While local real estate preoccupations have been rushing around in ever-diminishing circles (“It’s supply/demand.” “It’s interest rates.” “It’s the Chinese.” “It’s negative gearing.” “It’s land banks.” “It’s [insert your answer here].”) we have been rushing around looking for answers in one big circle: the world.

The US? The top end in New York and Washington. Prices rebounding over the past 6-8 weeks and a lot of positive sentiment.

Hong Kong? The expats look homeward and they don’t see a lot of logic in our market (really?), they see it as over-priced and that the AUD exchange rate is particularly unkind; and still they want to buy in. They think prices are still heading up, they listen to our warnings and brief us to buy.

China? They look at the FIRB rule changes, shrug their shoulders and figure there will be a way around them. This against a background of soaring prices in top-end China (making purchasing here little more than dipping into the petty cash tin) and a desire to move their money out of China. Why Melbourne? In part because we had a Chinese Lord Mayor, but Canada and Europe are also on their radar.

While on the FIRB, it seems that horse has already bolted, not that it had a great impact at the top end. Most activity was in Boroondara and then mainly between $1 and $3 million. The main beneficiaries were the agents in winning listings: “Come with us! We have multiple Asian buyers!” Yes. Anything you say.

Truth is, the person you’re bidding against is probably from no further than a suburb or two away and has the same imperatives – schools, upgrading, change of circumstances – as you do. You are not bidding against a tsunami of Chinese Yuan.

Meanwhile, in MEL …

Easter and Anzac Day are behind us and the market-proper now resumes. There is still too little quality available and still many cheque books ready to be waved; but not indiscriminately.

36 Walsh Street, South Yarra. A good Gillespie townhouse. They rejected a prior offer of $5 million and had a lonely bid of $4,820,000 on the day. Passed in. Where were those other rumoured bidders?

181 Gipps Street, East Melbourne, passed in (again) at $5,900,000. A lot spent on advertising for a return which amounts to a serious ouch.

More loneliness at 3 Willow Street, Malvern, One vendor bid of $3 million.

Could it be that those at the top have better things to do over long weekends?

While musing on Big Things, our friend Fred passed on a link to a Financial Times interview with Jeremy Grantham. Grantham sees most of the world’s real estate bubbles as now deflated with just two still well above long-term trends: the UK and Australia. See for yourself here; and more context here.

In other news, the agents have set up their own paper. Advertising was one of their major profit centres until denied to them by the ACCC. So now they’re to become media moguls and to advise their clients to place ads in their very own publication (do we smell conflict of interest? Us? Never!). This is a supremely death-defying stunt in the face of the internet, for surely print’s days are numbered.

Yes. We do live in interesting times.

David Morrell

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Bayside: Could this be an election year?

In attempting to understand the surge in property prices over the past nine months, many theories have been put forward.

The one that has touched a raw nerve with some and has been picked up by the media over the past couple of months is the impact of foreign buyers.

It’s a lazy view that foreign buyers are buying in numbers at auctions and in so doing excluding locals from owning a property of their choice and driving the market to ever higher levels. From letters to the editor to current affairs programs, the reaction is well out of line with reality, is a ratings grab and has hints of xenophobia.

Do we blame the change in the FIRB regulations for the unrealistically high property values currently being experienced or seriously examine the real reasons: strong population growth colliding with lack of available property?

Why lack of property ?

A tangle of restrictive planning rules for the established inner and middle suburbs is limiting the construction of new houses and there is relatively little release of new suburban allotments in the outer locations. Throw into the mix the banks’ reluctance to lend to developers for medium and higher density housing.

So it is understandable that owners are reluctant to sell, fearing they will not be able to replace their existing houses. Better to stay put and renovate the kitchen and bathrooms (again?).

Investors are also returning to the market with some no doubt wishing to balance their investment portfolios by borrowing through their super funds to buy real estate.

While it is true that some foreign buyers have taken advantage of the relaxed FIRB rules, they are not the reason for the surge in property prices.

