Market Comment – Monday July 27th 2009

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Whilst another week goes by, another 1000+ properties were reported to the REIV. The auction clearance rate across the weekend remained at 86% on 383 reported auctions. The number of private sales this year to date has now exceeded both 2008 and 2007 year to date figures. In December and January we predicted a big year and we also predicted it would be without the huge auction numbers.

As we said last week, we need to talk about the “price bubble” and we will. But first, a quick note to finish off from last week about under quoting. Over the weekend, our advocates visited about thirty properties and three auctions. The variety of responses from the agents when asked “what’s it worth” was almost farcical. Some agents went to great lengths to explain they didn’t give out quotes anymore. Others explained that we needed to make our own determination based on the comparables given. And still others didn’t know what all the fuss was about and continued to underquote by about 20%.

This is the merry go round that won’t stop anytime soon. Agents have a fundamental duty to get the best possible price for their client, THE VENDOR. If the agent is not breaking the law he or she is required to do everything in their power to maximise the result for THE VENDOR. If the government legislates as it did about 6 years ago to fix the under quoting, it will probably take the same amount of time to “get around” these changes as it did last time. ONE DAY!!!!

The new authorities introduced an appraisal range and then retained a field for vendor’s amount which most of the time is “TBA” or to be advised. This allows agents to quote at their appraised numbers as they can make claim that the vendor will decide on a reserve when offers or an auction takes place.

I actually agree with this. It is always good to get some buyer feedback before making the final decision on a reserve. If agents are forced to set a reserve at the start of a sales campaign, the vendor will probably be asking themselves, “Will the agent work as hard after he has achieved this figure, Will he continue to strive for the best price or simply think he has done his job when they reach the reserve?”

Again, all this is a moot point if a purchaser simply hires someone to act on their behalf. The REIV would cease to be the butt of jokes from the media and its own members, the ACCC wouldn’t need to be worried about any potential purchasers being misinformed and CAV could amend its website and guidelines for potential purchasers, simply by recommending anyone representing themselves in a property negotiation should understand they are covered under “CAVEAT EMPTOR” (Buyer Beware) and if they wish to be on a level playing field with the vendor they should hire the services of a professional buyer advocate.

All this would render, underquoting, potential dummy bidding, some dubious tactics some agents use, and any other complaints that are floating around as moot.

PRICE BUBBLE

The “price bubble” assumes that property prices will drop at the same speed that they have risen. In other words the price growth will “BURST”. Whilst this may have some merit in the new estates where builders may be taking advantage of the very large First Home Owner Grants for those who are building, in the established areas closer to the CBD, I believe investors will take over as the First Home Owners diminish.

As the interest rates remain on a par with rental returns many people are simply buying their next home and not selling their existing one. Instead of selling your existing home, keep it, borrow the deposit for your new home from the equity of the first and then the tenant pays for your first mortgage and you pay for the second one. Most properties in good suburbs of Melbourne, where you have a mortgage of only 80% of the property value, will be revenue neutral thanks to the rental income.

We are about to see a fundamental change in property ownership over the next generation. I believe we will see people who have property, increase their holdings, and people who never have the opportunity to get into the market. We will begin to see long term leases on residential property. Some of these will become 10 and 15 years and will be traded similar to property ownership.

If interest rates rise again quickly, I believe it will be a long time before property ownership could be accessible to this many people. If you would like to get started on your next property purchase, please give us a call

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.

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