August 2010

 August 2010:   What Price is Correct?

Welcome to your August propertybuyer market update.  In this edition we will look at…

1. Market update – What price is correct?
2. Clients stories
3. Where & Why to invest in Sydney’s hot spots - Seminar Wed Sept 8
4. Units outperform houses
5. Inspiration Corner - Thoughts of the Month

1. MARKET UPDATE

The winter months (June/ July/ August) have seen a significant slow down in the property market.  Auction rates have declined in Sydney and Melbourne to around 60% as the market is running out of steam.  

I believe the mood of the market has changed.  With the looming Federal election this coming weekend, many buyers have been fence sitting, waiting for a sign in the sky to see which way things will turn out.  My prediction is that the sky won’t fall in and life will continue…..BUT, we are likely to see property prices go sideways for the rest of the year as the pendulum swings back in favour of buyers.  The onset of the spring selling season will see many more listings flood the market, which means more competition amongst vendors.  

Spring is the major selling season of the year.  The change in air temperature, fresh budding leaves, wattle blooms and the longer days bring an expectation of new beginnings.  Vendors like to sell in spring because the presentation of gardens and natural light can be magnified and settlement can take place in plenty of time for Christmas.  

Under-quoting is continuing to be an issue for many buyers.  This is where a selling agent quotes a property price of say “offers over $600,000” but the actual value and realistic selling price is more likely to be $710,000.  My team has seen countless examples of this practice over the last 7 months.  It’s partly a reflection of the undersupplied market, but sometimes it’s a reflection of poor agent practice.   The catch phrase for this outdated tactic is “quote them low and watch them go!”  Like bees to a honey pot the buyers swarm around the perception of a bargain only to be disappointed again.  

What is the correct price for a property?  In simple terms the answer is what a buyer is willing to pay (but not forced to pay) in a transaction with a willing seller (who is not forced to sell).  Each individual buyer places a different intrinsic value on the features of a property.  Buyers will generally pay more for a harbour/ beach view, a large yard, big balcony, north facing aspect, high ceilings, double lock up garage or a double brick home.  It is these individual preferences that make pricing property an interesting science.  There is no exact formula for determining value.  However, there are several guiding principles that are used and in fact regulated by law.  

A selling agent must provide comparable sales as evidence for a vendor in listing a property.  They must aim to give a range 10% below and above the estimated selling price.  Section 72 of the Property Stock and Business Agents Act 2002 requires that:

“False representation to prospective buyer
(1) A real estate agent acting pursuant to an agency agreement for the sale of residential property or the employee of such an agent must not, by a statement made in the course of marketing the property, falsely understate the estimated selling price of the property.”

We recently shortlisted a quality 2 bed unit (2 bath & 1 car) in Ultimo where the agent quoted over $550,000.  It ended up selling for $705,000.  We represented an investor client at auction in Potts Point for a simple 1 bed/ 1 bath apartment that was quoted as around $400,000.  This unit ended up selling for $477,000 after spirited bidding from several parties.  In Greenwich we sourced a new listing where the agent was quoting between $1.0m to $1.1m for the entire campaign, yet on auction day it achieved $1.34m.  

These examples reinforce the need for significant market research prior to making offers or attending auctions.  (Note that we did not buy any of these properties for clients as they went just above our independent appraisal range).  

Below are seven key items that a sales agent must consider when advising a prospective seller on value.

1. Comparable sales - Recent sales for properties with similar number of bedrooms, land size, etc.
2. Market conditions – Consider consumer sentiment, macro economic outlook and local market issues.
3. Optimum / alternative uses - Assess potential for alternative uses or redevelopment
4. Restrictions- are there any easements, covenants and rights of way that impact value?
5. Property features  - eg  zoning, architecture, views, proximity to amenities such as shops, schools, transport, physical condition, size, shape and slope of land.
6. Special conditions – check if the sale is subject to extended settlement, tenancy, lease back etc.
7. Other relevant facts – this may include method of sale, marketing campaign/ strategy, or specific vendor’s instructions (eg inspections only at night) that can affect value.  

• Discover why Sydney is currently one of the best markets in Australia for property investment.
• Uncover the key hot spot suburbs for maximum capital growth and yield
• Understand what is driving the market in specific areas
• Population projections, growth predictions and migration levels revealed
• Will affordability limit price growth?  
• How to save $22,500 in stamp duty off you next purchase.
• Practical examples of successful investors

Finance Strategies

• What the banks don’t want you to know
• Discover how to use your dead equity safely and wisely
• When to choose interest only vs principal and interest
• The right way to structure your investment loans to pay off your home loan faster
• How to maximise your borrowing capacity

Maximising Tax deductions

• Simple methods for claiming legitimate deductions
• Why tax depreciation schedules are essential
• Little known allowances you can claim

Limited seating available:   
Book now to reserve your seat.  http://www.stickytickets.com.au/4077


Speaker Profiles:

1.  Rich Harvey, Managing Director and founder of propertybuyer

Rich will present many tips that could propel your knowledge to the next level.  Rich is a licensed buyers’ agent, property investor and professional economist with over 17 years experience in the property industry.  He is a research expert and highly skilled in investment analysis and negotiation techniques that can deliver real savings for his clients. Rich and his team have purchased over $475m worth of property for clients.  

As Australia’s leading Buyers Agent, Rich has won 17 major awards including the prestigious National Telstra Business award in 2007 and also named the winner "Best Buyers Agent in Australia" by the Real Estate Institute of Australia (REIA).


