Melbourne Property Market Wrap – November 2020
How quickly the 2020 year is coming to an end.
Last month I reported that there was a buzz around Melbourne as businesses started to reopen. Confidence is returning after a very severe 100 day plus lockdown. There is activity in the streets, cafes and restaurants are full and business is returning to the new normal.
Looking through a real estate lens my feet have not touched the ground helping people both buy and sell. There has been a surge in buyer demand both in Melbourne and to a greater extent in the Regional Victorian hotspots. This demand has been pent up and there is a lot of steam behind it which will carry property through the remainder of 2020 and into 2021.
There has been a strong rise in the value of residential homes in Victoria since the restrictions were eased with prices now surpassing the highs of November 2019.
In my estimation 70% of all properties are selling within 14 days of listing.
A high proportion are not making it to auction. Consequently, days on market are at the lowest level since 2009 at less than 25 days. It is clear that in Melbourne the recovery is well underway.
In my view , the next cycle will run hard for 3-4 years and will only stall when interest rates start to move higher as world economies move into the next growth cycle.
Over the last 4 weeks I have been appointed by many thinking of selling to act as their vendors advocate. Moving from buyer to seller role ( Not in the same transaction ) is often very interesting to observe the behaviour of buyers especially with just 4 auction weekends left to Xmas. Any new stock listed for sale must be on a private sale basis as we have now run out of time to run a full auction campaign.
There is a genuine urgency to buy before Xmas and this year because of the limited buyer weekends due to lockdow, the fear of missing out (FOMO ) is higher than in previous years.
The depth of buyers has layered another interesting element. It has placed many Vendors in a very strong position. I have been involved in 5 sales over the last 3 weeks in east Malvern, Hawthorn East , Brighton, Elwood and South Yarra and the dynamics of each sales process were similar.
The selling agent has many options in this market.
Most will advertise on realestate.com.au, domain , erect an 8×6 sale board , wait for the phone to ring and proceed to auction.This is often a traditional approach but in this market I call it lazy.
Herd like cats is one description but I want to work the buyers for the best interest of my vendor client. More often than not I’m on the buying side myself , so I know what it is like, but one thing for sure , I don’t like not being in control of a process.
If I am advising my vendor as their advocate, playing a waiting game may not be in their best interest. Buyers tend to drop off and look at other property.
In those recent examples, rather than proceed to auction, I sought to create tension among the buyers by informing them individually that the vendors are likely to bring the sales process forward and sell before auction. This usually creates a degree of panic and time pressure , resulting in one or more of the interested parties showing their hand and submitting an offer.
As an advocate I can then recommend several strategies to my vendor.
The first may be to contact all of the other interested parties an inform them that an offer has been submitted to encourage further and higher offers to achieve a desired result.
Second, I may decide to employ a highest and best offer approach. This is a particularly good strategy when there are a number of interested parties.This could result in one bidder being substantially higher than all of the others encouraging the vendor to sell before the auction.
Alternatively, if interest is all around a similar price, it may be less risky to run a board auction before the scheduled auction. The benefit of this process is that we know who is serious and we have their initial limits. This is usually the starting point for the boardroom auction rather than having a traditional auction and starting much lower with no guarantee anyone will give you a start. What is important is for the agent to clearly set out the rules to all of the buyers so that the process is open and transparent. My point is that there are many options available to the selling agent. My role as a vendors advocate is to direct the agent on behalf of the vendor, to explore all of these options to create tension among buyers and create an environment that results in the best price for the vendor. In recent times I have had great success for my clients wanting to sell their property.
If you or someone close is thinking of selling it might be of benefit to contact Greville Pabst as your Vendors Advocate?
- Melbourne has awoken. It is clear that a recovery is well underway. Positive property growth will occur before end of 2020 in line with other capitals.
- Melbourne’s top end is expected to bounce. Family homes priced from $1.5m to $4m will continue to be in high demand for the remainder of 2020 and 2021.
- Low interest rates tend to inflate property prices but there are other factors at play including the relaxation of lending criteria foreshadowed by our Federal Treasurer.
- With Melbournians in lockdown for so long, discretionary income has increased.
- Savings are higher with reduction in household budget costs. Victorians have tighten their belts and are now ready to spend on store of value assets like bricks and mortar.
- At current interest rates of 2% , it is possible for buyers to borrow $1m for interest cost of just $20- $25k per annum .
- Consequently the luxury housing market in Victoria is going to get a boost.
- Those with the most discretionary income are going to benefit .
- Most price growth will occur at the luxury end first before filtering down into the mid and lower ranged properties.
- The property market has moved swiftly into a sellers’ market , however, buyers remain discerning.
- Good property is selling at the top end of the buyer range but secondary property , i.e. located on main road, poor orientation or floor plan is languishing.
- Property incorrectly priced will also kill the goose that laid the golden egg.
- To that end , I have seen a clear surge of price appreciation for houses in suburbs like Hawthorn east, Richmond, South Yarra, Surrey Hills,, Canterbury, Camberwell, Malvern east , Malvern, Kew, Glen Iris, East Brighton, Hampton , Sandringham and in the north and west Coburg, Northcote and Yarraville/ Seddon
- Monthly auction data, sales transactions and clearance rates are all rising in Victoria
- I predict house prices to rise 8-10 % in 2021 and 15 – 20 % by the end of 2023.
- Government incentives, grants, cash savings and federal support are positive initiatives .
- State Government budget announcement of changes to stamp duty, abolished for new property up to $1m and 25% for existing property will increase buyer spending power
- Supply of rental accommodation in Melbourne has increased with more short term holiday rentals coming onto the long term rental market.
- Rental vacancy rates in Melbourne for houses has risen to 4.6%
- High rise apartment stock in Docklands , CBD and Southbank remain high risk with vacancy rates in some of these buildings as high as 20%.
- Regional housing markets in Victoria i.e. Geelong , Bendigo and Ballarat continue to outperform the growth in Melbourne.
- In the short term this growth will continue but I expect growth will subside once full confidence returns back to the Melbourne metropolitan housing market
- Investors have been dormant in the Melbourne property market for some time, however, I predict this is about to change.
- Rental return is now higher than the cost to borrow money making negative gearing difficult and most property cash flow positive providing you select correctly.
- This will attract investors back into the market and help drive competition to first home buyers , downsizers and upgraders who have dominated the market in recent years
- Older style flats built from the 1930’s – 1970 ‘s in low density blocks of less than 20 in suburbs like South Yarra, Prahran, Armadale, Elwood, St Kilda, Toorak, North Melbourne, Brunswick and Carlton have not experienced a lot of capital growth over the last 6 years. Buyers are starting to realise that the high rise apartments whilst shiny and new have performed worse in many instances and often plagued by building defects, cladding issues, high owners corporation charges and lack of scarcity.
- In comparison, the older style flat is usually larger, better built and well located often protected by height controls and heritage street overlays and surrounded by a quaint village , public transport and lifestyle attributes.
- Unlike the shiny and new high rise or high density apartment , depreciation has already bled out of the older style blocks with most value being retained in the land.
- Well selected flats, that tick all of my attribute boxes are expected to run higher in the coming years.