Political expediency is a powerful thing and so the reversal to the previous regulations limiting foreign ownership will be seen as a decisive Government reaction; but it’s addressing a problem that isn’t really there while the real problem, inadequate supply, is yet to be seriously tackled.

Meanwhile, in Bayside, while it has been a quieter month for auctions with long weekends, school holidays and Easter all disrupting the flow, some $5 million plus properties are finally starting to move.

2 Manor Street, Brighton, a double-storey Victorian house of 12 principal rooms on 1250 sq m in one of Brighton’s best streets, was last sold in February 2008 for $4.555 million. It brought further joy to a selling agent over the weekend. A post-auction negotiation with a solitary bidder was eventually resolved at $5.58 million – half a million dollars over the pass-in figure.

1A Martin Street, on the beach, has finally sold following an unsuccessful EOI campaign last Spring. A change in agent and a stronger market saw a sale eventuate at $8.1 million, ironically about the same figure that was refused last year. For our money, this is on the money.

139-141 New Street has quietly sold after a low key month-long internet-only campaign. A superbly restored and extended single-level Victorian on gardens of 2000sq m, it changed hands at $7 million.

23 Cosham Street just topped $5 million after it languished on the market for over twelve months. Word is agent and vendor are relieved. Word is that one of them is happy.

17 Albert Street, another 2009 wallflower, finally found love for a figure believed to be around $3.9 million. We were at the auction last year where it was passed in after a bid of $4.1 million. Ouch.

369 St Kilda Street (no link, sorry), on the corner of Martin Street. No love last year but a respectable sale recently at $3.063 million. Bulldozer expected soon.

49 Were Street, next door to South Lodge, sold for $2.24 million. More bulldozers in prospect.

52 Asling Street, 1030 sq m backing onto the railway track and with a tennis court. A change of agent brought the required result: sold for $2.15 million.

In adjacent Brighton Beach (oh, OK, Hampton) 33 Bolton Avenue sold after an EOI campaign: $4.08 million.

And so to May. Five uninterrupted auction weekends ahead. Hold or fold time? Whichever way it goes, quality and location are still the keys.

Damian Taylor

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(Originally posted March 29, 2010)

Yup. Us.

Last week we were announcing cracks in the edifice of the top end. This week we, and anyone else foolish enough to venture an opinion, have been slapped in the face by the cold wet fish of reality.

Where’s your Nostradamus when you need him?

And if you are listening, Michel, could you give us a sign regarding where this roller-coaster of a market might go next?

We now stare into the abyss of April: Easter and the Anzac Day long weekend loom, when the lights will dim more surely than Earth Day. The large question is where will we be when they flicker on again?

And so to the joys and sorrows of the weekend. Joys which were all among the vendors; both on- and off-market.

8 Bromley Court, Toorak, prime land, sought by two people, sold for $10 million and there’s a single-level covenant so you can’t even build a two storey house there.

But hotter still was Hawthorn.

5 Moore Street, not a AAA address, but a good, well renovated Victorian on 14,000 square feet. It sold for an amazing $6,450,000. Fluke? Not exactly. There are still three under-bidders out there and house-hunting.

They’re not alone. In several other $6 million + properties, we were competing with more than one other party.

This will be tested further later today when Expressions of Interest for 482 Barkers Road Hawthorn East will close. There’s an expectation of $11 million; which we expect is a lot of money for a busy road.

Even further down the scale bidding could be frenetic. 18 Northcote Road, Armadale, a double-fronted Victorian with position issues had expectations from all concerned of $2-2.2 million. It sold for $2,810,000. Nice result for the vendors, however, they had already purchased nearby for about that amount; but twice the size and twice the position.

Highlight among the units was 3/112-116 Leopold Street, South Yarra. It sold for an impressive $3,215,000 with multiple bidding, which reaffirms the incredible appetite of the buying public to secure properties west of Punt Road in South Yarra.

So where are all these cashed-up buyers coming from? Where is that river of money being dammed?

