Is a 2br Unit in Hawthorn, Vic overpriced at the moment?

[meg ryan]

Hi All

I'm new to this forum having stumbled across the many wonderful discussions you all have been having from google when I first typed in 'units vs land'.

Was very pleased that find out that the community here do look out for one another esp when there's someone panicking and try to give advice where possible.

I was just wondering if it's about time to add my bit of discussion, having been a viewer for the past few months.

As seen from my topic above, I am keen to hear ppl's views on Hawthorn Vic at the moment, particularly in relation to 2 br units.

How does one price an investment property in today's market? I know what the market is willing to pay for a 2br unit in Hawthorn, based on auction results. But is the market price the fair value for a 2br unit in Hawthorn? That I'm not sure.

Because market price = fair value only when the market is rational.

I suspect that due to the FHOG, markets are a little irrational at the moment and therefore market price > fair value price.

As with the golden rule of investing, you lose your profits when you pay too much for a property, even if it is in a blue chip suburb. It's like buying Macquarie shares during the boom times, only to find it sadly going down when the market re-adjusts its expectations.

I would love to buy in Hawthorn, but only if the price is right. The problem is, I don't know whether the price is ever going to be right. They say property prices always goes up, but does that mean if I overpay now I won't lose out anyway because prices are bound to go up anyway?

Hope I'm not talking gibberish here and people actually understand what I'm trying to get at.

Looking fwd to ppl's thoughts on my first post.

 

[andrew_de_a]

I sell real estate in Hawthorn and am of the view that prices will soften slightly post June 30, I dont expect them to drop dramatically though as there will always be demand due to location, shops, uni, prox to cbd, public transport.

what type of apartments are you looking at? what price?

 

[BayView]

Just did a 2 min r/e.com.au search on 2 bedders with 1 bath in Hawthorn.

Cheapest one advertised was for Auction at $320 plus.

The dearest one was $600k to $660k - private sale.

Based on this, you'd expect the cheapies to be a snow-job by the agents - they'll sell for $400k minimum.

"What; us underquoting??? Never..."

I guess the average would be up in the mid-high $400's?

Is this worth it? No idea. Sounds very expensive for an apartment - as most are.

The townhouses were the most expensive: http://www.realestate.com.au/cgi-bi...t=&header=&cc=&c=34555337&s=vic&tm=1241237363

There was this:http://www.realestate.com.au/cgi-bi...t=&header=&cc=&c=34555337&s=vic&tm=1241237363

As an IP - no, not for me.

I'd rather 2 run-down joints for the same price or a tad more in Frangers that I can subdivide later.

As a PPoR? Up to you.

 

[Propertunity]

Because market price = fair value only when the market is rational.

I've said before in a couple of posts that the 'market value' of a property is the price it could be expected to realise if it was sold on the open market on a particular date, by a willing but not anxious seller, to a willing but not anxious buyer, in an arm's length transaction.

And before we get bogged down by possible interpretations of 'market value', the definition I am using is the legal one referred to as the "willing buyer willing seller theory" as determined by the High Court of Australia in "Spencer Vs The Commonwealth".

So, you have rightly identified that we are in a market where it would be hard to find a a "willing but not anxious buyer". Your Q really goes to when we think the market will be "rational". I'm not sure anyone can answer that Q

 

[The Y-man]

As per Bayview above: PPOR or IP? BIg differecne in consideration IMO.

The Y-man

 

[meg ryan]

Hi Bayview

Based on past auctions which I've attended, where the REA quotes i.e. $330k - $360k for a 2br in Hawthorn, the price went up to $390k. So easily there's a 30k premium on top of the highest range.

Whether the premium it is attributed to underquoting or an irrational market, I'm not sure.

But like you said, the price hike is sufficient enough to make one consider buying in a further out suburb but with a land component.

However, I do wonder....does this mean investors would avoid buying investment property in Hawthorn simply because they are overpriced? I seem to think investors also don't mind paying more for a property located in a good suburb. or maybe i'm wrong?

 

[BayView]

Hi Bayview
However, I do wonder....does this mean investors would avoid buying investment property in Hawthorn simply because they are overpriced? I seem to think investors also don't mind paying more for a property located in a good suburb. or maybe i'm wrong?

I can't speak for other investors, but my criteria is a combination of potential cap growth and cashflow, and no matter what the amount of zeros get to on the deals I do, the value will still need to be there.

And for me; cashflow is 1st, cap growth 2nd.

Having said that, I'm not going to buy in an area that probably won't go up in value - this involves some research on the area to ascertain what is going on behind the scenes such as new schools, shops, hospitals - more infrastructure, employment and so on.

An area such as Hawthorn is always going to have steady cap growth I'd say - no one can guarantee it, but the rent returns for me are usually very poor in these areas. Very poor for me is the same as or less than the rates of the day - at purchase.

It's a "blue chip" suburb apparently, but I've got two IP's bought for under $150k each that have doubled in price in 4 years, and were bought with rent returns of over 8.5% respectively. No "blue chip" with those babies, and the rent returns are now around 13% each. And both have depreciation on top of this.

Try and get that combination in Hawthorn now, from a purchase of an average price property 4 years ago.

Many agents will say "it's a good return for this area" when they quote 5% (or even less ) returns in areas like Kew.

That's a silly statement. They are not paying the mortgage - I am. I bet they (the agents) don't own any property in their area of work.

I hear it said often here as well.

It was often said about much of Sydney during the last boom - some people were taking on returns of 2% and thinking this was ok because they thought they'de get endless cap growth. It isn't ok. And, this was when interest rates were up around 7% and higher!!

Why spend a lot of money to enter the Hawthorn market, and get a cr@p return, when you can go elsewhere, pay less, get a better return and still get as good or better cap growth?

Don't close your mind to only inner-city or blue chip areas.