Melbourne's Hot Property Market

[jingo]

I went to an auction of this 2 bedroom flat with a carspace today.

http://www.realestate.com.au/proper...urne-106341122?tm=1269666802&c=88773587&t=res

Last year, it would have been possible to buy this for around $380,000 - $400,000 or so. Today, the price was $584,500. There were over 100 people at the auction. Bidding quickly moved from an opening price of $425,000, to $450,000 through to $500,000. Then to $530,000 where I thought it had to stop, but pushed through to $560,000 and more slowly up to the winning bid. ($584,500).


How long can this type of price appreciation be sustained for? Will rising interest rates curtail this type of asset appreciation, or are foreign buyers responsible for pushing prices to these levels? If so, why are they paying large amounts of money for ordinary property?

Regards Jason.

 

[Player]

White hot

You should be happy mate.....I smell some revals.....and offset stockpiling

Agree on the heat. It is beyond red hot now. It's white and about to vapourise.

I see no value in Melbourne for straight buy and holds now. Yields are stupidly low for resi and retail CIP's.

It is entertaining however to watch from the sidelines

 

[Intrinsic_Value]

From my old business partner in another business:
old house on large land bought in Balwyn in 2008 for $1.3million, built a new house on the land for around $1million, total costs $2.3 million odd, sold at auction for $4.3 million. 200+ people at the auction bidding madly.

Now thats nearly 100% return before borrowing enhancement.

 

[Shuttle Man]

I went to an auction of this 2 bedroom flat with a carspace today.

http://www.realestate.com.au/proper...urne-106341122?tm=1269666802&c=88773587&t=res

Last year, it would have been possible to buy this for around $380,000 - $400,000 or so. Today, the price was $584,500. There were over 100 people at the auction. Bidding quickly moved from an opening price of $425,000, to $450,000 through to $500,000. Then to $530,000 where I thought it had to stop, but pushed through to $560,000 and more slowly up to the winning bid. ($584,500).


How long can this type of price appreciation be sustained for? Will rising interest rates curtail this type of asset appreciation, or are foreign buyers responsible for pushing prices to these levels? If so, why are they paying large amounts of money for ordinary property?

Regards Jason.

Hey Jason, I was there at the 8/55 Haines St auction as well. I think there were a LOT more than 100 people, hahaha...the number of Asians (I was one of them) was probably more than that (it just seemed overwhelming, not the most I have ever seen but from memory, the most I have seen for an inner city flat). I knew personally the Asian women (+ daughter who just completely university) who lost out to that late bidder who came in about $560K (I think from memory).

That Trevor guy (buyer's rep) is pretty funny. Makes a lot of random comments (haha...give me that bottle of champagne!). I used to see him heaps when I do the rounds of Hawthorn, Camberwell, Canterbury, Kew etc. auctions (he does the spectrum of Melbourne representing prospective purchasers). He does things like golf swing motions and then turns it into bids. Definitely does not muck around with the bidding though.

 

[Player]

Valuations for lending purposes ???

Here's a thought, or more of a question really.....Are valuers necessarily ascribing sold price (contract price) valuations for finance purposes regardless of the insane selling prices of late?


Surely this must affect people's LVR's if the lender insists on the purchaser stumping up some extra cash/equity to buffer and hedge a potential softening that may unfold to establish some equilibrium to yields, or once interest rates rise some more and the dampening that may have on the current insanity.

Most purchased properties are owner occupier I envisage so I find it hard to fathom (in this credit environment) that the banks/lenders are going to be accommodating of people's emotional purchases at hyper dollar$.


Any MB's or TF care to share?

 

[alexlee]

Could it be that for more expensive properties, in particular, they're being purchased by people trading up? In which case, a person buying a 600k property, say, might have a 300k deposit from the sale of their previous home. In which case, even if the val came in at 500k it doesn't matter because the bank will still lend what they need. People coming from overseas, on the other hand, might not need a mortgage at all.

 

[Shuttle Man]

Here's a thought, or more of a question really.....Are valuers necessarily ascribing sold price (contract price) valuations for finance purposes regardless of the insane selling prices of late?


Surely this must affect people's LVR's if the lender insists on the purchaser stumping up some extra cash/equity to buffer and hedge a potential softening that may unfold to establish some equilibrium to yields, or once interest rates rise some more and the dampening that may have on the current insanity.

Most purchased properties are owner occupier I envisage so I find it hard to fathom (in this credit environment) that the banks/lenders are going to be accommodating of people's emotional purchases at hyper dollar$.


Any MB's or TF care to share?

And here is another thought. What if most people have got it all wrong and prices are not insane. It is all relative right? We hear property prices increasing by 20% over the past year, people making 30-40% capital growth gains in less than 1 year in some places, places going for 50% above reserve, month on month, week on week strong capital growths etc...but what if Australian property (focusing on Melbourne's case, as that is where I am from) has been undervalued and dormant for all these past years. What if Australia is like a sleeping giant with the realisation of its 'true strength and value' right now? What if Australian property prices relative to the world (and what you get) should have attracted these prices 4 or 5 (or even more) years ago? What if this is equilibrium or the so called 'new equilibrium'.

