Market Comment – Monday July 6th 2009

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The clearance rates have firmly entrenched themselves above 80%. The market is moving relentlessly upward. Whilst the first home buyers, who are building new dwellings, may be eligible for up to $35,000, the smart purchasers are looking for good long term growth investments.

These will not be found in new estates. These will be found in good pockets of firmly established suburbs with good amenities. All the papers this week are talking about “unfathomable” results. They are talking about how the new estates are leading the way forward with growth. This will last only as long as the grants do. Most of the commentators go on to say this was inconceivable to think our property market would move the way it has.

This is almost comical. It was so obvious what was happening in our Melbourne’s property market late last year and certainly January and February this year. In December last year we wrote in this column – December 15th 2008

“All in all, properties that are in good locations that show a history of good capital growth, have an improving yield and are under $500,000 will be the hottest property for the first six months of next year. In the later half of the year, depending on the economic outlook and what consumer sentiment brings, properties between $500,000 and $1M will be the next bracket to move. Once the economy begins to recover, properties above $1M will rebound extremely well. If you are in the market for this type of property, spring 2009 may well be the last time to buy at reduced prices before a recovery in early 2010.”

The only change to exactly what has happened is it was a little quicker than anticipated. Anyone wanted to be in the Melbourne property market in the next few years needs to think about purchasing NOW!!!!

Supply and demand are the two elements of price movement. All contributing factors have a bearing on either supply or demand. If people decide not to purchase now for any reason that will affect demand. Conversely, if people decide not to sell property or sell because they are forced to, then this affects supply.

We currently are tens of thousands of dwellings short of what we need in Melbourne now. It does not matter whether buying or renting you still need a place to live and we do not have enough dwellings. Even if people become unemployed in droves – even if it reaches 10% and people start selling their houses. The extra supply will not exceed demand. And all of the people who are selling will still need to rent. This will push up rental returns and therefore bring more investors to the market increasing demand.

The only thing that will slow price growth in the Melbourne property market is interest rate increases. If the interest rate rises faster than rental returns, which is not in our foreseeable future, this would slow the investors and all but stop the first home buyers. If this occurred it would also strangle businesses and plunge us very sharply into the recession the rest of the world is currently experiencing. The Reserve Bank is highly unlikely to do this.

Short of massively rising interest rates or Armageddon, I can’t see property prices falling anytime soon. In fact property prices will increase more rapidly over the next decade than they did over the last. People with lower budgets have to buy much further from Melbourne CBD. This will have an impact on everything from government infrastructure planning to the effect on the environment.

If you want to secure good long term wealth creation you should think about direct property investment. Call us now and we can assist you with your next purchase.

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.