How to find a home in Melbourne's Hot Property Market.

How to Find a Home in Melbourne’s
Hot Property Market

It is incredibly competitive buying properties at auction in Melbourne right now. In fact, the property market is Red Hot!! I cannot recall a similar market other than around 2007 where auction clearance rates frequently sat in the low to mid 80% range. This is generating some peculiar bidding tactics and a lot of FOMO driven sale results for vendors.

According to the REIV (Real Estate Institute of Victoria) data the auction clearance rates were 82.5% for the month of May from 3277 auctions. In May 2020 auction clearance rates were 71.8% and back in May 2019 it was down to 57%! And, on the first Saturday into Melbourne’s 4th lockdown, the auction clearance rates went up to 93%, with just over 40% selling before auction and the other results from live auctions online. In these uncertain times a further 500 auctions were postponed or withdrawn from sale. Hopefully the 7-day circuit breaker lockdown will do enough to control the outbreak and lift the restrictions. Do note that the auction clearance rates include properties sold before auction and also properties that passed in and sold within 3 business days after the auction.

Naturally, buyers and vendors alike are asking when will these sort of clearance rates end? Frankly no one knows for sure, but some of the driving factors behind this hot property market give us some clues. These include:

Lack of properties for sale in inner and middle Melbourne – selling agents are keen to list more properties for sale
Record low interest rates allow discretionary vendors to hold their property for longer. They have enough equity to buy their next home without the need to sell their current principal place of residence.
Record low interest rates allow higher borrowings which are contributing to higher sale prices. The RBA Governor does not forecast any increases until 2023.
Of course, we don’t have a crystal ball, but to predict the future economic impact on finance take a quick look at the 5-year fixed interest rates, they sit around 2.7% to 2.9%
Population Growth – Melbourne’s population has now reached 5,000,000 with Victoria’s Capital also now being the most densely populated city in Australia with 453 people per km2. Sydney is still more populated but less dense with 400 per km2 (according to Population Australia statistics)

To navigate the heated market, the key thing you must know is to ‘understand value’. Selling agents aren’t really being brought to task by Consumer Affairs for underquoting issues. However, in fairness to the selling agents and the Vendors, there is a difference between a heated market and under quoting. Having said that, how do you approach a $1m to $1.1m quote range and get a sale price of over $1.3m? Is it math and do you just add 20 – 30% over the bottom end? Or isn’t it as simple as that?

Understanding the value of a property in any given market needs some thorough analysis. If you are looking at an established house, it would be diligent to look at least 20 similar homes in the preceding 6- 7 weeks leading up to an auction of interest. Attend some of the auctions and watch closely, in particular the end result but also familiarise yourself with the auctioneer’s language and when they say it i.e. “we’re not on the market yet”, “if there’s no further bids I will be passing the property in to the highest bidder”, “yes, we’re on the market”, “if there are no further bids I am selling the property” and so on.

You would have already established your maximum budget through your bank, lender or mortgage broker so it’s really important to stay within your budget and only focus on properties that ‘may’ sell within your budget. If you have sold already or are looking at a cash acquisition, it is still important to set your limits and factor in all other purchase costs such as stamp duty and your lifestyle budget.

Once you have done a bit of research of similar homes and set your upper limit within your budget, some of the things you should consider about the property of interest are:

Look at the land size of the block, is it average for the area or larger/ smaller. Land value is a key component underpinning the property value. Most subdivided lots have lower overall land value but a higher price per square metre
Is the house renovated? Are there many changes you want or need to make? If so, you need to estimate this additional cost and factor it into your budget avoiding any false economy and the potential to overpay
Is the house perfect and beautifully presented? Are there large numbers of attendees at the open inspections? Yes? Then with this broader appeal, you would expect more competition on this property adding to its value. If it is still in your budget, be buoyed that when you sell it in 15 – 20 years’ time you may attract similar attention.
Is it a knockdown well within your budget but you’re still keen to renovate? Again, factor in all the costs to upgrade the home, you might find it adding up to a few hundred thousand dollars or more depending on your taste. That’s OK if you have the time and inclination and it’s the worst house in the best street type of scenario but here come the developers and the architect builders! They will do their sums too and you will find them competing for this type of property. They may have the capacity and a long-term strategy to ‘land bank’ the project and bid significantly over your budget.
When looking at comparable sales, also look at the number of bedrooms, neighbouring properties as well as the zoning of the land. This can all have an impact on value. Zoning details can be found in the Vendor Statement or online.
When researching recent sale results you can access free auction results, subscribe to a number of data providers or just buy an affordable ‘one off’ suburb report. Make sure this is part of your due diligence check list as some sale results vary wildly. You may have witnessed 10 bidders at one auction for a ‘spike’ price compared to an irregular shaped block with power lines at the rear just around the corner, both in the same suburb, both with 3 bedrooms and two bathrooms on similar sized land. You must understand the differences.
School zones are another driving force that can make a difference to perceived and actual value. Highly sought-after zones are driving local markets in the immediate vicinity.

There are a lot of things for buyers to consider within Melbourne’s hot property market right now. Hopefully sharing my experience and knowledge has helped you in your quest for the perfect home! So, happy house hunting! And if it does get too overwhelming, please reach out to the team at Etica for a free consultation about your property needs. We have helped our clients buy properties in every type of market here in Melbourne, and we are here to help you too.

How to Find a Home in Melbourne’s Hot Property Market

How to Find a Home in Melbourne’s
Hot Property Market