What in the world is happening?

While local real estate preoccupations have been rushing around in ever-diminishing circles (“It’s supply/demand.” “It’s interest rates.” “It’s the Chinese.” “It’s negative gearing.” “It’s land banks.” “It’s [insert your answer here].”) we have been rushing around looking for answers in one big circle: the world.

The US? The top end in New York and Washington. Prices rebounding over the past 6-8 weeks and a lot of positive sentiment.

Hong Kong? The expats look homeward and they don’t see a lot of logic in our market (really?), they see it as over-priced and that the AUD exchange rate is particularly unkind; and still they want to buy in. They think prices are still heading up, they listen to our warnings and brief us to buy.

China? They look at the FIRB rule changes, shrug their shoulders and figure there will be a way around them. This against a background of soaring prices in top-end China (making purchasing here little more than dipping into the petty cash tin) and a desire to move their money out of China. Why Melbourne? In part because we had a Chinese Lord Mayor, but Canada and Europe are also on their radar.

While on the FIRB, it seems that horse has already bolted, not that it had a great impact at the top end. Most activity was in Boroondara and then mainly between $1 and $3 million. The main beneficiaries were the agents in winning listings: “Come with us! We have multiple Asian buyers!” Yes. Anything you say.

Truth is, the person you’re bidding against is probably from no further than a suburb or two away and has the same imperatives – schools, upgrading, change of circumstances – as you do. You are not bidding against a tsunami of Chinese Yuan.

Meanwhile, in MEL …

Easter and Anzac Day are behind us and the market-proper now resumes. There is still too little quality available and still many cheque books ready to be waved; but not indiscriminately.

36 Walsh Street, South Yarra. A good Gillespie townhouse. They rejected a prior offer of $5 million and had a lonely bid of $4,820,000 on the day. Passed in. Where were those other rumoured bidders?

181 Gipps Street, East Melbourne, passed in (again) at $5,900,000. A lot spent on advertising for a return which amounts to a serious ouch.

More loneliness at 3 Willow Street, Malvern, One vendor bid of $3 million.

Could it be that those at the top have better things to do over long weekends?

While musing on Big Things, our friend Fred passed on a link to a Financial Times interview with Jeremy Grantham. Grantham sees most of the world’s real estate bubbles as now deflated with just two still well above long-term trends: the UK and Australia. See for yourself here; and more context here.

In other news, the agents have set up their own paper. Advertising was one of their major profit centres until denied to them by the ACCC. So now they’re to become media moguls and to advise their clients to place ads in their very own publication (do we smell conflict of interest? Us? Never!). This is a supremely death-defying stunt in the face of the internet, for surely print’s days are numbered.

Yes. We do live in interesting times.

David Morrell

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Bayside: Could this be an election year?

In attempting to understand the surge in property prices over the past nine months, many theories have been put forward.

The one that has touched a raw nerve with some and has been picked up by the media over the past couple of months is the impact of foreign buyers.

It’s a lazy view that foreign buyers are buying in numbers at auctions and in so doing excluding locals from owning a property of their choice and driving the market to ever higher levels. From letters to the editor to current affairs programs, the reaction is well out of line with reality, is a ratings grab and has hints of xenophobia.

Do we blame the change in the FIRB regulations for the unrealistically high property values currently being experienced or seriously examine the real reasons: strong population growth colliding with lack of available property?

Why lack of property ?

A tangle of restrictive planning rules for the established inner and middle suburbs is limiting the construction of new houses and there is relatively little release of new suburban allotments in the outer locations. Throw into the mix the banks’ reluctance to lend to developers for medium and higher density housing.

So it is understandable that owners are reluctant to sell, fearing they will not be able to replace their existing houses. Better to stay put and renovate the kitchen and bathrooms (again?).

Investors are also returning to the market with some no doubt wishing to balance their investment portfolios by borrowing through their super funds to buy real estate.

While it is true that some foreign buyers have taken advantage of the relaxed FIRB rules, they are not the reason for the surge in property prices.

Political expediency is a powerful thing and so the reversal to the previous regulations limiting foreign ownership will be seen as a decisive Government reaction; but it’s addressing a problem that isn’t really there while the real problem, inadequate supply, is yet to be seriously tackled.

Meanwhile, in Bayside, while it has been a quieter month for auctions with long weekends, school holidays and Easter all disrupting the flow, some $5 million plus properties are finally starting to move.

2 Manor Street, Brighton, a double-storey Victorian house of 12 principal rooms on 1250 sq m in one of Brighton’s best streets, was last sold in February 2008 for $4.555 million. It brought further joy to a selling agent over the weekend. A post-auction negotiation with a solitary bidder was eventually resolved at $5.58 million – half a million dollars over the pass-in figure.

1A Martin Street, on the beach, has finally sold following an unsuccessful EOI campaign last Spring. A change in agent and a stronger market saw a sale eventuate at $8.1 million, ironically about the same figure that was refused last year. For our money, this is on the money.

139-141 New Street has quietly sold after a low key month-long internet-only campaign. A superbly restored and extended single-level Victorian on gardens of 2000sq m, it changed hands at $7 million.

23 Cosham Street just topped $5 million after it languished on the market for over twelve months. Word is agent and vendor are relieved. Word is that one of them is happy.

17 Albert Street, another 2009 wallflower, finally found love for a figure believed to be around $3.9 million. We were at the auction last year where it was passed in after a bid of $4.1 million. Ouch.

369 St Kilda Street (no link, sorry), on the corner of Martin Street. No love last year but a respectable sale recently at $3.063 million. Bulldozer expected soon.

49 Were Street, next door to South Lodge, sold for $2.24 million. More bulldozers in prospect.

52 Asling Street, 1030 sq m backing onto the railway track and with a tennis court. A change of agent brought the required result: sold for $2.15 million.

In adjacent Brighton Beach (oh, OK, Hampton) 33 Bolton Avenue sold after an EOI campaign: $4.08 million.

And so to May. Five uninterrupted auction weekends ahead. Hold or fold time? Whichever way it goes, quality and location are still the keys.

Damian Taylor

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