Market Comment – Monday August 25th 2008

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Another fairly lacklustre weekend for auctions saw the “Clearance Rate” slip to 63%. But there were still over 800 property sales in Melbourne last week. Just because auction numbers slip a little doesn’t mean the market is shutting down. At the same time, the major banks are coming as close to saying they will cut rates if the Reserve Bank does. Investors and Owner occupiers are beginning to re enter the market. Purchasers are still looking for “the bargain of the century” and just as stubbornly vendors are still looking for a 20% increase on last years prices. The market must come to a balance.

And the market will balance. There are always a variety of factors which have an effect on the market. There are economic effects, such as interest rates, inflation, vacancy rates and confidence levels. There are social factors, such as migration – currently standing at 60,000 people a year entering Melbourne. And there are always political factors. I don’t have enough room here to start talking politics. But the market will always go back to the fundamentals. SUPPLY VS DEMAND. Demand is increasing after a very low turnover throughout the first half of the year and the potential lowering of interest rates. If supply does not increase as well then prices will go up. Just as there will always be death and taxes, if supply is low and demand is high property prices will increase.

For any of you looking to get into the market over the next 12 – 18 months, the next three months will be crucial. Owner occupiers tend to try and purchase in October and November, in order to settle in before the new school year. Investors will have just got their tax returns after negatively gearing their last investment. This can nicely form their next deposit. There is also a normal increase in property sales and this should allow prospective purchasers some good choices.

The key to a good purchase, especially in a balancing market, is assessing the market value of the property as accurately as possible. There are three magic numbers to try to ascertain before negotiating. What’s the property worth to you? What’s the property worth to the average purchaser? (Market value) And finally, what is the lowest amount the vendor will accept? Have these three figures worked out as accurately as you can before you begin the all important negotiation. If you cannot work out these numbers, seek advice from a professional Buyers Agent. The vendor’s agent is not allowed to assist you with these numbers. He is contractually obligated to get the most money out of you that he can. It does not make any difference to him if your financial institution values your purchase 20% below what you paid, but it will make a big difference to whether you can fund the purchase of the property. A small error in estimating the value up or down will mean the difference in overpaying by $20,000 or not buying the property.

Before you go and spend half a million dollars, consider paying someone for some advice. I don’t know of anyone who would go to court without legal representation; even if it is a $5000 dispute with a neighbour. Our government chooses to try and curb some of the habits of selling agents and then say they are assisting people who are purchasing property. This will never be a successful. Selling agents cannot help the purchaser – that would be unlawful. Before you purchase your next property at least talk to us. The first meeting is free and without obligation.

Ian James

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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.