EXECUTIVE SUMMARY
Paul is a big-end-of-town agent getting multi-million-dollar deals in Hawthorn, Kew, Glen Iris and Canterbury on a fairly regular basis. We don’t always see eye to eye and have had some real scraps but, nonetheless, the respect is there for what he achieves for his selling clients. Paul does follow up and has a wealth of knowledge that can be very valuable for those he chooses to share it with.

Mal: Family Status and where do you live?
Paul: Married to Annette, we have three boys and live in Burwood.

How long have you been in real estate and what is the company you work for?
I have been in real estate for almost 20 years and I am a director of the Jellis Craig Glen Iris office.

Where do you mainly work (area) and what types of homes do you specialise in?
My area of influence is throughout the suburbs of Boroondara and my clients tend to have good quality family homes in these suburbs.

What makes a good investment?
A property that is well located to public amenities and has scope for capital appreciation.

What makes a good family home?
The old adage of Position, Position, Position … you can improve a house, you can’t improve its location.

What makes a good buying decision?
Every person is different; we all make decisions that we believe to be correct to our requirements at any given time. What’s a good decision for one person could be a completely unacceptable one for another; you just have to go with what you believe is right for you after giving the decision due consideration. I have found snap decisions are rarely good ones. Especially when chocolates are involved!

Best investment decision you made?
Buying a house from a “Private Sale” specialist who was operating out of his area of influence.

Worst investment decision you made?
Not buying real estate quick enough. It took me five years of working in real estate before I bought a property; in that time, prices almost doubled.

What are the top 3 precincts in your area, how big is an average block, what type/style of home, what is the dirt price and how much for a renovated home today?

1. Grace Park Estate in Hawthorn (Linda & Hilda Crescents to the south, Glenferrie Road to the east, Kinkora Road to the north & Power Street to the west. Hawthorn Grove, whilst not in the Grace Park Estate, is also a wonderful address; I have had over 25 sales in “The Grove”, which creates an instant affinity) has mainly Edwardian homes, with a smattering of Victorian & Federation homes, land is rare as hen’s teeth due to heritage overlays not allowing demolition; if you could find land, expect it to be in the vicinity of $300 per square foot, average land size ranges between 8000 to 10,000 square feet. It’s staggering to believe in the very early 1900s they had to run competitions to get people to build in this area: entry level is early $2 millions and the the best homes can sell for over $10 million.
   
2. The Tara Estate in Camberwell (Broadway to the south, Stanhope Grove to the east, Canterbury Road to the north and Burke Road to the west) is very similiar to the Grace Park Estate with house styles, heritage overlays, & land sizes; average prices can range between $2 million & $4 million depending on land content and standard of renovation.
   
3. Finally in Glen Iris, Heights Estate (High Street to the south, Hillcrest Road to the east, Ashburton Road to the north and Barina Road to the west) provides great value with a mix of styles ranging from 1920s to modern day architecture, single dwelling covenants protect the area from multi-home development, land sizes range from 7,000 to 9,000 square feet and you will pay between $100 to $120 per square foot for land, renovated homes range in price from $1 million to $1.5 million.

   Three underrated streets in your area for family home buying (where, price, type and style, would they have to renovate)

4. Any street west of Church Street Hawthorn (river end) quiet, well positioned to parklands, Victoria Gardens, public transport & schooling, entry level pricing around the $1.25 million mark, good mix of architecture styles (Edwardian through to Modern); at entry level pricing, some renovation is to be expected.
5. Bourne Road in Glen Iris, pricing starts just over $1 million, you will need to do some renovation, mainly 1920s architecture.
6. Also Ferndale Road in Glen Iris is a great spot, proximity to parklands, opportunity to create still exists, prices start at $1 million for land, renovation will probably be required.

What would you say to a young couple with $800,000 looking for a family home specifically in your area – eg (where, type and style, would they have to renovate)?
Ashburton is still coming along nicely with good opportunities around the $800,000 mark. A variety of styles exist depending where in Ashburton you purchase; the closer to the vibrant High Street shopping strip you buy, the better but will probably mean you will need to do some renovation. Great primary schooling available (State & Catholic) and there are parks everywhere, the Recreation & Leisure centre is a real hub as well.

What would you say to  a downsizing couple with $1.5m specifically in your area (where, type and style, would they have to renovate)?
Hawthorn is still the place to be, whether it be a new apartment in a boutique development close to Glenferrie Road or an excellent single-fronted Victorian home, no renovation will be required. After all these years, you deserve the best: move the furniture in and put your feet up.

Buyer Agents – yes or no?
There is a place in the market for buyer agents. For buyers who are time poor or lacking experience in negotiating, a buying agent can provide experience in both these fields.

Apartments or Houses?
Houses, because the land they are built on usually always goes up in price.

Auction or Private Sale?
Personally, I prefer auctions, but every property has different attributes that require consideration before recommendation.

