Melbourne's Hot Property Market

JP Morgan once said that he made his fortune by selling too soon. I like that sentiment. :)

There is a hidden meaning to this quote, its not just about price, but about having a market to sell your position into.

When selling it is alway 'easier' to sell into strength because any selling demand is easily accounted for with buying demand.

Therefore sometimes its not about achieving the price you want, but being able to offload without compromising price sensitivity.

This idea was further talked about in Reminiscence of a stock operator.
Written about 80 years ago, but by golly its still as relevant then as it is now.
 
I spent a year looking for a PPOR in Melbourne and found that whatever the agent quotes were always way off the mark.

This wasted a lot of my time and I missed out on some good buys as I was 'unprepared'. Finally I realised that adding at least 30% and then more to the price they quoted would get me within the competition.

I need to know there's light at the end of the tunnel. Please tell me that you eventually found something that you are happy with that was within your budget.

The unethical behaviour of real estate agents really makes me angry. I went to inspect a 2 bedroom townhouse in Kensington recently. http://www.realestate.com.au/property-townhouse-vic-kensington-106294721?tm=1270076264&c=7475960

The agent told me the EPR was $490,000 to $530,000. A few days before the auction he rang to ask me if I'd be bidding. I said I wouldnt because I thought it would go for more than $530K and was out of my price range. The agent insisted that 'buyer enquiry' was only at $510K and pushed really hard for me to attend the auction. The property sold for $621,000! So your 30% margin above EPR was right on the mark for this one.

The trouble is that some agents actually do give realistic estimates, so I might be ruling out properties that I could afford.
 
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Hi Intrinsic Value - Yep I agree. I sold my holiday house only 5 months ago purely because its a rising market. In a flat and downward market they are virtually impossible to offload. With the proceeds I bought here in Melbourne.
 
I need to know there's light at the end of the tunnel. Please tell me that you eventually found something that you are happy with that was within your budget.

The unethical behaviour of real estate agents really makes me angry. I went to inspect a 2 bedroom townhouse in Kensington recently. http://www.realestate.com.au/property-townhouse-vic-kensington-106294721?tm=1270076264&c=7475960

The agent told me the EPR was $490,000 to $530,000. A few days before the auction he rang to ask me if I'd be bidding. I said I wouldnt because I thought it would go for more than $530K and was out of my price range. The agent insisted that 'buyer enquiry' was only at $510K and pushed really hard for me to attend the auction. The property sold for $621,000! So your 30% margin above EPR was right on the mark for this one.

The trouble is that some agents actually do give realistic estimates, so I might be ruling out properties that I could afford.

I recognize that it is quite rough and disappointing when a place you thought was within your range turns out to be well above it. We had this happen twice at auctions where the quotes were for low 500s and had places selling for mid 600s.

A few questions just to help clarify:

At the auction at what price did it pass reserve and get declared on the market selling today?
- One place we missed out on went on the market within the range quote and I was amongst the bidding still, but then sold for over 100K more.

Do you now have a better feel for places that are clearly going above your price range? You probably need to assume that any place you like is too expensive.

Thirdly it is probably a waste of time to try this, but you could have offered him over the phone $530K to see if it would stop him being a lying git.
 
Hi Intrinsic Value - Yep I agree. I sold my holiday house only 5 months ago purely because its a rising market. In a flat and downward market they are virtually impossible to offload. With the proceeds I bought here in Melbourne.

Hi aussie...

can I ask....Where was the holiday house...? and did you realise you were buying into a rising market in MELB.....?
Also, did you have CapGains to pay and did you make enough after buying and selling costs over both transactions...?

Just curious to know how your strategy works, afterall you may help me out here....
 
The trouble is that some agents actually do give realistic estimates, so I might be ruling out properties that I could afford.

This is definately true, whilst the majority probably "under quote", there are some that give honest reliable estimates, and I work for one of them. I'd suggest you do lots of homework and check out all the auction results for the area you are looking in, even properties you aren't interested in, and you will soon get a feel for those agents who consistently and deliberately under quote. But never rule out a property solely on the price you see assuming it will go 20-30% more, without doing any homework as it just may be a reliable quote and you could be disappointed when/if it does go within your range. I've seen that happen before because they assume all agents under quote.
 
Howdy thorpey

I dont really have a strategy to pick markets. i do have a long term broad strategy with regards to growth and cashflow.

So the simple answer is this. I had the holiday house for 7 years. Mediocre growth. Cost 180 to build sold for 270k. So not huge cap gains accross two people.

I wasnt overly happy with it as an invesment and my wife didnt enjoy her trips there. So we sold when the market picked up.

Selling meant that I now had a Melbourne IP paid off with 150k in the bank.

So my strategy was to go to acutions to see what was around. if something was cheap I would jump. In Novemeber I went to a local auction and the house was passed in (the only one for the weekend in my suburb). Put in an offer below reserve and got it. Guy wanted to sell.

So i was lucky to have more exposure to Melbourne property now then 5 months ago. Bit of a fluke.

So now have 2 IP's in Inner North worth approx 1.7 mill with 1mill equity. That is assuming 10 percent growth since November. I think the growth is actually more but im being conservative. Will hold them for as long as possible.

So my story has more been about just being liquid, getting rid of non performing assets and seeing opportunities.

Nothing flash!

Wish i had 30 ips - lol
 
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Thanks aussie...!

can I still ask where was the holiday house and why was it not performing...you obviously built it by the sounds of it..? How long ago....?

