

A Message from the Founder – 2012 in Review

2012 continued the trend of a relatively flat market.  Improved auction clearances didn’t show improvement in pricing for the year, but rather an acceptance by owners of flat price conditions.  Meeting the buyer was essential for many owners in order to obtain a sale, yet we did not see a year of no change at all.  Instead, 2012 has seen the rise of the Pareto effect.

The Pareto Principle, also known as the 80/20 rule, means the law of the few prospered throughout 2012.  We could break down the ratio to 95/5 for the Melbourne property market. That is, 5% of the homes transacted in 2012 sold extremely well.

The market has also priced a higher emphasis on quality offerings.  Homes that have been renovated to a high standard (design and building construction) and have generally been ‘move in’ rather than the ‘tinker and renovate’ type, have enjoyed a greater market appeal.

The un-renovated delight of 2010 is facing challenging times, unless in a spectacular position – C’est la vie!

The old adage of spending less on renovations to avoid ‘over capitalising’ is set to change. By avoiding over capitalising, we encounter many boring renovations in Melbourne that haven’t pursued quality, or the art of good design, and this is hurting those home owners seeking to liquidate their asset.  By trying to avoid over capitalisation, homeowners are in fact increasing their chances of doing so.

All of the above means that the market is paying strong premiums for well crafted inner city homes and specific apartments.  It’s a double edged sword – if the design doesn’t excite, it backfires.  However, we believe that it is worth the risk for home owners who are considering renovations to push the boundaries and invest in quality construction in 2013.

For the top end market with flawed renovations, it was another harsh year. Bidder depth was often non-existent and discounting was required to sell these homes.

First time buyer activity was low in the inner city; this was showcased by a weaker market for entry point terraces in many of the suburbs within 6km radius of the CBD, that we track.

New apartments continued to saturate the market – with a combination of discounting and developers struggling to obtain finance – setting this up for a tough arena for 2013.

Warehouses – both raw and converted – were a housing style that continued to show strong demand. The idea of Manhattan in Melbourne matched the trend of coffee shops sprouting in any available disused warehouse left in inner Melbourne.

Art Deco apartments continued to increase in desire and price across many inner city locations, as did period family homes (Victorian,  Federation and Edwardian) with quality renovations.

Notable suburbs of demand included Collingwood and Abbotsford, as well as North Fitzroy for true landmark sales.  North Fitzroy had strong price growth throughout the year, contradicting much of the market. The double fronted family home market in Northcote kicked for the last 6 months of 2012, mainly thanks to escalating prices in North Fitzroy – pushing families across the border.

South Melbourne also experienced some landmark sales, while suburbs such as Yarraville and Seddon had stimulating markets that would have made many Eastern suburb property owners envious.

Hot in 2012:

  • Double fronted period homes with quality renovations
  • North facing backyards
  • Art Deco Units
  • North Fitzroy
  • Warehouse + Loft conversions
  • Gertude Street
  • Quality
  • Single level units in small,  well crafted developments
  • Quality 1 bedroom apartments

Soft in 2012:

  • Awkward floor plans
  • Main road properties
  • New apartments
  • Townhouses (5 – 15 years of age and showing their wear)
  • Entry point singe fronted terraces
  • 60’s and 70’s style apartments softened slightly
  • Apartments with more than two flights of stairs
  • Conservative renovations

Where to for 2013?

Evolutionary biologists clash in their beliefs between Punctuated Equilibrium (period of stasis/stillness then rapid evolutionary change) and Phyletic Gradualism (slow gradual/incremental changes in evolution over time). In terms of Melbourne property, we believe that the market will sit in a position of stasis – one of stillness with not much change.  In specific markets, we think there will be changes.  New apartments and new homes could continue to see home prices slide, while on the other hand, quality period  propositions will continue to be more highly sought after in 2013.

Interest rates will help to create this stasis phase in the market. High interest rates act as a ‘creative destruction’ in tougher economic times, especially those suburbs more highly leveraged in the market. Prices could fall further and allow maxim opportunity for buyers.  Traditionally, low rates mean lower turnover for 2013;  2012 has already been a year that has seen shrinking turnover for the inner city. The situation could lead to more owners not needing to sell, and buyers not desperate to get into the market.

2013 may start off robustly, yet will most likely flatten as the year progresses forward.  Job security,  a slowing economy and the China factor will all be carefully monitored by the population and help increase/decrease confidence depending on the metrics.

Boom times often see strong credit growth, however, we are experiencing a de-leveraging in the economy.  Prospective buyers borrowing less will mean price growth across the board will be impossible, unless further interest rate cuts stimulate. However, this looks unlikely.

Expect to see the rise of downsizers in 2013.  The trend of empty nesters selling suburban homes and compacting up will most likely accelerate, moving closer into town or toward the coast.

2013 looms to be a year with mixed results. When in doubt – seek quality!

What will be sought after in 2013:

  • Art Deco style will continue its rise and become the most sought after period style
  • Family homes with good separation of space (see below on open plan)
  • Architecture that embraces functionality first, followed by form and quality
  • Boutique inner city apartments on one level without stairs
  • Outlook and aspects will become more important
  • Orientations that benefit from natural light
  • Un-renovated places should bounce back as long as they are solid structures
  • North Melbourne and West Melbourne
  • Locations that are geared to lifestyle benefits – the return of the inner city village.