Sydney’s property market and the curse of the confidential price

April 14th, 2010

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The recurring themes over the last month or so concerning the Sydney property market have been high auction clearance rates especially during the “Super Saturday” preceding Easter Saturday, rising median prices, reserves being smashed, the continuing short supply of new and secondary stock, housing affordability and that old favourite, interest rates.

Some commentators have attributed Sydney’s rising real estate prices to unsubstantiated claims that more than 30% of homes were purchased by foreign speculators fuelled by recent changes to Australia’s foreign investment rules – which has not been the experience of Curtis Associates who are in the auction rooms on a weekly basis.

Others such as Moody’s Analytics’ Matt Robinson see five months of declining house finance applications as a possible light at the end of the tunnel of rising property prices. Mr. Robinson may well be right.

Original contributions over the period included an unusual 29 March 2010 appearance by the Governor of the Reserve Bank of Australia on early morning commercial TV, cautioning viewers that it was “a mistake to assume that a riskless, easy, guaranteed way to prosperity is just to be leveraged up into property”; a remark interpreted by the markets as signaling further interest rate rises and which a week later proved correct when the cash rate was raised 0.25% to 4.25% with more rises being inevitable.

Also weighing into the debate was the Stocklands CEO, Matthew Quinn with an address on 16 March 2010 which, for those present, was refreshingly more caustic and incisive than reported in the mainstream press. One of Mr. Quinn’s main complaints was of a failure at all levels of government to appreciate what he described as the housing time bomb caused by Australian urban population growth outstripping housing supply.

Other pundits this month went around in well worn circles search for answers to these issues with a commendable conviction nevertheless that the madness being experienced in some parts of the Sydney and Melbourne property markets cannot and will not continue.

None of these commentators mentioned what, to thinking insiders, is an elephant in the room of the Sydney property market; namely, that despite the advent of resources such as online research tools, it is a market lacking transparency and efficiency.

Distortions are everywhere.

For example, at the top end, it is common practice for real estate agents, buyers and sellers to keep sales prices confidential. Although such a practice would be anathema, indeed illegal, in the stock and futures markets, it remains an accepted and mostly unchallenged part of Sydney’s real estate scene.

Often this confidentiality is driven by nothing more than an irrational desire by one or both parties to retain privacy for as long as possible after the dust of the transaction settles. Theoretically that delusion typically has a 42 day shelf life after which the details become a matter of public record when transfers are registered.

In reality however, few prospective buyers have the time or would even know how to incur the effort and expense of searching those records. Instead, they are forced to inform themselves about the market via real estate portals and real estate sections of the media dependent for their content on agents who choose, largely for their own marketing purposes, to provide (or not to provide) such media with data. If such selectivity in providing information were to occur on the stock exchange, the regulators might consider it to be market manipulation.

In any event it is anything other than rigorous data gathering conducive to an efficient and functioning market. Hardly any wonder that unrepresented buyers in a low interest rate environment, denied access to masses of data revealing the true state of the market in which they participate on average once every 7.5 years, continue to smash reserves every weekend.

A prime example of this was the sale at auction on 6 March 2010 of 44 Addison Avenue, Roseville for $1.517 million. That was a scorcher of a price for a north to the rear Federation in poor condition with possible structural problems.

No doubt its purchaser and the many under bidders who helped to push the price over its $1.225 million reserve, would have been interested to know that 52 Earl Street, Roseville around the corner had sold a day earlier for $1.46 million. Sitting on similar land, the latter included a near faultless and liveable home offering plenty of upside, a swimming pool and golf course views.

The practice of keeping sales prices confidential is also discriminatory which, as any economist will tell you, also distorts market and destabilises prices. For those who might have been at the auctions, the sales information is not only freely available, it is often a source of entertainment culminating in applause. On the other hand, for those buyers confined to seeking the same information online, frustration and ignorance replace entertainment when the searching returns a “Price Withheld” result.

So, for example, those who attended the auction on 25 March 2010 in the rooms of a prominent eastern suburbs agency would have known that around 10 registered bidders hammered each other in rapid succession to buy 28 Imperial Avenue, Bondi for $2.82 million. Equally informative was the knowledge that twenty minutes earlier, 6 Loombah Road, Dover Heights and 83 Bellevue Road, Bellevue Hill had sold under the same hammer for $4.71 million and $5 million respectively. As it happened, those sales were reported in that week’s edition of the local eastern suburbs community newspaper.

Not so in the cases of 16 Chamberlain Avenue, Rose Bay and 41 Suttie Road, Bellevue Hill which also sold under the same hammer that evening and for which, it is presently impossible to ascertain their sale prices online.

This phenomenon occurs weekly across the spectrum of Sydney property prices and from Sutherland Shire to the northern beaches. The above transactions are examples of information which buyers in Sydney’s property market are entitled to know and which, at the top end, paints a rather different picture to the one conveyed by this headline in the 11 March 2010 edition of the Australian Financial Review: “Prestige end bottoms“.

Similarly, buyers in Sydney’s property market are entitled to further information with which to reconcile for example, the $1.55 million loss incurred in the enforced sale of the two beachfront apartments at 4 and 5 of 2 Notts Avenue, Bondi Beach, with sales such as these since the February 2010 edition of CurtiseCall:

  • 801 / 1A Tusculum Street, Potts Point for $4.5 million
  • 18a Ginahgulla Road, Bellevue Hill for $4 million
  • 691 New South Head Road, Rose Bay for $4.45 million
  • 17 Iluka Road, Mosman for $6.15 million
  • 95a Cammeray Road, Cammeray for $4.85 million
  • 6 William Street, Henley for $4.13 million
  • 34 – 36 Thomson Street, Darlinghurst for $1.64 million
  • 33 Hopetoun Street, Camperdown for $2.9 million.

Such disinformation is also often perpetuated by other stakeholders including community newspapers whose advertising revenues largely depend upon every week conveying the impression of a consistent and buoyant local real estate market.

Examples in the past five weeks include two sales reported in the 7 April 2010 edition of the same eastern suburbs community newspaper referred to above. Appearing under the heading “This week’s top 10 sales” are the sales of 1B Tara Street, Woollahra for $3.25 million and of 87 Barcom Avenue, Darlinghurst for $4.15 million. In fact, each of those sales occurred not in the week ending 7 April 2010 but on 29 March 2010. Similarly, 8 Court Road, Double Bay is said to have sold in the week ending 14 April 2010 when in fact it is sold on 31 March 2010. There are many other such examples.

With real estate transactions, as in politics, a week can be a long time.

Much like the media’s preoccupation with practically useless median sale prices (CurtiseCall, October 2008), such distortions impede the development of an informed and transparent property market.

The solution?

For a start, why not make it mandatory for all real estate agents and buyers’ agents to report transactions, (excluding parties’ names) online and to a central authority within 24 hours of contracts being exchanged? Why not publish the reserve prices and the number of registered bidders? What could be the harm? Why does that not happen now? Surely, it would promote a more efficient market less prone to price distortions?

Answers to those questions will inevitably explore the existence or otherwise of a political will to do so: in NSW alone, for the eight months to 28 February 2010, ad valorem stamp duty revenue on property transactions was a massive $1.86 billion which, when compared to the same period last year, represented an increase of 37.8%.