Melbourne top end market splintering under weight of stock

Last week was the first real hiccup we’ve seen in the top end inner Melbourne auction market this year. With clearance rates in the 60s, and at a very low 1.3 bidders per auction, the market sat up and took notice.

What did this mean?

Was last week the start of a big slump like the Pies had at the end of the season, or was it just an off week like Hawthorn had on the way to another premiership?

In our opinion, last week was the start of something, but of neither of the above. In our opinion it was the start of a more splintered market. Almost half the auctions we covered last week had no bidders and this week again there were a significant number of the top end properties with no bidders. 

Two reasons for this splintering market:

  1. The incredible amount of choice out there at the moment means that unless a home is an A-grader or a well-priced B-grader, it is no longer an automatic sell. This is creating an easing of demand per property. Why? Right now in late spring this easing of demand per property is due mainly to the sheer volume of what’s on offer. This weekend was a big Saturday (100+ auctions) and there’ll be another big Saturday next weekend  (100+ auctions), and then we’re up for a super Saturday (150+ auctions) on November 30.

  2. Price – Some vendors are getting ahead of themselves. Nothing wrong with that. Except that in this market they may well be punished by no sale, whereas in early spring that was not happening as often.

Right now, just as a buyer stretching to buy a property has to ask themselves: Am I buying a price or am I buying the property, the market is asking sellers the same sort of question: are you selling a property or are you selling a price? That’s a big difference in strategies!

But, and it’s a very big but: When the property has the right 'three Ps' – price, property and position – how sweet the market is for sellers. That’s the splintering effect.

Let’s look at two sales in Toorak to prove a point.

Both were land sales. We had tentative interest in both at around the quote level, but, as we told our clients, we knew we were never going to be serious contenders. While the homes may have been quoted with an eye on the reserves, they were not quoted with an eye on the expected final result.

So while both went miles over the reserve, they didn’t go miles above the professional estimated buying range.

11 Tashinny Road, Toorak (pictured below) – This was 511 square metres of north-facing rear land with two period apartments that needed serious renovation.  The quote was around $1.7 million, but the agents (Scott Patterson and Michael Armstrong) expected more and said so. We put the range at $2.1 million to $2.5 million, expecting it to go in the low $2 million region. It was declared ‘on the market’ fairly at $1.85 million, and with six bidders it pushed through to $2,395,000. This price put land at $4,700 per square metre, strong for that little pocket but normal for other land nearby, such as the nearby Dunraven precinct.

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6 Verdant Avenue, Toorak (Philippe Batters) – On 836 square metres, this was one of the best mid-sized Toorak blocks offered in a long time (pictured below). The $3 million plus quote was courageous – with two street frontages and wide and Verdant Avenue. We thought it might go for perhaps around $4 million, or maybe more, so the final result of $4,445,000 after four bidders had fought it out was not a complete shock but it was still very strong. This says great land down near the Royal South Yarra Tennis courts is worth $5,300 per square metre.

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In two places not that far apart you had 10 bidders (plus those that didn’t speak up) putting the price of land – no house – at circa $5,000 square metre. So, yes, there is still a very strong market for properties with the right 'Ps'.

All the 'Ps' above were good – position, property and price. The smart agents got these A-graders on the market quickly and then let nature take its course. It’s a very different story from a number of pass-ins where the agents and sellers wanted a price that the market did not support.

This is what is happening out there since Melbourne Cup – buyers are more discerning and if it’s not right they are moving on. This is a change from a month ago.

That is the splintering effect we are talking about.

Now is this smart for buyers? Let’s wait and see. Our thoughts as buyer agents is that if you as a buyer see the right one, you should consider going for it (within reason).  Because there is no guarantee  that we’ll still see this amount of choice next year – even if many of today’s underbidders are assuming that will be the case.

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.

Mal James

Mal James

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million.

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