Easter Super Saturday, Devonshire Street, Surry Hills and the case for boycotting auctions

April 15th, 2013
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If you believe the figures reported by Australian Property Monitors, some very strange animal spirit gripped Sydney property buyers during the pre Easter Super Saturday which this year occurred on 23 March 2013.

Relative to the same event last year which occurred on 31 March 2012, in the $1 million to $2 million bracket in the City and East, Inner West, Lower North Shore, Upper North Shore and South regions of the Sydney residential property market:

  • auction volumes that day were up by 31%
  • monetary turnover was up by 42% and
  • the average price paid increased by 8% to $1,367,901.

What is strange about that animal spirit was that those buyers were apparently oblivious to the:

  • emerging rumours that the next movement in interest rates as suggested by the futures market will be up not down
  • a botched leadership spill two days earlier in Canberra and
  • ominous events unfolding in Cyprus which were in headlines everywhere and attracted commentary as dire as this published on the day by The Economist:

” Even by the standards of European policy making, the past week has been a disaster…[t]his crisis could have poisonous long term consequences. Eight months after the European Central Bank appeared to have restored stability by promising to do whatever it took to save the currency, the risk of a euro member being thrown out has returned. It has increased the chance of deposit runs (if Cyprus can grab your money, why not Italy or Spain?) And it has revealed the lack of progress towards a durable solution to the euro’s troubles…Even if only uninsured deposits are hit, a line has been crossed…The euro-zone economy is stagnant. Protest parties are gaining popularity. The euro was supposed to be the manifestation of a grand political project. It feels more like a loveless marriage, in which the cost of breaking up is the only thing keeping the parties together.”

Why this buyer exuberance on the last Super Saturday?

The answer, in a word, is “auctions” with the day in question representing a moment of near hysteria in the process on which we have been commenting since CurtiseCall October 2012 and which continues to prop up the Sydney real estate market in the $ 1 million to $ 2 million bracket.

That answer leaps from the page when those numbers are analysed in the context of the following numbers reported by the same research house for the five week periods between 5 March and 10 April in each of 2012 and 2013:

2013 2012 Change % change
Number sold at auction 186 83 103 124
Turnover at auction $ 254,268,501 107,985,500 146,283,001 135
Median auction price $ 1,310,000 1,240,000 70,000 6
Average auction price $ 1,367,035 1,301,030 66,005 5
Number sold by private treaty 66 325 (259) (392)
Turnover by private treaty $ 90,418,888 452,017,689 (361,598,801) (399)
Median private treaty price $ 1,312,500 1,350,000 (37,500) (2.8)
Average private treaty price $ 1,369,983 1,390,824 (20,841) (1.5)

Source: Australian Property Monitors

Plainly, in this bracket auctions worked for sellers not buyers leading to the increases in average and median prices produced by that adrenalin driven method which was in contrast to the modest falls in average and median prices produced by cooler heads operating in a private treaty environment.

Two events in Surry Hills this month illustrated how profoundly different the outcome can be when property buyers decide not to participate in auctions.

On 23 March 2013, despite a well run marketing campaign, the auction of the attractively renovated terrace at 252 Devonshire Street was cancelled owing to lack of interest as a result of justifiable buyer concern about the light rail line the New South Wales State Government proposes to build along that street. The property was later withdrawn from sale.

14 days later eight registered bidders pushed the sale price of the terrace at 148 Devonshire Street to $1.355 million which was nearly $300,000 over the reserve price. That property is just 350 metres west of and in an inferior position to 252 Devonshire Street. It will be similarly affected by the light rail line if built.

While it is beyond this article’s expertise or even ability to explain why two groups of buyers would almost concurrently have such radically differing views about such an affectation, it remains pertinent to note when analysing such a polarised result that in one case an auction took place whereas in the other, it did not.

Owing to its being a far less competitive bracket, as the following table shows, buyers above $ 2 million during the same period were not gripped by a similar bout of hysteria and especially not on Super Saturday when a mere six properties reportredly sold under the hammer. That was half the number sold by the same method in the corresponding period last year with three being in the eastern suburbs and all of the other three being in the consistently performing Strathfield.

2013 2012 Change % change
Number sold at auction 41 46 (5) (11)
Turnover at auction $ 108,592,000 126,412,500 (17,820,500) (14)
Median auction price $ 2,500,000 2,457,500 (42,500) (17)
Average auction price $ 2,648,585 2,748,098 (99,513) (4)
Number sold by private treaty 29 179 (150) (517)
Turnover by private treaty $ 84,225,000 574,094,251 (489,869,251) (582)
Median private treaty price $ 2,625,000 2,700,000 (75,000) (3)
Average private treaty price $ 2,904,310 3,207,230 (302,920) (9)

Source: Australian Property Monitors

Other trends to emerge in this over $ 2million bracket included:

  • with 27 reported sales and at least ten other unreported sales totalling $25,000,000 (including 12 Chesterfield Parade, Bronte for $3,005,000 and 4 Forest Knoll Avenue, Bondi Beach for $2.8 million) , the City and East eclipsed the other major districts in turnover with the Inner West recording 11 sales and the Lower North Shore managing only 18 (including the unreported sale under the hammer of 1 Bogota Avenue, Neutral Bay on 21 March 2013 for $ 2.1 million which was well shy of the vendors’ initial $2.3 million expectations)
  • relative to the same period last year when it chalked up 28 sales in this bracket, the Upper North Shore only reported one sale
  • that performance mirrored similar falls in turnover in Bellevue Hill (two this year compared to 13 last year) with prices nevertheless holding as evidenced by the unreported sales of 23 Streatfield Road, Bellevue Hill for $3,500,000 and 57 Carlotta Road, Bellevue Hill for a confidential but known to be respectable price
  • turnover in Mosman also stalled (nine this year including three confidential sales compared to 26 last year).
  • despite the fall in turnover , Mosman attracted some of the biggest prices during the period with the three confidential sales recording an average price of nearly $6.5 million. Two of the three properties which were the subject of the confidential sales had been on the market since 2011 and the prices they last achieved delivered some healthy on paper capital gains to the savvy recent purchasers of 3 Curlew Camp Road, Mosman and 29B Parriwi Road, Mosman who paid $5.5 million and $5.25 million for their respective properties.

Conclusion:

Buyers in the Sydney property market need to realise that in an auction they become actors on a stage in a show funded and controlled by vendors. As the tale from 252 Devonshire Street and the numbers analysed above in the $ 1 million to $ 2 million bracket demonstrate, however well produced the rest of that show might be, without buyers for actors, the show does not go on and prices tend to stay down.

We look forward to a time when auctions come to be viewed in the same way as other market distorting activities such as price fixing and insider trading.

As a first step in that direction, this article again urges buyers across the board to follow the lead of those this month above $ 2million and avoid, even boycott auctions.