How can a seller maximise their value at sale?
PRESENTATION: if your house is cluttered up with life’s mementos, dark because of the col,our of your wall paint or smells of pets, FIX IT, otherwise a canny buyer will wait whilst your property lingers on the market, your asking price drops and they will swoop. If your agent tells you to attend to something, they aren’t trying to inconvenience your life, they are trying to get you a better price. Nine times out of 10 they will know someone who can fix the problem.

What are the do’s and don’ts for buyers when dealing with selling agents?
There aren’t too many really, some people say don’t tell the agents anything, pretend you’re not interested. If we don’t know you’re interested, you may not get a call if the property is going to be sold. Just be yourself, tell the agent to keep you informed if you like the house and do any due diligence you want done, get a contract, do a building inspection etc. In what may come as a surprise to many, the vast majority of selling agents are normal people trying to make a honest living in a challenging environment. There will always be ones who push the boundaries like in any industry but, until I lose your trust, I expect your trust.

What do you think are the opportunities now with us?
Definitely upsizing, if you have a secure job (and that includes over 90% of the population), interest rates have never been lower, prices have compressed, now is the time to get the bigger home!

Where is the market going in 2009 in your area?
With the lack of stock available, we could see some slight price increases in certain price and area segments

Who will win this year’s premiership and why?
With all teams being equal (no injuries), I think Hawthorn has the best list of players and should go “back to back” – they could actually emulate the Brisbane trifecta – but injuries, as always, will play a huge part in deciding the Premiership team and there are a number of teams who could challenge given a decent run with injuries. Victorian teams, after being written off a few years ago, are back on the rise again; in fact, it could be an “All Victorian” Top 8.

Hawks, Cats, Saints, Pies, Bulldogs, Blues, Tigers & Roos … now what a September that would be … along with a few more listings … it could be heaven!

If a potential seller would like an appraisal or wishes to sell their home how is it best to contact you and what are your details!
I can be contacted during office hours on 9809 8999 or anytime on mobile 0419 330571 or email paulkeane@jelliscraig.com.au

Next week: Barb Gregory from Hocking Stuart: A lady in all senses of the word; sometimes known as the perfumed steamroller, being one of Brighton’s best selling agents.

Overall another very negative weekend for auctions evidenced by the fact that only 2 sold from the 16 we attended as a group. The clearance rates at auction for $1m+ homes is nowhere near the reported overall low 60′s % of the last month.

Our comment on the market is that is has dropped another 5 to 10% in the last 3 weeks on top of the earlier drop of 10-20% in March and April.

Depending on your nature this is either a half empty or half full glass situation. If you are a half glass full kind of person, then there are opportunities out there. As the upper end market contracts now, it comes closer to the lower end now. If you are buying and selling in this market and you have the right advice then you should be able to trade up on a better overall deal – providing of course you do have the right advice. Meaning in Sep 2007 the price difference between the top properties and the median ones was a lot greater than it is on July 2008. So you may have had a changeover of $1 million in Sep 2007 and that changeover could well now be as low as $500,000 July 2008 for certain properties. Of course this is anecdotal and you do need some luck as well as the good advice. Some homes are still attracting multiple bidding and the drops have been nowhere near as great as made out in the previous sentence.

Peter Sinclair in his Show Me the Money Section begins his series today on the facts and fallacies (read traps for young players) of hot spotting (trying to pick the next hot areas) based on previous short term median price increases.

We are now beta testing some new features and formats on this ratings site and any feedback is always appreciated to enquiry@mjba.com.au

We would also like to thank the 30 Bayside agents who attended an information and explanation breakfast midweek at our Brighton Office. We will be having 2 more information and explanation breakfasts for Stonnington and Boroondara agents over the next few weeks.

Successful investing is about one thing – growth. In property investing, the cash flow needs to be affordable and make sense. Capital growth as the main driver or cornerstone.
So how does growth work? Quite simply, growth comes from price increases, fueled by supply and demand, over long periods of time.

Real Estate Institute of Victoria (REIV) figures show that the median price for Seaford in March 2008 was $355,000, against a Melbourne metropolitan median of $435,000. Valuer General data also confirms that capital growth over the past ten years has been steady, averaging 12.7% per annum.

Figures and data like this can be confusing; if you are considering buying an investment property in Seaford with the view to develop the land, the area of this suburb most likely to provide the strongest long term growth is beachside of the Frankston freeway. In the last six months, data from the REIV tells us that the median price paid for a three bedroom townhouse in Seaford in 2007 was $393,000. Houses in the same period showed a median price of $345,000. How can this be, nearly 20% higher than houses, yet on half the land size? Position, and one other factor, position. All the higher priced townhouses were beachside (the dearest reported was $670,000 Wyatt St, January 2008).

