Dec 7: Bubble, balloon, bull-run?

Alan Kohler, in today’s Business Specatator: “… the US dollar is weak and central banks everywhere else are being forced to accommodate US monetary policy to try to stop their currencies appreciating against the dollar. Bubbles in real estate and shares are inevitable in those circumstances.”

The sense we’re getting at the coalface is that we’re now in a bubble; and, like the great procession of bubbles that came before, that it can’t last.

Symptoms? Vendors with expectations beyond great. Purchasers panicked into meeting them.

That’s a sitcom without a script. Or sense. And everyone’s an expert; even if their views are based on data that is months out of date (another of Mr Kohler’s long-held concerns).

Sour grapes? Us?

Yes. Over the past week we have been underbidders on several significant properties where we simply could not make the numbers add up. There’s land value, there’s improvement value and there’s oomph value. Add them and you get to a number which reasonably approximates real value. If you then bid against those who can’t do the sums or simply ignore them you’ll be playing a game with no rules.

Sorry. We won’t take our clients there.

(Why would we, when there are still some gems which are virtually overlooked and some vendors who can’t see these rises being sustained – so while it’s not easy, it’s still possible to buy well.)

Saturday. Land auction at 177 Kooyong Road. Good land, deceased estate, around 15,000 sq ft. On the market at $4.9 million and sold for $6,190,000. No-one else has gone near $350/sq ft in Kooyong Road, yet this ended up at $410/sq ft with three bidders. Bubble, balloon or $1.2 million free kick?

2/122 Anderson Street, South Yarra. Six weeks ago this was offered for private sale at around $760,000. No takers. The owner cleaned it up, farewelled the tenant, put in display furniture and – bubble or balloon – it sold on Saturday with seven bidders taking it to $905,000. Some paint job!


29 The Righi, South Yarra, 8 year-old house on 5,000 sq ft. An expressions of interest campaign raised none and, as usual, left seller and agent not knowing what to do. Suddenly, $4,250,000 is put on the table and the game is on with a realistic vendor and the year’s first lounge-room auction. All over at $4.8 million.

And then there’s our love affair with Ian Carmichael of Bennison Mackinnon. We bought a house. He didn’t know we bought it on behalf of the tenant. He’s crying foul. Our client is crying all the way to the bank. We’re taking a collection; with luck we’ll raise enough to buy Mr Carmichael his very own hankie.

And yet more perspective from Mr Kohler: “… bubbles can be hard to pick: ‘bubble’ is often just the name someone applies to a rally that they missed; if you’re on it, it’s a bull market.”

David Morrell

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Bayside: It’s lonely at the top

Buyers were out in force in Bayside this weekend with plenty of action from Elwood through to Mentone as the opportunities to secure a property this year are fast dwindling.

Low- to mid-level properties are being hoovered up despite a third interest rate rise in as many months and with the guarantee of futher rises in the new year. The pent-up demand that flowed from nothing happening in 2008 will clearly spill over into 2010; although there appears to be signs of herd mentality driving some buying decisions and this is reflected in some over-the-top prices being paid.

Mentone and Parkdale are two adjoining beachside suburbs that have been in the shadow of their more affluent northern neighbours but are now finding increased favour from buyers priced out of Hampton, Sandringham and, to a lesser degree, Beaumaris. Mentone recorded 9 sales from 10 auctions on the weekend and still offers value for money in this very heated market.

Beaumaris and its smaller cousin, Black Rock, also had a very busy week. Between them there were 12 sales from 14 offered.

The standout was a sale prior to auction at 4 Tramway Parade, Beaumaris; one of the prime streets in the suburb. A comfortable but dated beach-style property of 11 main rooms and on a substantial 2070 sq m allotment, it sold for $2,880,000.

The highest priced auction in Black Rock was 3 Glenmore Crescent. It sold for $1.64 million with 8 Stanley Street close by at $1,525,000.

Beach Road real estate continues to struggle to attract auction bidders with 2/366 Beach Road passing in at $1.74 million. A later offer of $1.75 million failed to convince the vendor. The asking price is $1.82 million.

Hampton recorded eight sales from nine auctions; most in the very popular sub-$750,000 range. Highest price on the day was 44 Imbros Street, an 8-room cal bung on stock standard land of 624 sq m. It sold for $1.56 million.

Perhaps reflecting its tightly held nature, but still surprising in a prime beach-side suburb in a busy time of year, Sandringham had only one auction scheduled. The solitary offering was 12 Sandringham Road and it’s still tightly (if unwillingly) held by the owner after being passed in at $890,000. A later offer of $920,000 was not enough. The owner is asking $990,000.

Brighton’s stats looked healthy: 16 of 20 sold at auction or soon after but, again, all the action is at levels up to but not exceeding the median for the suburb. Middle to top end properties are not quite getting there.

Evidence? 13 Wellington Street, a solidly built but dated brick house on just under 800 sq m on the corner of Sussex Street. The auctioneer was at pains to point out to the crowd that he couldn’t value it and didn’t really know what it was worth. Seems that message stuck: a solitary bidder offered $3.5 million before it was passed in. Presumably knowing no more than they did before the auction, the agents did not publish an asking price or reserve.

However there was action at 142-142a The Esplanade. It’s a pair of maisonettes on land totalling 930 sq m and overlooking the beach with excellent water views, rear access via Wellington Street and ripe for redevelopment. Last sold in April this year for $4.1 million, three bidders competed until it was passed in (after two referrals ) at a whopping $4.96 million. Apparently further discussions ensued with an offer made a tickle over $5 million, but still no sold sign on the board. The reserve is anybody’s guess but even in this hot market, that is a huge result for no sale.

Several pass-ins from the past few weeks are now being cleared up with 32 Cosham Street sold for $2.9 million and 65 Cochrane Street at $1.725 million.

A big, big auction weekend coming up will really test buyers’ resolves. While low- to mid-market properties will continue to hold up, it’s likely that a number of trophy and other top end properties which are concluding expressions of interest campaigns this week will still be for sale next week.

Time, that most persuasive of raconteurs, will tell.

Damian Taylor

M&K in the News:

Rate rises fail to hammer auctions – Australian Financial Review (subscription required) ? Mr Morrell said that there had been a limited supply of quality housing stock available all year and surprisingly little fallout from the global financial crisis…

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