What is Going On!!!!

:(

First of all, Greetings to Every1, I am new here, long time reader and now finally - poster.

Looking to get into my first IP. Don't want to get too far out of my comfort zone. So looking to get a 2 or 3 bdrm unit in Carnegie, Ormond, East Malvern and the like... Been doing research and diligently attending auctions over the past 2 month. Now, 6 month ago the average price of a 2bed villa unit in Carnegie area was around 460k, based on my personal research. Now in the last four weeks the market here has simply exploded. Only last week, 2 bedder in renovated condition went for 576k. Yesterday, I went to see a 30 year old 2 bed villa unit in East Malvern. This was being auctioned off at around 500k.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2008031230&prevChannel=Emails&prevPage=Email+a+Friend+Open+(postclick)&prevServer=Emails&s_cid=EmailAFriend:VIC

I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.

What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

Cheers
Vlad
 
Can you afford what the market is offering at the moment? If you can't then simply wait till you can afford it. If you can afford it then buy. If you can afford to buy the property at at least 10% interest rates then I would buy.

Predicting the market is hard. I may think the market is starting to overheat. However I thought 2009 property values wouldn't do anything (luckily I bought at the end of 2008).

So the question is can you afford to pay 10% interest rates at current market values? If yes buy. Don't worry about what may happen in the future as no one really knows if property will keep growing at current rate or do something different.
 
:(

First of all, Greetings to Every1, I am new here, long time reader and now finally - poster.

Looking to get into my first IP. Don't want to get too far out of my comfort zone. So looking to get a 2 or 3 bdrm unit in Carnegie, Ormond, East Malvern and the like... Been doing research and diligently attending auctions over the past 2 month. Now, 6 month ago the average price of a 2bed villa unit in Carnegie area was around 460k, based on my personal research. Now in the last four weeks the market here has simply exploded. Only last week, 2 bedder in renovated condition went for 576k. Yesterday, I went to see a 30 year old 2 bed villa unit in East Malvern. This was being auctioned off at around 500k.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2008031230&prevChannel=Emails&prevPage=Email+a+Friend+Open+(postclick)&prevServer=Emails&s_cid=EmailAFriend:VIC

I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.

Hey,

first of all, welcome to SS.

I just had a look at that Kerferd Street unit and to be honest, I am not surprised it reached the $700K's. Firstly, it is in Malvern East, a solid suburb. Secondly, Kerferd St is such a beautiful tree lined street with nice wide nature strips and thirdly, the location is prime - close to transportation etc. Malvern East also has a lot of nice big houses and you'd be surprised how many people like to live near these luxury houses! Also, units in Blackburn for example, are edging the $600K's already so I wouldn't think it is over the top.

Sure, there could be a case of underquoting, but at the end of the day, no one knows until auction day when the property is eventually sold. Who knows what goes through people's mind and what they perceive as value? In my opinion, quoted ranges should only be used as a guide and not be taken literally. This is because they do not either appreciate or take into account the fact that the property is a 'home' rather than a mere 'bricks and mortar' asset and you and I both know the volatility involved in buying with your heart, as compared with your head.

What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

Cheers
Vlad

On the contrary, I think the market can sustain such an explosive growth. Sure, we may not get 20% quarterly growth perpetually like some suburbs in this 3rd quarter, but even flat growth and consolidation from here on will already be enough to price out many FHB's and also investors alike. The prices paid for property today acts as a floor for the next round of sales and I can't see prices going down unless we have the same % of defaulters (highly unlikely given our banks stringent lending criteria/redtape and many people having 40-50% equity in their property purchases already) like the U.S or based on information asymmetry, future vendors underestimate their own property's worth. You can bet your bottom dollar that 9.9/10 houses that are sold today will never be sold for the same or a lesser price again!

In 6 months time, the cash rate would probably be 4 or 4.5%, assuming no nasty surprises so even if property prices plateau as of today, you would be worst off because you either can't borrow as much as you like, or even if you could, you would be paying more interest. The only way you win out is if you truly believe prices will drop but call me naive, but I honestly cannot see this happening (given the fundamentals and information at hand). In fact, I think higher interest rates could have the counter-effect of increasing or consolidating property prices through exacerbating the building shortages and/or improving rental yields as more and more people throw in the towel on owning a part of the 'Australian dream'.
 
DeeWha,

You are probably right. Property prices propbably won't fall too much from what they are now. But don't you think it is neccesary to be able to pay mortgages at around 10% interest before even considering buying a property?
 
DeeWha,

You are probably right. Property prices propbably won't fall too much from what they are now. But don't you think it is neccesary to be able to pay mortgages at around 10% interest before even considering buying a property?

I agree Pickle...you definitely need to have an interest/financing buffer and 10% would appear prudent at this current time. The banks would already apply a couple of % basis points on their 'assessment' rate though, but yeah, you need to make sure you can deal with the most extreme circumstances.
 