Let’s assume all goes well with council and they will let you build what you want (you have checked that haven’t you?) Costs from here –

• bank interest
• stamp duty on your purchase
• holding costs
• plan of subdivision costs
• architects costs
• project manager
• building costs (about $250,000 each)
• unforeseen costs (the ones we don’t want to know about)
• selling costs (agents)
• capital gains tax
• opportunity cost of using that money elsewhere

If you can sell each of your two townhouses for somewhere close to the highest selling townhouse to date ($670,000 according to the REIV), allowing for growth over the next twelve months, you might have some chance of making a limited profit. That is, if your primary motivation is to buy, build and sell straight away. If you can afford to buy, build, hold (rent) then sell, your chances of a stronger financial outcome grows significantly.

Some experts say the market is going up and some say it is going down. Property does go up and down in the short term. Sometimes it’s because of artificial interference from governments via the manipulation of interest rates, or first home buyer grants, rent controls or tax concessions, but often it’s the natural market forces of supply and demand.

As demand exceeds supply near good schools, trains, the beach and the central business district, prices will continue to rise, along with increased wealth and net migration.
Auction on the weekend.

47 Donald Street Prahran – I rated this property at 691/1000 (see attached rating). Few issues to consider – pool not for everybody, corner block (perhaps a privacy issue), bathroom a bit messy. However, a very nice home and position AAA+++ Prahran. Opened with a vendor bid of $1.15M and three strong bidders took the bidding well above the vendor’s reserve (I think reserve was a tad under $1.3M) to a sale price of $1.505M.

For once we say believe what you read in the papers – the market has started with some incredible buyer force, in some cases panicked demand; and with stock levels now seemingly stabilizing at levels a lot lower than say 3 years ago (sort of like our water) this has resulted in price jumps. How much? 10% from December would be a figure that many in the know would not disagree with. Add this on to the 20% jump last year, and if you have been overseas for 18 months you just wouldn’t recognize things on your return.

Are these increases across the board? Well no, not every good home in the inner area has gone up 10% in a few months. Outer, regional, townhouse and apartments have not seen that kind of jump in price (but they also do not have a limited supply base as inner city family homes do) – so demand may have increased but there are still oversupply issues preventing big price increases.

Not every property has gone up the same AND there are many examples where two similar places are quoted $800,000+ and one goes for $1.1 Million and the other $880,000. Why? Three main reasons:

1. Buyers are into one place but not the other for hard to fathom reasons
2. Selling agent skill
3. One property is genuinely better than the other

We cannot emphasize enough that maybe reason 3 is OK for the $220,000 difference but reasons 1 and 2 mean you are paying too much and this in time will take the gloss off the purchase, especially when you come to resell in say the reported average of 7 years. Get some advice before you go in with a massive pre-auction offer which a lot now seem to be advocating. On a million dollar home maybe you can live with a $20,000 premium but $200,000 is another story.

Anyway if you are in the market you know prices are rising. How does the market work and how do you manage it?

1. Overall long term trends.
2. Short term Peaks (e.g. post last election 2004 and now) and Troughs (e.g. Spring 2003).
3. Market segments such as units, houses, commercial all play to a different tune.
4. Suburb segments etc e.g. 10,000 sq ft was hot hot hot in Hawthorn last year, and yet Bayside was not flying for this kind of property – This year in Sandringham, Hampton, Brighton 10,000 sq ft properties are the new gold bars. Big land is at a premium.
5. Individual sales – one month there maybe 2 or 3 other buyers – the next month there is only 1 buyer (you) – meaning you may pay less in the second month because of no competition – of course you could still pay the same or even more if you were up against a skilled selling agent and you were not getting professional advice on negotiation.

So, what to do?

1. Keep cool, price spikes cannot be sustained.
2. Set reasonable upper price limits – but understand you need to meet the market to buy now. Perhaps be a little more flexible if it’s a good property.
3. Reassess the property, price, position mix if you don’t want to overstretch yourself. E.g. look a little further out, go for a slightly smaller property.
4. Don’t give up, because long term not owning your home doesn’t make any sense – at least in Melbourne, Australia in the last 80 years.
5. Consider hiring a Buyer Advocate – if they can’t deliver what you want it hasn’t cost you anything.

Last Year

Finally we are starting to see some press stating exactly what happened in the top end of the market last year – it boomed. While the stats readers were proclaiming a quiet year, those that were looking for $500,000 – $2,000,000+ homes knew this was garbage. From our first newsletter last year we were showing you examples of very strong upward price activity in the upper end. This information was allowing our clients to get a clear handle on the market and buy when appropriate, while many others missed out through lack of knowledge rather than lack of desire or resources. So why did the stats readers and the uninformed press get it so wrong for so long?

It is not that difficult to fathom – people who make comments from looking only at stats on the property market such as Median Price figures (while having no actual experience in buying on a daily basis) are simply not getting the full picture. If we sound a bit fired up it’s because we have to counteract this misinformation when talking to our new clients; in particular clients from overseas.

