Time to drag out the crystal ball

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This year we have seen clearance rates climb substantially from the past two lacklustre years bringing with it a small rise in prices across the better suburbs of Melbourne. Whilst earlier in the year, we were tracking for a substantial increase in turnover; there has been a lull since Easter that has endured longer than I thought it would.
Most selling agents are saying they have plenty of interest from vendors as an initial enquiry, but many are not following on to actually put their home on the market. At the same time there is a substantial increase in demand for property. Our enquiry levels have been substantially increased this year and the numbers of prospective purchasers walking through open for inspections has sky rocketed.

So what will this mean for the rest of the year and what factors will impact the most on those guestimates?

I think the market will continue to climb very slowly. By the end of the year I think we will look back and see a 6-7% increase including the approximate 3% we have already seen. The main factors pushing the price up will be lack of good quality stock, increasing demand, especially by first home buyers and downsizers, and finally the fact that many people have been sitting on their hands over the past three years and they are exasperated. I think the main factors holding back a normal 9-10% growth are worry about the overall economy and how politicians are running our country.

First home buyers may cause a small rush in the next 6 to 12 weeks. There is talk of a reduction in the first home owners grant that gives every first home buyer that is purchasing a home under $750,000 a $7000 grant. This may be removed altogether or simply changed to offer the grant only to those who are building new homes. Either way, our politicians are making promises in budgets they simply cannot keep and some things have to go. This seems an easy grant to withdraw without attracting too much heat.

Downsizers will become a huge force in the market place. Baby Boomers hold an incredibly large amount of assets and over the next 10 – 12 years these people will begin to retire. Part of their superannuation will come from releasing equity in their largely paid off family homes. These will be sold and then a smaller “town residence” will be purchased to take its place.

The federal election campaign (which we are not having now according to Ms Gillard) is continuing to drive people crazy. If the polls are any indication, it is fairly obvious there will be a change of government in September. On top of this we have rumours of tremendous deficits going to be running through our federal budgets. These facts and some of the uncertainty lingering from the GFC leads some people to avoid major decisions and change. Buying or selling a house is a major decision.

Overall, there will be reasonable turnover for the rest of the year and this will result in a slightly below average increase in the better suburbs of Melbourne. Again, I believe the newer “estate suburbs” where the developers are finding business quite challenging, may see a slight drop in value, that may be mitigated if the federal government offers grants only for new residences.

Investors can breathe a little easier, as I see rents holding out at around 4% gross yield and for those on very high incomes, there will be plenty of newer properties about to garner larger depreciation tax deductions on. Be very aware that you will do better buying a property that is 2- 10 years old than buying new. I know the spruikers will explain about the stamp duty savings when buying new, however they will not tell you that builders have to make a profit and after the cost of the land is added to the cost of the dwelling, there needs to be another 20% added for profit. Stamp duty savings will not save you 20%!

A further note to those investors buying from the property spruikers. Do not purchase anything from someone that has already purchased a dwelling on your behalf. If you do, you are most likely in one of two situations: You need to pay stamp duty twice (and it is the responsibility of the final purchaser to pay this) or you need to defraud the Victorian State Government.

Anyone thinking about purchasing an investment property or your dream home should seek competent real estate advice from someone who is working for you. Please call our office for a no obligation meeting

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.