DeeWha,

You are probably right. Property prices propbably won't fall too much from what they are now. But don't you think it is neccesary to be able to pay mortgages at around 10% interest before even considering buying a property?

I have often heard this sentiment on SS ie "I budget for [insert a high number here]% interest rates and I can still pay for property". Risk mitigation is one thing, but this methodology in establishing it is where I respectfully disagree.

Firstly, the likelihood of residential interest rates hitting 10% is IMO tiny. Secondly, banks already add ~2% to the prevailing interest rate to calculate your serviceability. Finally the most important factor, is based on today's price and rental return, there is absolutely no way that the investment would make commercial sense at 10% mortgage rates unless there is something absolutely compelling or exceptional about the property.

As for your commentary about the market, I am a pretty regular attendee at auctions and follow a certain part of the market quite closely and what I am finding is that reserves are being set "around what you might expect", the final price being paid is 10%+ above this.

For example, this property. Rent you would get as is, is $330 maybe $335 per week. Outgoings are a fraction over $2000 per annum. You could update this place and increase the rent to $360-$365 per week and maybe at a push $370 pw.

It was on the market to be sold at $370,000 and was bid to the eventual sale price of $410,000k. Three bidders, all by my estimations were OO. From an investors persepctive it was 2 minutes into the auction before this was another, they paid 'what for it' scenario.

I would urge everyone, don't compete with OO and don't get caught up in this hype. This spurt in values cannot continue unabated IMO.
 
What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

Cheers
Vlad

I don't think it's a great time to buy inner city property anymore. Too much competition. More of a seller's market now. Look further out, middle to outer suburbs. The property market in Melbourne is moving very quickly. I don't think prices will fall anytime soon (so get that idea out of your head!), but there may be a pause here and there, which could represent small windows for buying at not excessive prices. But remember, the market here has already moved as much as 20-30% in a short period of time, so you're already paying much more than someone else did as early as 6-12 months ago. That sux, it's called bad timing. Buying at auction is likely to be an unrewarding exercise, look for what is passed in and for private sale, the property may not be perfect, but at least you won't pay excessively for it. In a rising market, it'll still go up in value. Or, make an intelligent offer before auction, but, the vendor would need an urgent sale or have rocks in their head to do this in the current market. In 6 months time, if you keep looking at inner city, we may well get another 20% rise, and you might still be looking for property. Search where there is less competition. Interestingly in these inner suburbs late last year, there was no competition. They were all being passed in at auction, not because they were bad properties, but because people were scared and read the newspapers too much, ie. letting 21 y/o journalists and professors of economics influence their financial decisions. There is a time for inner city property and a time for middle and outer property, the time for inner has just about passed us... if you want to maximise your short to medium term gains. Best wishes.
 
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:(

Yesterday, I went to see a 30 year old 2 bed villa unit in East Malvern. This was being auctioned off at around 500k.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2008031230&prevChannel=Emails&prevPage=Email+a+Friend+Open+(postclick)&prevServer=Emails&s_cid=EmailAFriend:VIC

I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.

Hi vladt,

Welcome to the forum.

Prices for units of this type in Malvern East have recently been selling for between $500-600. It is possible that the person who bought the property yesterday may have been an OO who had to have this particular property at all costs.


:(What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

I'd question as to whether the market can sustain that type of growth.

Cheers
Vlad[/QUOTE]

I think you are right in your reasoning above. As an investor, buying at the top of the market is not a great move. Especially with yields lower than 3%. I sometimes wonder if Melbourne will go into a period of long stagnation/falling property prices as has happened in Sydney between 2003 and 2009. (I have all of my property in a range of inner, middle and outer suburbs in Melbourne, so personally, I hope this doesn't eventuate!)

Buying a highly geared investment property before such a period would be painful - especially if personal circumstances meant that you had to sell just before there was another surge in prices.

Being forced to sell is how investors loose out in realestate.

I agree with what JIT has said above about not listening to 20 something yr old journalists. It pays to listen to people who have been through a few cycles (read experienced investors) who advise sitting on your hands when the market is too hot.

Regards Jason.
 
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I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.
Its the same here, although with lower prices its more like $50-100k more than I think they should be worth.

There's a two-tier market here though thanks to the REA, so houses on the north side of the town (its a small town so we're talking a few 100m difference) get marked down heavily by the REA and houses on the south side get marked up heavily, which basically results in really fast sales on the north side at more than the asking prices and really slow sales on the south lower than the asking prices, with the possible exceptions of properties with sheds, which invariably get marked up no matter what side they are on. Land on the north is valued at $30k, land on the south is valued at $60k. All the services in the town are in the middle so it makes no sense at all, but then I haven't lived here for 50 years like the REA has, I've been here barely 3 and I kinda think in capital city scale not small town scale.