Lots of questions sorry (and don't answer if you don't wish to hey) but your example is very good for this thread as it is specific to Melbourne's hot property market and you seem to be on a winner Mate...!;)
 
Hi aussie...

can I ask....Where was the holiday house...? and did you realise you were buying into a rising market in MELB.....?
Also, did you have CapGains to pay and did you make enough after buying and selling costs over both transactions...?

Just curious to know how your strategy works, afterall you may help me out here....

A holiday house is a 'discreationary' property purchase. Therefore the price and the ease with which it can be bought/sold much more influenced by economic sentiment , than a 'non discreationary' property purchase such as thouse that an owner occupier would be focusing on.
 
There's an interesting article up on the GMO site analysing the China Bubble. It can be downloaded from here. (Free registration required.)

And it's summarised here.

The article states that there are ten signs of a bubble, and these can be recognised in China:
  1. Compelling growth story - China's population is vast, the country is rapidly urbanising, and economic growth is expected to run at 8% per annum for the next decade.
  2. Faith in the authorities - The Communist Party will avoid the economic pitfalls that other nations will make. (I've never figured that one out, given the failure of central planning pretty much everywhere.)
  3. Investment boom - 30% growth in fixed asset investments last year. Investment itself ran at 58% of GDP last year.
  4. Corruption - China is in 79th in Transparency International's Corruption Perception Index and falling. (The general population in China have a very low opinion of the Party and associated corruption.)
  5. Easy Money - Booms are generally the result of excessively low interest rates, and China's are below their neutral level given its GDP growth.
  6. Fixed Exchange Rate - The Dollar peg of the Renminbi. Caused capital inflows and the export boom.
  7. Credit Boom - Last year bank lending increased by the equivalent of 29% of China's GDP. (Considering that some economists get nervous about debt around the GDP level, that's a lot of borrowing.) Serious risk of a hangover after the credit binge.
  8. Moral Hazard - State control of banks.
  9. Risky Lending Practices - The banks are carrying a lot of bad loans on their books, but provided the economy stays good this isn't a problem.
  10. Loans secured on dodgy collateral - High stock market valuations and house prices.
Their summary is that China is in a big bubble, house prices are extremely high (Beijing is above Tokyo in 1990 by some measures), and the lending policies are lax, with the base bank rate being far too low.

In short, it's not going to end well.
 
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There's an interesting article up on the GMO site analysing the China Bubble. It can be downloaded from here. (Free registration required.)

(I've attached a copy to this post. I'm not sure of the copyright issues, so if the mods don't like it then please remove it.)

And it's summarised here.

The short summary is that China is in a big bubble, house prices are extremely high (Beijing is above Tokyo in 1990 by some measures), and the lending policies are lax, with the base bank rate being far too low.

In short, it's not going to end well.

Perhaps cashed-up Chinese investors are seeing the writing on the wall and hence why they are investing in what they hope will be a more stable property market in Melbourne, just as Hong Kong residents were buying up real estate in Auckland and Vancouver prior to the reversion to Chinese rule in '97.
 
Do you now have a better feel for places that are clearly going above your price range? You probably need to assume that any place you like is too expensive.

Thanks Neophyte, its taken me a while to accept the sad reality, but I've finally come to the same conclusion! So now I'm looking at properties I would have turned my nose up at previously and suburbs a bit further out.

I am surprised by how many sale prices are not disclosed in the newspapers. This makes it a little harder to get a good handle on market values.
 
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!

Hi everyone i am new to this forum, but i had to respond to this comment which i totally agree with. I think everyone here should also be aware that one of the main reasons, middle class Chinese, not to mention the wealthy Chinese community can afford and are encouraged to purchase here is becouse the Chinese government is providing interest free loans to its citizens as a form of encouragement for its citizens to pretty much "buy the world". How can most Australian compete with that? I think, one day we will wake up and find that Australia is not owned by Australians any more, and future generations will be renting and their landloards will be all foreign investors. I think many countries make it very difficult for foreign ownership. Why is that not the case here? why are we not protected???:confused:
 
if anyone has caught a train in melbourne lately, there is a strong chinese/indian majority as passengers. Not that there is anything wrong with this, but just like the italians and greeks post world war 2... fair to say migration from asia is strong as it has been.
 
Hi everyone i am new to this forum, but i had to respond to this comment which i totally agree with. I think everyone here should also be aware that one of the main reasons, middle class Chinese, not to mention the wealthy Chinese community can afford and are encouraged to purchase here is becouse the Chinese government is providing interest free loans to its citizens as a form of encouragement for its citizens to pretty much "buy the world". How can most Australian compete with that? I think, one day we will wake up and find that Australia is not owned by Australians any more, and future generations will be renting and their landloards will be all foreign investors. I think many countries make it very difficult for foreign ownership. Why is that not the case here? why are we not protected???:confused:

i don't think chinese foreigners represent a high majority in property prices. They only are highly represented in some suburbs in melbourne that i know. You won't see many of them buying or counter bidding in dandenong, frankston, mt eliza, hoppers crossing or certain suburbs. Interest free loans in China? that's the 1st i've heard of it. In terms of landlords.. not really they just buy to have an empty place to stay or for their kids. So i don't think you have much to worry about their influence. If you want to buy in balwyn, camberwell, kew, toorak or some of their favourite suburbs yeah then that is a different story.

They're highlighted quite frequently in the papers coz of this. However as an australian myself, it does bother me to some extend to buyer but as a seller/vendor it represents an rare opportunity.

how could i say it - if you have 2 aces in a card game, those aces are only of value to you if you are able to play your hand. If everyone folds - you got nothing. Using the same principle. if you had a property assuming it's worth 700K but no buyers. it means nothing if you need to do sell assuming you don't wish to wait too long.
 
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