Lack of stock behind price rises: Exclusive interview with Charles Tarbey

Lack of stock behind price rises: Exclusive interview with Charles Tarbey
Lack of stock behind price rises: Exclusive interview with Charles Tarbey

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There is not enough stock coming to market in Sydney and Melbourne, pushing prices up into what some are calling a possible bubble, according to Charles Tarbey, the chairman of Century 21 Australia and New Zealand.

Prices are being pushed up by low interest rates, higher buyer interest and strong foreign investment but there is 17% less stock on market than last year, Tarbey says.

“We’re not getting the amount of stock that we need to meet the demand which is pushing prices up in certain areas and some might say to a bubble status and there are areas where are people paying probably a little bit more than they should,” Tarbey told Property Observer.

“But if the market keeps riding along then they’re going to be covered.”

He says part of the reason stock is so low is because owner occupiers are hesitant to buy something to replace their sold property, given the lack of choice.

He says some people are paying well over the odds but that they’re not too worried about it.

“The word bubble has been used so many times over the last few years. There have been plenty of people screaming out about it. People are probably trying to sell books on the back of it.” Tarbey says.

“The reality is if you’re going to have some competition, and you are getting that in selected suburbs where there is the absolute minimum of stock for sale, you will get people bidding more.

“You will see people paying $100,000, $200,000 over the reserve price and it doesn’t seem to bother people too much.”

The high prices are pushing some buyers into regional areas, but Tarbey advises investors to try and buy something in metropolitan regions.

“The biggest mistake most people make is in their first investment is they look for something they like, rather than something they can afford.

“It’s not bad to go out into the suburbs, into some of the areas you think are not so great.

“There’s suburbs which you might not have even thought of investing in which have now become very strong owner occupier areas and people are modernising their homes. And those areas will increase in price.”    

Transcript  

We’ve been tracking the market place since January last year on four key areas – auctions stats, listing numbers coming into the market place, property in terms of the rental increases and movement and vacancy rates.

Both Sydney and Melbourne have been the star performers, more so Sydney. It’s had a high clearance rate for a number of weeks now, in the 70s and touching into the 80s. And the same with Melbourne. Melbourne hit 74% last week and Sydney hit 79.1%. The clearance rates are pretty strong when you look at them market and that happened before spring started.

There’s no definition in terms of what the market’s like in whether its spring or winter it’s whatever you can get on the market for sale now. If it’s good there are buyers there for it and that’ the real key issue. It’s the shortage of property for sale.

The number that we have on properties coming in. We’ve only had three weeks in a row now with increases going back. Three weeks ago it was plus 0.96% over the week before and the week after that was 2.15% and last week was only a mild increase of 0.48%. So we’re not getting the amount of stock that we need to meet the demand which is pushing prices up in certain areas and some might say to a bubble status and there are areas where are people paying probably a little bit more than they should. But if the market keeps riding along then they’re going to be covered.

Why aren’t more properties coming to market if it’s doing so well?

A lot of sellers have the same issue, when they sell they have to buy. And if there’s nothing on the market for you to buy you’re not going to list your property for sale. Over this time last year we’re now down something like 17% plus on the amount of stock on market from this time last year. So it’s even worse: you have lower interest rates, a higher buyer interest in the market, Chinese investment being very strong but we have 17% less stock.

The word bubble has been used so many times over the last few years. There have been plenty of people screaming out about it. People are probably trying to sell books on the back of it if you look at the conversation that is being had.

The reality is if you’re going to have some competition and you are getting that in selected suburbs where there is the absolute minimum of stock for sale you will get people bidding more. You will see people paying $100,000, $200,000 over the reserve price. And it doesn’t seem to bother people too much.

Mostly when you look at the market place out there now and particular in those selected suburbs of Sydney and Melbourne, many of the first home buyers which we would traditionally be sending out into the suburbs to buy their first home are $1.5 million on their first home. Because a lot of the younger couples are taking longer before they get married. They’re well established in their careers. They’re professional people, probably two incomes, so they’re able to buy their first home at probably a significantly higher price than what we I might have been buying a home for or the first home buyers of my generation would have been.

So you’ve seen first home buyers closer to the city?

Well they’d like to, but the struggle is they’re just competing. If you go to the auction arena now there are a lot of people out there. And you’re going to have to spend money to get into at least the ring to bid and a lot of people may not be able to afford to spend that money just to turn up on the day.

Some people don’t have a choice and often they’ll move out into regional areas and country towns because it’s cheaper and the rental returns are higher but they’ll sit there a much much longer period of time because the capital growth is so much longer.

A lot of people look to rental return but it’s not about that it’s about capital growth as well as rental return. The biggest mistake most people make is in their first investment is they look for something they like, rather than something they can afford. It’s not bad to go out into the suburbs, into some of the areas you think are not so great because the gentrification process that’s going in many of the suburbs across Melbourne and Sydney is quite interesting. There’s suburbs which you might not have even through of investing in which have now become very strong owner occupied areas and people are modernising their homes. And those areas will increase in price.

People talk about hot areas and that’s the worst place to buy because everyone else is already there. You have to look for the suburbs in between the hot suburbs and we could name a dozen of them without offending someone but the reality is there are good suburbs which you don’t hear about which have good services and they’re the ones you want to go in and look where it’s not hot where there aren’t people busting to get in and buy something. There is opportunity but you’ve got to be prepared to buy something that you may not want to live in.

Anything they are talking about you’ll probably find around it are good locations with good services that might not look active at first – they’re the ones to go to. At the end of the day what you can buy is what you can afford to purchase. And if that’s what it is then that’s what it is. But just keep in mind it’s important to look for capital growth.

Capital growth comes stronger in capital cities than in regional areas. There are some regional areas where of course that in past times suffered very strongly and there are coastal areas, discretional spending areas, that really suffered, 50% price drops. So there are some opportunities there but you are taking a bit of a risk. It’s not until the equity market starts flowing that the money really gets solid that people start buying holiday homes again that you’re going to get that capital growth.  

Alistair Walsh

Alistair Walsh

Deutsche Welle online reporter

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