Whilst I like to point out that I think prices are getting quite 'heated' but still, I only hold this 'pretty hot' line of thought based on growth that has well and truly exceeded my expectations and to some extent, the type of growth that has occurred for the past decade or so. Maybe I (as with many people) have got it all wrong, and prices are actually fair and reasonable (for what you get) and it is only NOW that people appreciate the worth of Australian residential property.

 

[Intrinsic_Value]

Could it be that for more expensive properties, in particular, they're being purchased by people trading up? In which case, a person buying a 600k property, say, might have a 300k deposit from the sale of their previous home. In which case, even if the val came in at 500k it doesn't matter because the bank will still lend what they need. People coming from overseas, on the other hand, might not need a mortgage at all.

this is not a trade up type of property, its your very basic 'first home buyers' type of property that some on this board use in their references to those that complain that property is too expensive.

These same type of properties(unrenovated though) used to sell for around $100k-$130k at the start of the last decade.

They have done a very nice reconvation, but if you look closely you can see the basic structure of a 1970's style block of apartments. Well built but definately nothing in the way of luxuory.

 

[Intrinsic_Value]

And here is another thought. What if most people have got it all wrong and prices are not insane. It is all relative right? We hear property prices increasing by 20% over the past year, people making 30-40% capital growth gains in less than 1 year in some places, places going for 50% above reserve, month on month, week on week strong capital growths etc...but what if Australian property (focusing on Melbourne's case, as that is where I am from) has been undervalued and dormant for all these past years. What if Australia is like a sleeping giant with the realisation of its 'true strength and value' right now? What if Australian property prices relative to the world (and what you get) should have attracted these prices 4 or 5 (or even more) years ago? What if this is equilibrium or the so called 'new equilibrium'.

Whilst I like to point out that I think prices are getting quite 'heated' but still, I only hold this 'pretty hot' line of thought based on growth that has well and truly exceeded my expectations and to some extent, the type of growth that has occurred for the past decade or so. Maybe I (as with many people) have got it all wrong, and prices are actually fair and reasonable (for what you get) and it is only NOW that people appreciate the worth of Australian residential property.

At the end of the day, property is just to put a roof over our heads.
As i said in the above post, this particular property is definately nothing to write home about, it is basic accomodation.
North Melbourne is close to the city, but we are not talking about houses, or even townhouses, its just a basic 2 bedroom apartment.

The market always works itself out in the end, but with incomes rising 3%-5% and with property rising much faster than that, things are moving out of equilibrium.

More to the point, when it becomes 'easier' to just speculate than earn money (i'm not just talking about PAYE but also business owners), you know the market is in a bubble.

Remember all those people during the dot.com boom that were giving up their day jobs to become day traders.
Well its starting to happen with property, not to the same degree because of the money involved. But a number of my wealthier friends are comparing their business returns to their property returns and giving hard though to just giving up on the businesses.
Why sweat in business, when you can achieve these sought of returns through just passive investing.

 

[aussierogue]

Indeed - why the assumption that a business be better returns anyway?

We all know McDonalds main biz was property.

If you have the cashflow and access to funds then property is a legit biz for anyone.

Why sweat when you can exfoliate?

 

[Player]

I am an investor first

I can only don my investor's cap. Prices are determined by the market.....supply/demand forces and the emotion of the crowd. If OO's want to pay these sums then I am all for it. It means my not insignificant portfolio in Melbourne will escalate and could be time to harvest one soon. At the very least should help with any re-vals once these prices hit the database as settled transactions.

I have no intention of purchasing (in Melbourne) at the current yields here and not so sure how much more upside the rental prices that tenants will bear. Whilst that is also contingent upon supply and demand, there is a cap (in some lower echelon suburbs, that did yield the best some time back) to what the market will bear there. There will be more shared accom and people staying at home for longer with the folks as we are starting to see anyway.

Whilst the market is what it is, my intuition is feeling somewhat uneasy at present and do not consider this frenzy is sustainable. I am not a bear and my schooner is half full, however I have lived and invested through good three cycles now and this pandemonium is not going to survive.

Another SS'er has brought the following line to my attention (on another topic) and I so agree:

Short term pessimistic.....long term optimistic. Source: Mr. B. Card

Caveat Emptor in Melbourne this year, or have very deep pockets to cover the gearing and buffers to cover any value softening that may bite (depending on your loan product and LVR) in the interim medium term (guessing 6-18 months).............the current nonsense will not last long.

