Market Comment – Monday April 15th 2010

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I don’t need to tell anyone the market is hot at the moment. But what most media commentators report about and many people in the public believe, is that the market will slow down. Therefore it is better to wait until this happens and then purchase. Unfortunately, this is incredibly unlikely to occur.

The market is in a very imbalanced state. Whilst there are plenty of properties on the market there is a far greater number of people trying to purchase. This imbalance will be in effect until there is a paradigm shift in the thought process of local and state government. We simply need to be able to house more people. We do not have enough dwellings to house our growing population.

And the answer is not to stop immigration. If we stop immigration whilst we have low unemployment and job advertisements climbing as high as they are, then we will simply fall back into recession or worse. Our economy in both Australia and this State are in excellent shape to be able to repay the massive debt the federal government has racked up in the past three years.

The answer is not raising interest rates. If Glenn Stevens continues to raise interest rates then he is simply hurting the people we need most. We need small property developers building new dwellings. We need developers building more dwellings at sites like the Camberwell Railway Station. We need more medium to high density housing.

We cannot simply house one million people somewhere out near Melton. We cannot afford the infrastructure. We cannot shut off the influx of migrants to our city because we need them to fulfil job vacancies. But we need to alleviate the speed with which property prices are rising.

Justin Madden, our embattled planning minister, may not be perfect, but he is simply being targeted as a scapegoat. Someone needs to make the tough decisions and whilst I have not looked at everything he has done, nor do I fully understand all the way some of the decisions have been made, we need a planning minister who will make development happen.

We are not looking at property prices doubling from what they are now in 10 years. We are looking at these figures in around five to six years. For those of you who have children and think they will be moving out anytime soon: think again. If the average house in Melbourne is $1M then the rent an investor needs to make the investment worthwhile is about $40,000 p.a. or nearly $770 per week. If an investor doesn’t get this sort of return then we will find slums being created. An investor will protect his dollar return before the tenants needs.

Our housing price crisis is not just going to affect those who wish to purchase a property; it will be affecting those who need to rent as well. Whilst basic human instinct is to first get food, the second survival instinct is for shelter. People will spend money on food then everything they have left on shelter.

There are two ways to avert slums and ghettos being created in Melbourne. The first, which is not very palatable, is to keep raising interest rates. This will stifle business growth, raise unemployment and therefore trigger a massive reduction in immigration. It will also cost many of us our livelihoods and our futures. But it will create a balance between supply and demand in the housing market.

Alternatively, the state and federal governments can actively and “intelligently” promote greater density development within the current boundaries of the Melbourne Metropolitan area. We need to see red tape slashed, we need to see incentives for investors to purchase investment properties such as the First Home Owners Grant for investors. We need to see grants given to developers to assist them to get finance so they can build more developments. “Mum and Dad” investors need to be given incentives to develop the “quarter acre block” they have owned for thirty years, into four townhouses. They can retire into one and the other three will be available for our growing population.

Mr Brumby needs to act NOW! By the next election in four years it may be too late. We need to keep Melbourne as the world’s most liveable city. It will no be so within the decade. Very few people will be able to afford to live here.

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.