The Median price statistic is the middle price in a list from lowest to highest. On a small list of only a few properties you can get major distortions.

Is it fair to say there has been an increase in property prices across the board of 50% in the above example? No, in fact the $750,000 might have been a lot better property than the $500,000 one, and in fact there may have been a small decrease in prices paid overall. This is an extreme example designed to make a point – many credible data analyzers use far bigger samples – but they can still be inaccurate.

Median prices are also not reflective of certain segments when large across the board samples are used. An extreme example below – just to show a point

These stats would show a less than 1% percentage increase – yet it does not reflect the 20% increase in prices on properties sold at over $1 Million.

Anyhow, back to our point.

In the Valuer General (Government) database we find that 139,448 pieces of information were recorded last year between Jan 1 and December 31, 2006. Of those 139,448 pieces of information, less than 21,000 related to properties over $500,000, and less than 4,700 related to properties over $1 Million.

In other words the median price statistical analysis action takes part around sale number 69,724 (the middle piece of information) and that was well below $500,000. We know last year there was a bit of movement in property prices at those levels (which is mainly inner city apartments and outer area homes) but nothing like what was happening in the more affluent suburbs last year. The market at the high end seemed to move around 20% on a good $500,000 or $1M home in a good suburb in a good position. By year end it was worth $600,000 or $1.2M yet Melbourne median prices did not show this.

We are not all that different from some other countries. A recent market comment from Garrington Buyer Advocates in London, UK:

“Many of the factors which combined to drive UK house prices up in 2006 – a strong domestic economy, a healthy stock market, significant levels of inward migration (235,000 last year of which 45% now live in London), considerable foreign investment as well as a distinct shortage of homes being built compared to demand – look set to remain the case for at least another year.

We do not anticipate a repeat performance of last year (where prices rose by over 20% in the most prestigious areas of London – even up to 30% recorded in some cases), but nevertheless with the City now employing 335,000 people and over 4,200 of them taking home windfalls of £1M or more, the market is off to a hectic start.”

Some of what we have bought since our last newsletter

• Seaford – Scott St
• Moonee Ponds – Dean St (See Picture Below)
  
• Berwick – Rydaldene Way (See Picture Below)
  
• Sorrento – Collins Pde
• Seaford – Northcote St
• Queenscliff – Queen St (See Picture Below)
  
• Black Rock – Prospect Gve (See Picture Below)
  
• Carlton – Drummond St (See Picture Below)
  
• Yarraville – Cecil St (See Picture Below)
  
• Mitcham – Rothwell Ct
• Elwood – Selwyn Ave
• Yarraville – Mackay St (See Picture Below)
  
• St. Kilda East – Carlisle Ave
• Heidelberg – Brown St
• Caulfield East – Moodie St (See Picture Below)
  
• Prahran – Mary St
• West Footscray – Essex St
• Seaford – Fortescue Ave
• Prahran East – Highbury Gve (See Picture Below)
  
• Brighton – Winmarleigh Ct (See Picture Below)
  
• Brunswick – Bishop St
• St. Kilda West – Alexandra St
• Lower Templestowe – Balmoral Ave
• Moonee Ponds – Dean St (See Picture Below)
  

Agent Under-quoting

The market is rife with under-quoting at the moment, some deliberate, which is completely unfair as it damages the vendor as well as the purchaser who needlessly puts time, effort and money (inspections etc) into a property they had no chance of getting. But rather than just complain lets see if we can understand and then manage it -are we trying to change the world (agents information to buyers) or are we trying to buy homes. Poor quoting often helps a well prepared buyer as its scares off other buyers when they think the going is getting tough when in fact the going is just getting to where it should be.