 

[Wibbly Pig]

The current Melbourne real estate market has gone crazy. The frenzied buying and ridiculously high prices we are seeing are no longer based on fundamentals and are the result of an importation of a speculative credit fuelled bubble in real estate from Mainland China. The 50-60% price rises we have seen here in the past 12 months essentially mirrors what is going on in China. With the relaxation of FIRB rules in early last year, Australian property has essentially become a proxy of the real estate market in China. No one knows when and how this is going to end (perhaps when local Australian citizens realize most of their houses are being sold to overseas investors/speculators and they are priced out of the market resulting in a civil uprising), but when it does it is not going to pretty that's for sure. You would have to be a brave soul to be investing in the market at this point in time. There is significant potential for MASSIVE losses if and when the China bubble bursts. Don't forget apart from China, the rest of the world is in the deepest recession since the great depression!

 

[rprodrive]

Caveat Emptor in Melbourne this year, or have very deep pockets to cover the gearing and buffers to cover any value softening that may bite (depending on your loan product and LVR) in the interim medium term (guessing 6-18 months).............the current nonsense will not last long.

For as long as I can recall over the last 10 years people have been telling me that it is the wrong time to buy in Melbourne. When is it a good time? I have friends who waited for the downturn and now have nothing.

I am incredibly grateful I have my IPs and mostly made these purchases at times when family members older and apparently wiser than me said to 'wait'. I am in this for the long term - if the market drops it is only a small step backward after years of leaping forwards.

 

[jingo]

For as long as I can recall over the last 10 years people have been telling me that it is the wrong time to buy in Melbourne. When is it a good time? I have friends who waited for the downturn and now have nothing.

I am incredibly grateful I have my IPs and mostly made these purchases at times when family members older and apparently wiser than me said to 'wait'. I am in this for the long term - if the market drops it is only a small step backward after years of leaping forwards.

As an investor, I wouldn't be buying any more in Melbourne at the moment. The yields don't stack up at all! Take that flat that sold today. It would be lucky to rent for $400 per week in the current rental market, which is a little sluggish in this area at the moment. (How do I know? - I invest in Nth Melb).

I truly believe these prices are unsustainable. I shall be having my portfolio re-valued again when the transactions appear on the records and shall be increasing LOC's. Perhaps it's time to look in Brisbane - that market, from what I understand is still flat - any ideas anyone?

Regards Jason.

 

[Intrinsic_Value]

I can only don my investor's cap. Prices are determined by the market.....supply/demand forces and the emotion of the crowd. If OO's want to pay these sums then I am all for it. It means my not insignificant portfolio in Melbourne will escalate and could be time to harvest one soon. At the very least should help with any re-vals once these prices hit the database as settled transactions.

I have no intention of purchasing (in Melbourne) at the current yields here and not so sure how much more upside the rental prices that tenants will bear. Whilst that is also contingent upon supply and demand, there is a cap (in some lower echelon suburbs, that did yield the best some time back) to what the market will bear there. There will be more shared accom and people staying at home for longer with the folks as we are starting to see anyway.

Whilst the market is what it is, my intuition is feeling somewhat uneasy at present and do not consider this frenzy is sustainable. I am not a bear and my schooner is half full, however I have lived and invested through good three cycles now and this pandemonium is not going to survive.

Another SS'er has brought the following line to my attention (on another topic) and I so agree:

Short term pessimistic.....long term optimistic. Source: Mr. B. Card

Caveat Emptor in Melbourne this year, or have very deep pockets to cover the gearing and buffers to cover any value softening that may bite (depending on your loan product and LVR) in the interim medium term (guessing 6-18 months).............the current nonsense will not last long.

Player this is a very well phrased post from an investors perspective in my opinion. A very balanced approach to long term investing.
Kudos to you.

 

[JIT]

Jingo and Player, why do you have to wait till these properties have settled to do a revaluation? Will the valuer not consider these sales until they have settled?
Thanks.

 

[RocketMan]

Just make sure you get out before the music stops.

 

[jingo]

Jingo and Player, why do you have to wait till these properties have settled to do a revaluation? Will the valuer not consider these sales until they have settled?
Thanks.

Don't think the sale registers until settlement.

Could be wrong though - does anyone know this for sure?

Regards Jason.

 

[Player]

Jingo and Player, why do you have to wait till these properties have settled to do a revaluation? Will the valuer not consider these sales until they have settled?
Thanks.

Hey JIT

I could be wrong, however the sales prices need to be gleaned from the SRO (for each specific state/territory) once title is transferred and (in most cases) stamp duty is paid on the purchase price.....this data then appears on the various research sites such as rpdata, onthehouse, pds, etc.

I am not totally sure if proven sales alone are enough for valuers. Until it settles, the sale and contract could be rescinded, fall through, etc., so not really a "full on confirmed sale".

 

[JIT]

Appreciate the logic there Player, but that would mean rpdata is potentially 3 months (or less or more, depending on the settlement period) behind time.

I would have thought rpdata and the databases valuers and realestate agents use would be more up to date and "live"?

I can pay to access "the home price guide" as a member of the general public, and this data is always live and up to date at the time of purchase.

3 months, for example, in a rising market can mean a big difference in valuations. If the market is falling though, this could work in your favour.

I'd be interested in others' thoughts on this.

In the majority of cases an unconditional sale I would think would be just that. Not settling after this I would think would not happen very often.