Here, people. Here. While the agents are trumpeting their recently acquired international marketing skills, at the top end the people signing the cheques are, overwhelmingly, locals.

Underquote? Moi?

Ask the agents and you’ll be told that under-quoting is inevitable in a rising market. “Can’t be helped. We’re doing our best.”

Ask anyone else and they’ll tell you it’s predictable, deceptive and should be stopped. Ask us and we’ll tell you it’s a battle we’ve been fighting these last seven years.

The Age, to its credit, has again taken on the (agents’) hand that feeds it by, again, detailing some of the malpractice and some of the near-futile efforts of the ACCC, etc., to stop it.? We now have a near-unenforceable law demanding ethical behaviour from too many agents who have no wish to comply.

The irony is that it is the agents, too, who are harmed by every rotten apple in their barrel. When in decent company they’re ashamed to admit to being estate agents, they should know they have a problem.

But if they are the new social outcasts, it is they alone who are to blame; and they alone who can do something about that.

David Morrell

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Bayside: Slowly

Whether it was the distraction of the GP or the commencement of the school holidays, Bayside was certainly more subdued after the frenetic activity of the week before. Auction attendances were down and bidding was more measured.

Did that have to do with the quality of the properties on offer or are buyers simply showing signs of battle fatigue following relentess weeks of dealing with misleading price expectations and the emotional consequences of, in many instances, missing out by hundreds of thousands of dollars.

Of the transactions noted from the past week, the sale of 31 Gordon Street, Hampton (and guys, it is not in Brighton Beach as reported) is worthy of comment. TET was given a heads up three weeks ago by the vendor’s representative that an offer had been made “at very close to $5 million”. Seems this may have been a figment of a fertile imagination because we can report the property was sold last week for $4.5 million, a mere half a million or so shy of the mark. Now this was an Expression of Interest campaign, which is a fancy name for a private sale in which the buyer is left to guess what the vendor wants, and is then fair game when trying to assess the real level of interest and fair value for the property. In this case we did some checking before the close of the EOI and it appears the vendor was blissfully unaware of the offer “very close to $5 million”. You have to ask, who is this nonsense serving?

The highest auction result on the day in Brighton was at 133 New Street. A substantial period house on 1174 sq m, it sold for $2.74 million.

56 St Andrews Street, ‘tween Bay and Church Streets, attracted two bidders but stalled after it was declared on the market. It sold for fair value at $2.61 million.

125 North Road sold prior to auction for $1.955 million. Ditto up the road at 2/48 North Road: $1.606 million.

A private sale during the week of an unremarkable 80′s style house on 900 sq m at 8 Wallace Grove, points to the strength of the market in the early months of 2010. Following a failed marketing campaign late last year in which the best nibbles were in the mid $2 millions, and following a change of agent, the property has just been sold at a very respectable $2.85 million – a handy 10% premium in five months.

As reported in recent weeks, Brighton’s top end (over $5 million) has been largely notable for its absence over the last couple of months.

That will change if discussions at two properties in the Golden Mile bear fruit.

We understand that negotiations are continuing at 34 Dawson Avenue with a buyer having declared interest at very close to $7 million. Nearby, at 13 Chatsworth Avenue, an offer in the published range of $7.8-9 million has been received. Watch this space.

Heading down the Bay …

Sandringham reported the sale of 2 Victoria Street for $1.52 million and 22 Kirkwood Avenue followed on from last weekend’s success at number 17. They realised $1.73 million and $1.885 million respectively.

Black Rock’s 243 Beach Road (on around 1021 sq m) sold at auction for $2,230,000 and in neighbouring Beaumaris, 140 Tramway Parade changed hands at $1.8 million.

With April interrupted by Easter, School Holidays and the Anzac Day long weekend this year, agents are now gearing up for May. By all reports, Bayside stock levels for that month are below expectation and that is not good news for buyers.

We will return on Monday week.

Stay safe over the Easter period.

Damian Taylor

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