1. In a fast rising market such as this, when the selling agent lists a property at say $800,000 – that means the owner will sell at that – e.g. before Christmas and the February/March market moves – then the agent has got his vendor at $800,000 and although he understands the market is $900,000 he has no reason to adjust his/her quote because the vendor will sell at $800,000. This results in under-quoting as it relates more to what the vendor will sell at rather than what the buyers will buy at. Hence the saying a property that is listed well, will sell well.
2. In some cases the agent is protecting (as he should) his client by seemingly quoting low – e.g. some properties they quote at $800,000 and go to $1.1M others of seemingly similar characteristics quoted at $800,000 just get to $880,000. Sometimes an agent is not sure and is remembering his training – “quote ‘em high watch ‘em die – quote ‘em low watch ‘em go”. This is fair enough to some extent, after all the agent is genuinely working for the vendor.
3. If an agent does quote them a bit under e.g. $800,000+ and it gets $920,000 but was on the market at $870,000 within the 10% rule then they are seen by the law and their industry and the vendors to be doing their job. And they are, if they have built momentum for a few buyers towards $900,000 and then one or two fought it out to $920,000.
4. Other agents who are lazy or incompetent or simply less than frank who quote $800,000+ when it is obvious that it is going to reach $1.1M really do their clients a disservice as well as the industry. They are hurting their clients because some of the bidders are attracted to the $800,000+, think it is going to $900,000, panic at $1.0M and drop out; but could have afforded to push it beyond $1.1M if they had been guided correctly. Agents that lift their quotes during a campaign verbally and/or in writing and who do this well and with justification do add real value to the process for the vendor.
5. The market is strong at the moment and if an agent is quoting $800,000 thinks it’s a chance at $900,000, is on the market at say $880,000 and for no reason buyers push it past $1.1M then the selling agent has not done anything wrong in law or ethically. If an agent repeatedly does this then you wouldn’t hire them – because they don’t understand buyers and this is bad for the vendor.
6. And finally if you’re a buyer without representation or an understanding of how the market works and you are constantly missing out, then get some representation yourself – hire a Buyer Advocate. For two reasons:
   1. You will get a good handle on what might really happen so you can prepare prior to auction day e.g. $800,000+ and its going over a Million, and
   2. You can avoid looking at an $800,000+ quote, assume it is going to $1.1M like others – offering $1.15M before hand and be $275,000 over the next buyer at who was only at $875,000.

High end homes, some regional properties and many apartments

We have developed this little illustration below to show clients how (in figure 1) a normal market works and how the land component drives the growth.
Figure 1.

In figure 2 below, this is how the growth can stagnate on a property which has a high building content – such as a new building, some sea change properties, a high rise apartment or some regional homes.

Even when median price growth rates are looking OK for an area, if you buy a home that has poor land content characteristics, your growth prospects are generally not as good as a property in a similar area with good land content.

Having said that – “so what if lifestyle is you’re only desired outcome” (of the three possible outcomes from property: Cash flow, Growth and Lifestyle)? Well our response is usually a bit strong – if you are independently wealthy then no problems; but if your home makes up a significant part of your wealth and you buy a property now with poor growth prospects for purely lifestyle reasons then unless you are dying in that home what happens when you what to upsize for kids or downsize for lack of kids or simply move because its time for a change?

Answer: to buy another home that has accelerated in growth at a faster pace than yours means you now need to make lifestyle changes to be able to afford your new home. E.g. cutting into savings that you were using on the trip, the kids school fees, new car whatever. When you are buying, sure think of your lifestyle now, but also think of your lifestyle in 10 years time. Buy smart!!

Figure 2.

Some Client Thoughts

Hi Sam,

Firstly we would like to thank you and Ian for the professional manner in which Prospect Grove was purchased.

I have spoken to a number of real estate agents and people both inside and outside of the Black Rock area, and all of then agree that we have saved ourselves between 15 and 20 thousand dollars by using your service, not only have we saved ourselves this money but it also took away the stress, the unknown and the dealing with real estate agents.

Meagan and I have no problems in recommending you and Ian to others looking at purchasing property.

Thank You once again
Craig and Meagan Riley

Dear Ian,

I met with Ian for the first time in January ’07 to seek help in procuring my first investment property. As in an investor, you hear so many people say that your very first purchase is one of the most important decisions you’ll ever make in your investment career.

I did some number crunching and concluded that the fees payable would be some sort of insurance money to guarantee that I get the “right” property at the “right” price. Frankly, I would’ve been quite happy if Ian was to negotiate that amount he wanted to charge me off the purchase price

The “right” property came along in late February in the form of a private sale. To cut a long story short, it took exactly 48 hrs from the moment I inspected the property to the time I signed on the contract. There was no way I could’ve made a $360,000+ decision so swiftly and decisively as a first time investor had I not felt so overwhelmingly confident with the advice from Ian.

Two days later, a VERY similar property couple of streets down sold at auctioned for $424,500. Now that’s good business for any investor!

Best regards,
Tim W

Dear Kelly

Thank you for the flowers. They are lovely, and as of now are wafting up sweet, sweet fragrance throughout our unit.

We all are very pleased and excited about this house. We will surely be happy in this home for many years to come. Thank you for your intuitive and professional act on this negotiation. You have been an immense help, and an absolute delight; more than we could have hoped for.

Kind regards,
The Quan family

Mal,

First of all thanks for the flowers and all your help. Sam and I both feel we got the million dollar treatment for only a $500 dollar house.

Things played out so much better then we expected and you and your team have made it into every retelling of the story to date.

I wouldn’t hesitate to recommend James Buyer Advocates to anyone else looking to purchase a house.

Sam didn’t sleep for 2 days she was so excited.

