Market Comment – Monday October 6th 2008

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With the football season over, the snapper season just beginning and the weather starting to turn on the warmer days, property sales in Melbourne should begin to heat up. The clearance rate of 68% doesn’t really mean too much whilst the auction numbers still make up less than half of the total sales. We need to watch overall sales. 996 sales from auctions and private sale means we are holding in the total sales numbers. Excluding last weekend, over the past 5 weeks there has been an average of just over 1000 properties per week sold in the Melbourne metro area.

The US government has passed the bail out plan and will begin to assist the financial institutions, firstly in the USA, but this will filter throughout the world. Is the economic crisis over – of course not. We can see our federal politicians already making excuses for our banks not passing on any interest rate cut that will occur on Wednesday. We see that economists are predicting the market will not pick up until the first home owners scheme kicks into gear in 2011. We can see everyone assuming the share market will be in trouble for quite some time.

If we then look at Australia’s overall property outlook, I would say property prices will remain very flat, if not drop 5% or so. In rural areas where mining and agriculture may drop off slightly, there will be less demand for housing. (This is a totally different topic, that I will talk about another time – but property spruikers promoting positively geared rural properties could well end up with large scale negative capital growth soon) But!! Melbourne is in the grip of a chronic shortage of property. Chronic meaning “a persistent and lasting disease or medical condition, or one that has developed slowly”. Whilst housing approvals are down, due in part to the credit crunch and there is a growing increase to the number of people arriving in Melbourne, we also have a change of numbers of people per household. With all these factors leading to a “chronic” shortage, the simplistic rules of supply and demand will most likely prevail.

Property in Melbourne will go up in the short to medium term. There will not be a “Wall Street” style drop in property prices. Investors, who for the first time in seven years saw, dramatic falls in their share portfolios are starting to look at adding direct property to spread the risk. Property does not go up and down like stocks. Owner occupiers who have remained out of the market earlier this year will begin searching again. Tenants who simply cannot get rental accommodation in their preferred locations will down grade their expectations and look to buy. Demand will exceed supply in the Melbourne Metropolitan area. This will have an upward effect on property prices that will increase over the coming years. Even if property prices don’t start to gradually climb, the shortage of stock will compound and create another market similar to that, which we saw in 2007. If you have not bought prior to this time, you will miss out on very valuable growth.

Buying property in Melbourne is a long term secure investment. You won’t double your investment overnight, nor will you be “day trading” but you can secure your financial future with a little bit of help. When was the last time property in the Melbourne Metropolitan area lost 90% of its value? Have a think about that next time you are buying shares in a company even in a bank!! (Bear Sterns was sold to JP Morgan for less than 10cents on the dollar)

Buying property on your own is scary, time consuming and becomes exasperating. Buying property should be like retail therapy on a grand scale. Get an expert on your side. Give us a call or come in and have a chat!

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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