2.  Ryan Ewart, Mortgage Choice

Ryan Ewart and Nathan Newham are Multi Franchise owners in Australia’s leading Mortgage Brokerage, Mortgage Choice. As part of Mortgage Choice, Nathan & Ryan have access to hundreds of different loan products from over 25 different lenders across Australia and pride themselves on understanding all lender policies and criteria.

Over the past 10 years they have been awarded numerous Business Excellence Awards and apply a ‘Client for Life’ attitude in all customer dealings.  Ryan and Nathan have built up a network of thousands of satisfied clients around Australia and have settled over a quarter of a billion dollars worth of loans.

2010, 2009, 2008, 2006 and 2005 Mortgage and Finance Association of Australia (MFAA) Awards Retail Aggregator / Originator of the Year.  2010 and 2009 The Adviser magazine Top 25 Brokerages list - Number 1


3.  Bill Tompkins, Depreciation Professionals (DepPro)

DEPPRO is Australia's leading specialist in depreciation allowances for investment properties. Servicing all of Australia's cities and regions, they focus solely on providing Depreciation Reports for owners of residential, commercial, industrial and leisure properties.

Our exclusive specialisation in depreciation ensures your needs are met with the highest level of personalised service. Ensuring a quick turnaround time, DEPPRO's service is accurate and cost efficient.  



4.  UNITS OUTPERFORM HOUSES

The results of the RP Data-Rismark Home Value Index for June showed that the unit market has outperformed houses over the last 12 months and during the last five years.

Historically, houses have enjoyed a much more rapid appreciation in value than the growth recorded by units. There are a number of reasons for this more rapid level of growth: greater demand for houses, diminishing availability of development land, higher quality of stock and design available for houses rather than units and the greater Australian dream to own a house rather than a unit, amongst a number of other reasons.

Despite these factors, over the last five years units have recorded average annual value growth of 7.4% compared to 7.1% for houses. However, the results suggest that the superior performance of units compared to houses is quite a new phenomenon as over the last 10 years the average annual value growth of houses (9.9%) has well and truly outperformed units (8.0%).

The improvement in the capital growth performance of units in recent times is most likely due to affordability issues. Based on current capital city median prices, unit prices are recorded at $420,000 compared to houses at $495,000. Accordingly, units offer a much more affordable alternative housing option than houses.

Many unit developments, particularly newer units, are also in strategic locations and are where a large proportion of the market aspires to live but cannot afford to buy a detached home. In many cases, apartments provide a viable and relatively affordable option to buy into these markets. A good example of this is Bellevue Hill in Sydney. Bellevue Hill is one of the country’s most expensive housing markets with a median house price of $3.85 million, unit prices in the suburb are recorded at $620,000, -84% more affordable than a house.

The inner city and well established residential areas enjoy high demand for units because in most instances they are: well catered to by local amenity including shops and restaurants, well located close to working nodes and are serviced by existing public transport amenity which is often not available in outer suburbs of the capital cities.

Over the 12 months to June 2010, unit values have increased by 11.4% compared to growth of 10.2% for houses. On a month-to-month basis, annual value growth for units has been outstripping that of houses fairly consistently since April 2008.

Throughout the individual capital city markets, the growth in the value of units has outperformed houses within Sydney, Brisbane, Perth and Darwin over the last 12 months.

Throughout the capital city markets Hobart has the most affordable units with a median price of $254,250 and Sydney the most expensive with a median of $450,000.

When the differential between median house prices and unit prices is analysed you gain a greater insight into the performance of the market.

Darwin has the greatest differential between house and unit prices at $142,176 and the smallest differential is recorded in Adelaide ($67,252). Sydney, Brisbane and Darwin each recorded a differential in median price of at least $90,000 and these three cities each recorded a greater level of annual value growth for units rather than houses over the last 12 months. Perth also recorded a superior performance for units over the last year however, the price differential in that city is $75,000.

Although the popularity of units is increasing, since the onset of the Global Financial Crisis (GFC) many developers have found it much more difficult to obtain finance for higher density developments. This is due to the fact that the banks are becoming more risk adverse and the fact that a number of high profile higher density projects have either been cancelled or delayed. The latest building approvals data showed that over the year to June 2010 the number of approvals for private sector units has rebounded very strongly (57.7%) however, the monthly volume of approvals is still well below levels consistently recorded prior to the onset of the GFC, highlighting that finance for higher density product is difficult to obtain.

It’s undoubted that units have significant appeal for price sensitive purchasers due to the fact they can own in a popular location at a far lesser price compared with a detached home. For investors, units are appealing because in most instances the rental yields are much higher than they are for houses. Across the capital cities, the average gross rental yield for a unit is currently recorded at 4.8% and for houses yields are recorded at 4.0%. The superior rental return achieved by units can be attributed to the fact that units are typically located in areas that have high demand: close to major transport networks, employment nodes or retail centres.
(Article supplied by RP Data)



5.  INSPIRATION CORNER

“Develop a passion for learning. If you do, you will never cease to grow.” Anthony D’angelo

“Far and away, the best prize that life has to offer is the chance to work hard at work worth doing.” Theodore Roosevelt

“Expensive quality work doesn’t cost more – it pays.” Loius C.


I hope you enjoyed your August market update and we look forward to keeping you informed in the next edition.

To get a professional buyers advocate on your side sourcing and negotiating the best opportunities throughout Sydney and Australia, please call +61 2 9975 3311, click our wishlist, or This e-mail address is being protected from spambots. You need JavaScript enabled to view it us to find the easier way to buy property.

Warm regards

Rich Harvey
Managing Director
Tel:  +61 2 9975 3311
www.propertybuyer.com.au


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Many thanks. Rich