Regards,
Ross Davies

Some Of What We Have Bought

Here are some of the properties we have bought in the last few months:

• Hampton – Family home in Margarita St. (see picture below)
  
• Portsea - Beach house in Franklin Rd.
• Camberwell – Townhouse in Cornell St. (see picture below)
  
• Hampton – Beachfront property on Beach Rd.
• Port Melbourne – Apartment in Bay St. (see picture below)
  
• Seddon – Family home in Edward St.
• Hawthorn – Family home in Mason St. (see picture below)
  
• Williamstown – Family home in Chandler St.
• Altona – Family home in Mount St. (see picture below)
  
• Berwick – Family home in Larne Cl.
• Williamstown – Townhouse in Nelson Pl. (see picture below)
  
• Ringwood East – Investment property in Smithdene St.
• Seddon – Investment property in Williamstown Rd. (see picture below)
  
• Ringwood East – Investment property in Shasta Ave.
• Hawthorn – Family home in Connell St. (see picture below)
  
• Box Hill – Family home in Bishop St.
• Lower Plenty – Block of land in Old Eltham Rd.
• Hampton – Townhouse in Linacre Rd. (see picture below)
  
• Mentone – An investment property in Milan St.
• Fairfield – Unit in Coate Ave.
• Balwyn – Family home in Raynes St. (see picture below)
  
• Kew – Block of units in Young St.
• Brighton – House to be bulldozed in Middle Cr.
• Burwood – Family home in Parer St. (see picture below)
  
• Mont Albert – Family home in Tyrell St.
• Seaford – Investment property in Rosslyn St.
• Glen Iris – Family home in Bonnyview St. (see picture below)
  
• Hawthorn – Family home in Linda Cr. (see picture below)
  
• Brighton East – Family home in Margaret St. (see picture below)
  
• Ormond – Family home needing renovation in Maud St. (see picture below)
  

The Market

We almost laugh when we hear or read now is the time to buy as the market is flat or down. Where are these commentators watching? In our last newsletter in March, we said we felt (but couldn’t prove it with Median price numbers) that the market had gone up 10% since Christmas and it had for good quality family homes in the inner areas. The market has gone up even further since that comment. We would say that for the right properties, the market has moved 15% this year (anecdotal and not across the board). In other words, if you were looking for a $1.1 million dollar home in the Bayside area in December 2005, you would need to pay around $1.3 million today if you were at auction with genuine bidders. If you bought a $650,000 house in a good location with a good floor plan in say, Burwood late last year and it was a one with multiple interest, then that same property would be closer to $730,000 to buy today.

From a buyers and sellers point of view and speaking about good quality family homes in the inner areas (eg within 20km of Melbourne at all price levels), we are now in a mini boom market if your definition of boom is rapidly increasing prices and a number of properties being sold well above reasonable expectations based on comparables sales of six months ago. The market from Brighton to Malvern to Hawthorn to Burwood to Richmond to Williamstown has experienced large increases in prices since Christmas on all levels for good quality family homes.

Now we temper our comments with the following:

1. If it’s not a good property, it is not selling.
2. Outer areas and inner area townhouses and apartments are a different market to inner area houses. However we acknowledge that in certain areas, the apartment market is definitely tightening up and is stronger now than it was a while ago. For instance, the Beach Road and Port Melbourne (with water views) apartment market. Supply restrictions coupled with light but consistent demand (especially from overseas & expats) is keeping a floor under prices which is not there in some other apartment/townhouse markets.
3. High asking prices are not a recipe for success. The market has to warm to the property and then good selling agents or auctions are driving the buyers.
4. Assessment is the key to saving money. If a property is not the type of property that would normally attract multiple bidding at auction, then an early offer may not be the way to go. However fighting things out in an emotional auction generally means you pay more than you would have paid before auction or missing out on the property altogether. It’s still possible to pay big money and nobody else share your view. You should have proven competition before you act. The market could easily change again as we feel the main drivers are extreme shortage of stock, the stock market, a slight return to the 2003 buyer desperate to get into the market mentality. The trend is up since 1999 but we are in a spike. Spikes can change in a flash (less than a month). Spring will be very interesting.
5. The figures for whatever reason from industry sources are not or only just starting to show these substantial increases.

Question:

Can we prove the strong market strength?

Answer:

1. Ask real buyers people who have actually bid, not the market lookers.

2. We have missed just as many as we have purchased in the last few months our strike rate is down as we recommend buy to a certain price – not buy at any cost.

3. Ask good quality selling agents who actually speak the truth.

4. Auction clearance rates

5. Time to sell Private sales: Every quarter we look at a basket of properties we are not involved in and examine: Time to sell and Price v Expectation. The market is hot for the right properties.

WARNING: The market is hot but that could easily change as the stock market has shifted gear. It could easily change as interest rates rise again or peoples confidence starts to dip. It could also easily change as it always does when some more stock comes onto the market.

WHAT DO YOU DO?