My fully renovated and landscaped 3br house, according to the REA, is worth $5000 more than a totally untouched 1870s church. And in my opinion it should be worth $50,000 more but the house is on the north and the church is on the south - a 10 minute walk away. Neither my house or the church has a shed though ...

It boggled me that a 4br totally unrenovated house advertised for $265k sold for $250k a few weeks ago on the south after 6 months for sale while a similar size and age 4br totally renovated one on the north was listed for $220k but someone bought it in a week for $275k :eek:

I can see why more people on this side of town go with out of town agents.
 
What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?
Cheers
Vlad
Vlad
Such crazy prices only mean that in the future there will be either a correction or a long period of stagnation.
Either way, you don't want to get on a peak
so I think you should try to catch that wave by buying further out.
 
I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.

What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

Cheers
Vlad

That property in Malvern East is in the best pocket of Malvern East. I am not surprised it achieved $700k. Keep looking you will find something.
 
:(

First of all, Greetings to Every1, I am new here, long time reader and now finally - poster.

Looking to get into my first IP. Don't want to get too far out of my comfort zone. So looking to get a 2 or 3 bdrm unit in Carnegie, Ormond, East Malvern and the like... Been doing research and diligently attending auctions over the past 2 month. Now, 6 month ago the average price of a 2bed villa unit in Carnegie area was around 460k, based on my personal research. Now in the last four weeks the market here has simply exploded. Only last week, 2 bedder in renovated condition went for 576k. Yesterday, I went to see a 30 year old 2 bed villa unit in East Malvern. This was being auctioned off at around 500k.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2008031230&prevChannel=Emails&prevPage=Email+a+Friend+Open+(postclick)&prevServer=Emails&s_cid=EmailAFriend:VIC

I couldn't believe my eyes/ears when this property sold for 705k yesterday. I am talking 8 squares of living in an unrenovated condition. This is just plain crazy. Anywhere I turn, people are paying 100-150k more than my percieved reasonable price should be.

What do I do? Do I jump in or wait till things settle?! Surely the market can't sustain such an explosive growth? It feel like a wrong time to buy in?! On the other hand, if I miss on the opportunity now, what would happen in 6 month? Another 20% rise?

Any suggestions/advise would be greately appreciated.

Cheers
Vlad


Do you know if the buyers were chinese ?
 
First of all many thanks to everyone who replied to my original post. Interestingly enough, your comments were completely opposite to what I've expected.

I was expecting most of you to agree with my sentiments. On a contrary, you recommendations to stay in the market have reassured me somewhat.

I will have to "give up my dream" of buying in Carnegie/Murrumbeena area and move further away where properties can still be purchased at a reasonable dollar. Afterall, paying 600k for a 2 bedroom unit with an average rental income of $360/week is far away from a CF neutral investment. IMHO there is very little to be gained (long term and short term)in buying such an investment.

Looking further away, I've shortlisted couple of more Bayside suburbs where prices are still within the realms of reality. For example a 3bd house in Parkdale can be had for approximately 600k with an average rental income of $450/week. Providing there is some redevelopment and depreciation potential, should this be a better way to go?!

What do you guys think of Mentone/Parkdale, both beach and non-beach sides. Any recommendations on what to look for in these areas? In my opinion, both of these areas are populated by families with plenty of schools, parks and public transport.Not to mention an express train from the city.

Any comments would be much appreciated.
Thanks
vladt
 
I'm in a similar situation, continually being priced out of what I perceive to be reasonable value even in the outer suburbs.

As an example unrenovated 2BR units were selling in August this year for 300k in an outer easter suburb, I saw a very comparable property go for 320k one month ago, and then another for 352k yesterday. This is 16% capital growth in less than 3 months.

A couple of things i'm seeing at the moment are a severe lack of reasonable supply and a lot of interested buyers who have a fear of missing out. This is causing the under bidders who are missing out to pay a lot more the next time to secure a similar property. Who thinks this is sustainable? I am starting to see value diminishing over the medium term if purchasing right now, and the risk increasing (rising interest rates, flat prices for a few years). But then again prices may very well rise another 20-30% in the short term.
 
A couple of things i'm seeing at the moment are a severe lack of reasonable supply and a lot of interested buyers who have a fear of missing out.

No lack of supply. Supply has been on historical highs...over 2500 properties up for auction just in the next 4 weeks. This is on top of hundreds more in private sales.

Just lot more buyers in a super heated market.

Harris
 
I think it depends on the area Harris. Are you currently actively looking at resi IP's? I know you are fairly Frankston heavy, and everytime i've searched that area, or even the inner suburbs apartment markets, there have been pages of results. However the areas i'm currently looking (granted my criteria is quite specific) i'm lucky if there's 1-2 new listing per week. This, added to huge amounts of potential buyers I think is one of the reasons for growth.

No lack of supply. Supply has been on historical highs...over 2500 properties up for auction just in the next 4 weeks. This is on top of hundreds more in private sales.

Just lot more buyers in a super heated market.

Harris
 
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