Let’s bust a few myths about the top end

March 4th, 2013
myth word abstract - isolated text in a variety of vintage letterpress wood type printing blocks

myth word abstract – isolated text in a variety of vintage letterpress wood type printing blocks

Sydney’s residential property market  opened to  a chorus of mainstream media reports about auction clearance rates rising above 70% and the return of boom times even at the top end above $2 million.

Dr Andrew Wilson, Chief Economist at Australian Property Monitors went so far as to proclaim in the Domain Property Guide  published on 24 February 2013 that:

” [t]he share market is certainly at the highest point it’s reached over the past couple of years, and it’s no coincidence that rising activity in equity markets works its way into the prestige property markets which have been dragging the chain over the past few years, there’s a growing feeling of prosperity which might get those change-up buyers up and running. I think the $2 million to $4 million price point will be the most active.’’

This article is intrigued to know how one is supposed to reconcile this  “growing feeling of prosperity”  over $ 2 million  with the following statistics compiled by the same research house for the local government areas of Eastern Suburbs and CBD, Inner West, Lower North Shore and Upper North Shore:

Number of Purchases Turnover Properties purchased at auction Auction clearance rates adjusted for properties withdrawn prior to auction
19/01/2012 to 29/02/2012 143 $510,006,781 10 24%
19/01/2013 to 28/02/2013 18 $48,121,500 11 92%
Change (125) ($461,885,281) 1 68%
Change % (87) (91) 10 280

Those statistics excluded certain other transactions during that period, notably in the Eastern Suburbs which have not yet made APM’s data base such as:

  • 30 Roslyn Street, Bellevue Hill – $4.85 million
  • 12a and 12b/21 Thornton Street, Darling Point – $4.31 million
  • 12 Darling Street, Bronte – $2.8 million
  • 126 Bellevue Road, Bellevue Hill – $2.755 million
  • 39 Blair Street, North Bondi – $2.275 million.

Even with adjustments for such unreported purchases and despite an apparently aberrant flourish right at the start of the year , the subsequent and real overall trend above $2 million relative to the same period last year is unmistakable with the Sydney prestige property market needing a lot more growing feelings of prosperity just to catch up to its chain dragging performance in 2012.

Between $1 million and $2 million, although activity was greater than it was above $ 2 million it was still far from buoyant as this table shows:

Number of Purchases Turnover Properties purchased at auction Auction clearance rates adjusted for properties withdrawn prior to auction
19/01/2012 to 29/02/2012 348 $713,840,508 53 38%
19/01/2013 to 28/02/2013 191 $273,474,888 118 75%
Change (157) ($440,365,620) 65 37%
Change % (55) (61) 2.2 97

Of concern to those property buyers still induced into auction rooms is the continuing rise during this period in auction clearance rates as a result of the further myths in that regard busted in CurtiseCall November 2012 .

The view from the coal face after the first month since school holidays ended is that except for certain apparently bomb proof local sub markets such as Strathfield, activity above $1 million will generally fall into three categories:

  • high quality stock will remain in short supply. For those buyers savvy enough to know where and how to find it, demand and competition for such trophies will remain high. An example from the weekend just gone was the wide fronted , heritage listed terrace at 61 Victoria Street, Potts Point. As one of five houses having recently seceded from the adjoining strata plan and freestanding to the north, it was hardly surprising that five registered bidders  pushed its price to $2.18 million at auction on 2 March 2013.
  • Similarly, the $1.65 million paid at auction on 23 February 2013 for 58 Watkin Street, Newtown  represented a substantial on paper gain relative to the $1.7 million paid on 17 July 2010 for its superior but in similar condition northerly neighbour at 56 Watkin Street, Newtown which has since undergone an impressive re development
  • with few truly motivated vendors, the bulk of lesser quality stock will remain unsold or just not brought to market
  • in the relatively rare cases of motivated vendors of properties appealing to a smaller market, buyers should gain the upper hand.
  • Two examples in this category include 7 Rowland Avenue, Bondi which, having been on and off the market since February 2011 with $2.5 million expectations,  now has its owners looking for offers above $2.2 million.
  • Holding similar expectations from late last year, the owner of 12 Grasmere Road, Cremorne last Friday sold for $2.15 million to a buyer who wisely held the line for several weeks.

As this article began with a reference to the  Domain Property Guide, it is fitting in the spirit of ‘beginning of the year myth busting’ that we conclude by drawing attention to the dangers of relying too heavily on published median prices:  CurtiseCall October 2008.

While macro based reasoning certainly has a role to play, it is no substitute when buying property for careful research and due diligence at the micro level. Taking the two sales mentioned earlier, although there is no statistically reliable data in relation to median house prices in Potts Point, if the purchaser of 12 Grasmere Road, Cremorne had relied only on the data published in relation to median house prices in that suburb, the price paid would have risen by more than $169,000.