1. Well you can wait. But we know of people who have been waiting since 1999 for the Melbourne quality home market to drop. It hasn’t at any time since then and is not likely to take a big dive and lose a lot of it’s gains at any time in the near future (although we are not soothsayers or future tellers).

2. You can panic and buy anything at any price let us tell you that is a mindset being adopted by a few people out there.

3. You can keep your head and keep looking for acceptably priced quality long term buys and when you feel you have found one, be clear it meets your need and those of at least the next five years. Carry out proper due diligence (value, pest, building, legal), set a reasonable limit given the state of the market and stick to the plan (although minor deviations are allowed).

We of course recommend Option 3. We are urging patience to our clients. Renting is a pain as you have to move twice and the longer you are out of the market the more difficult it is to get back in. But if you buy rubbish or the wrong place or you pay a ridiculous price for a less than perfect property, you will suffer in the long run when you have to resell.

A lot of our work is simply adjusting expectations, not necessarily lowering them.

Lateral thoughts that can help get you into the market:

1. Different area
2. Different type of property but still quality only
3. Buying something now not everything you want in the future but has the potential to be that when your circumstances change. In other words, buy a quality floor plan, block and position now and add a second storey when you can afford it.
4. Street Smarts we are certainly not paying top dollar on everything we buy and in fact this year have bought places $150,000 to $750,000 plus below expectations. If you believe us when we say quite a few places are firing for the seller then we say to you the property market is sophisticated yes, but perfect no. If you are on the ground and constantly looking and disciplined, then good buys are still there every weekend.
5. Paying a premium for quality property is not desirable but it’s a lot more acceptable than buying rubbish cheaply.

It is used by those who want to buy right and who understand that buying right is not about saving a few bucks off the price or getting a big deduction off some fancy valuation or agent ask. Buying right is all about securing a property that will provide you with low risk, long term, above market growth.

The Property Ratings system is based on the best of the best of the 2 of the 4 existing Residential Property Buying Systems we are aware of:

1. The European Immigrant system carried out by many people from all nationalities. This involves buying places relatively cheaply, holding and when things improve buying some more. The long term hold system.
2. The Developer system. This includes professional developers and amateur renovators/builders where a buyer purchases a property and adds value by physically changing it’s characteristics usually the building but of course can include subdividing or rezoning the land.
3. The Seminar system. This system is a lot more of the ‘here and now’ and has focus on cash flow not growth. It involves rental guarantees, bank lending organized for you, below valuation and usually lots of marketing hype about the future.
4. The Mum and Dad system. This system involves buying a place you like because of proximity to schools, shops or transport, has a floor plan you can fix or live with and comes with a back yard of some note. Because of circumstances, the buyer holds onto it for lengthy periods of time.

The Property Ratings system incorporates the best parts of the European Immigrant and the Mum and Dad systems. We acknowledge that the Developer system can work, and work well for those that are experienced or have a good buffer with their budgets whilst they are gaining the experience, but for every one of those who simply sees the fast buck, we see plenty of highly intelligent people falling in a heap for reasons not clear to us and end up waiting on tables. In other words, it’s a system for the high risk takers and it can be great fun and it can work; but if you get it wrong, you may pay a very heavy price of financial hardship, stress and marriage difficulties.

The Seminar system works but usually for those who run them, not those who attend them and we don’t just mean the well publicised ones. We mean the people who are selling supposedly below valuation places through financial planners and alike. It’s all about the fast buck (for the seller) and the risks are often not clearly defined. Why would somebody bring you a deal that is so good it will definitely make money and you don’t have to do anything? Are there more “Mother Teresa’s” out there than we suspected?

So what should any buying plan being looking for? Growth. Growth not cashflow. Sure the cashflow needs to be affordable and you need to have buffers and it needs to make sense. We are not saying to buy a large parcel of land and don’t worry about the interest holding costs. What we are saying is look for growth as your main driver, your cornerstone.

So how does growth work? Quite simply growth comes from price increase.

Extreme example: A cash flow positive $500,000 property with no growth may make you $25,000 after tax for a whole ten year period. Alternatively, a negatively geared property of the same value that doubled may make you (after CGT allowance and the after tax money you forked out during the ten year period with a market rent) about $250,000. Without price increases you cannot work the system of acquiring more properties using equity. All good property systems need growth as their cornerstone.

So how or why do prices increase? Demand. For prices to go up, you need demand. On a personal note, I needed to find a cassette recorder to listen to a tape I recently got from the States. I went to a Salvation Army shop and bought one for far less than the price would have been 10 years ago. Why? It worked well, was not damaged and actually looked pretty good. I got it at that price because there was no significant demand for a cassette recorder anymore.

But there is demand for Docklands and for apartments in general and there is constant demand for housing at Caroline Springs or Berwick from first home buyers. There is demand but prices have not gone up for units as much as houses or for outer areas as much as inner areas (Valuer General data 19802006).

