Clearance rates are not dropping, and they are simply not likely to anytime in the near future. Listening to Channel Nine’s Ross Greenwood this morning I heard him talk about the need for another 2.5M dwellings in the next 15 years. And considering we are now only at 9M, that is nearly 30% more than what we currently have. And this is just to cover our current population growth. As anyone in the world will tell you, Australia is the best place in the world to live, and as things deteriorate in other areas around the world, our population may grow even faster than it has been currently. PROPERTY PRICES IN THE LONG TERM WILL GO UP SUBSTANTIALLY.
On the weekend I attended 4 auctions and all went a little away from plan. 2 worked well for us and 2 went further than we would have liked for our investors. In this case we had a solid plan for value looking at multiple comparable properties and had set a limit as to how far we wanted our clients to go. The first property in Maidstone which we looked at for a client had a couple of issues. We had actually decided not to bid at that auction on the advice of our legal counsel. The contract had been adjusted with a special condition to remove the breach clause for the vendor. In layman’s terms if either party doesn’t fulfill the contract at settlement, then the other party has recourse to sue for any losses. When the vendor removes this right for the purchaser then, basically, the purchaser has an unenforceable contract. If the vendor doesn’t settle for whatever reason and the purchaser cannot seek compensation for loss then there is nothing forcing the vendor to ever settle.
We have seen this clause put into contracts many times by some conveyancing companies and some solicitors. In many instances the vendor doesn’t even know about it, which was the case in this instance. Even though we had asked the agent, who had asked the vendors conveyancer to remove the ridiculous special condition, they declined. WITHOUT CONSULTING THEIR OWN CLIENT – THE VENDOR! On Saturday I attended the auction to spectate and when the agent wished me good luck with my bidding, I explained we could not bid. She was concerned as to why. I then explained what the clause meant to the agent and her auctioneer. They in turn, spoke with the vendor and they all agreed to remove the clause. We bid, as did another party and the property ended up going beyond our reach but, in real terms the bidding reached nearly $30k higher than it would of if we had not bid. That is money the vendor may never have got.
There are some conveyancing companies that make up such one sided contracts and there seems no other reason but to make legal difficulty for their own client and that of any purchasers. I honestly do not know if they are simply unaware of the meaning of the clauses they are putting forward or they simply want their clients put in compromising positions, so as to elicit more money from any changes they are asked to make. When there are special conditions added to contracts that add fees and charges payable to the conveyancer/solicitor who wrote them, you need to wonder who the contract is favouring… The vendor or the conveyancer.
Both properties we looked at for our investors in Maidstone and Newport went well over their current comparables. Even when talking to the agents afterwards they were quite surprised by the results. When you are looking to purchase property as an investor you need to be very careful how much you pay. This does not mean wait for the cheapest property that nobody else wants, it means set a realistic limit and stick to it. Both of these properties that sold on the weekend must have sold to owner occupiers as they both went at least 10% past current comparables. And this is no issue for an owner occupier who has fallen in love with a property… but it would be a big mistake for an investor.
The overwhelming strength and resilience of the current property market will continue well into the next decade and beyond. With interest rates so low and unemployment rates the same, anyone who can invest in property will set themselves up very well for retirement. I don’t think either side of politics is particularly favourable to allowing you to utilise Superannuation all that well. It may well be property, even outside your SuperFund, may be a very smart long term wealth creation option.
If you are considering buying or selling property anytime soon, please feel free to give us a call. If you already have a rental property and are looking for advice as to whether to hold, upgrade, renovate or sell, please feel free to call for some advice.
JPP Buyer Advocates