Why has growth been affected differently? Supply. There are few if any supply controls over apartments. As soon as the market shows some improvements, up will go another 10 towers. As soon as Narre Warren is built out, there will be Upper Narre Warren or Narre Warren East or Narre Warren Gardens or Lake Narre Warren built on a large parcels of land nearby.

Well what does work? Inner city family homes is one. Every apartment block or townhouse development is one less family home near the schools, coffee shops, trains and other amenities that BMW driving, share owning, fashion conscious couples/singles with and without children want to live in. And in case you haven’t noticed, we may have falling birth rates but our population is still growing at the world average and Melbourne is regarded as a very livable city for people from other countries. We get emails and phone calls every day for people wanting us to buy a nice family home for them so they can move from South Africa or Hong Kong or England or wherever

So how do you buy a good family home if you are a single, a couple or a family (growing or stable). Using the Property Ratings process developed by James Buyer Advocates, you do this.

STEP ONE: YOUR NEEDS.
Establish your needs both now, in 5 years and in 15 years. You want to be happy and you want to transact with minimum regularity. Please refer to our website www.jpp.com.au under Long Term where we prove conclusively that Joe Average who buys well and holds will beat Sammy Slick the brilliant negotiator who buys and sells a few times during the same period. Transaction costs and the dislocation of family can be major wealth destroyers.

STEP TWO: SEARCH
Search all options. If all you choose from is what you know now or what’s in the paper today, then you are restricting yourself to a very small pool. We accept the argument that the internet can be overwhelming for some and leads to no action because of too much choice but the Property Ratings system does present a way for you to look at all your options in a practical time saving manner.

STEP THREE: ASSESS
Is this property any good? Does it have long term growth characteristics and how does it compare to others? We have developed a system that allows for a 15 minute assessment of each property and a report is generated that highlights the positives and negatives of the property having examined all major aspects. The report has a few comments but it’s key feature is it gives a number that combines all the characteristics of the property in a way that allows for quick decisions and instant comparison with many other properties, some of which maybe very different. Below is a sample of our Rating Sheet that we have been using and from which we have established a unique and comprehensive database for our clients.

STEP FOUR: MONEY
We say money is not the issue and we mean it. But money is an issue. And with this step we get it right.

Property Rating sample

Property Ratings is a great tool to:

1.       Compare hundreds of properties quickly and accurately
2.       Compare very different properties in a meaningful way
3.       Compare very different priced properties
4.       To look into the future in a more objective manner
5.       To lessen the influence of ‘rose coloured glasses’ in the decision making process
6.       To make buying a lot safer.

For more detailed information, a sample of a rating sheet or information from our database please contact our office.

Client Comments

To be quite honest, when we sought your services, what we thought we were buying was someone to take photographs, and more photographs. As overseas buyers and former Melbourne residents, photographs and the verbal lowdown on interesting properties were really what we needed.

What we got was something quite different and unexpected. In you, we found:

• Someone who knew the market inside out
  Well before the newspapers reported the story, you told us that Melbourne was in the midst of a mini boom in the inner east and that prices were spiking. We knew the market well but you knew it better.
  
• One of the best strategists and negotiators we’ve ever met
  We really had no idea what a good buyer advocate does, and what we discovered was a simply superb strategist and negotiators in you. Your strategy and tactics to buy what would become our future family home was well-considered, smart and ensured that we did not pay more than we had to.
• The best service we’ve experienced in a very long time
  I’m a communicator by trade and you communicate better than most professionals I know. It’s always difficult doing business with someone youve never met in person, but you quickly won our confidence and trust and kept it. You kept us up-to-date, well informed and made us feel like we were in Melbourne having a coffee with you.
• A straight talker, who knew what we wanted and needed
  By the time we found you, we were frustrated by a long search and eager to close on a property (any property). You forced us to take a big breath, step back, and focus on finding the right property for our family now and into the future.
• An expert who provided skills from search to settlement
  The bottom line is that as an advocate, you make it much easier to get a great place, at the right place. Youre doing things we didnt know needed to be done for instance, negotiating on fixtures, handling our pre-settlement inspection, and coming up with a strategy to ensure our current tenant stays on.

We have no hesitation in recommending you and James Buyer Advocates in fact, I would consider your support critical to any future property purchase.

Warmest regards,

Sarah & Anthony

Hi Ian,

Just thought Id drop you a quick line.  In case you don’t remember, you helped us secure our little townhouse in Cremorne about a year ago for $389k.  We couldnt be more chuffed with it all.
Anyway, the unit two doors down went up for auction today.  It’s essentially identical, except it’s unrenovated and their carport is crammed into the backyard instead of out front.  It just went for $530k, after some intensive bidding.  Needless to say were pretty happy with that.  Looks like were on a nice little earner.

Hope all is well with you.

Cheers

Ben Letham