No slowdown yet in red-hot market

Sydney's emotion-charged house auctions are still producing multimillion-dollar sellout nights, as bidders walk away with a swag of $2million houses and semis.

Last month, when the median house price in the country's residential property engine room hit $611,000, the clearance rate was steady at 78 per cent.

However, there were nearly twice as many auctions as in February - 1,809 compared with 983.

While opinion is divided over whether buyers are being spooked into rushed purchases before the looming interest rate increase or are buying despite it, agents in the eastern suburbs are cheering on price hikes in the middle to upper range of the market.

Ray White Double Bay recorded 15 sales worth a total of $18 million, including the $5 million sale of St Marlo at Vaucluse, a non-waterfront property that went for well over the reserve. Five parties made 54 bids on the property.

Ray White Double Bay director Craig Pontey said low supply had kept the pressure on prices.

"Anyone waiting for the market to 'cool' or 'slow' or 'drop' before they buy will be out there on their own and wishing they hadn't," Mr Pontey said.

The strong sales for established houses come as developer Australand reports off-the-plan success in Broadway, where 82 per cent of stages one and two of its $170 million, mixed-use project have sold. So far, $91million worth of apartments in the 243-unit Quadrant have gone.

In Melbourne, where auctions are a Saturday sport, the strength and depth of the weekend's results astounded agents and professional buyers - much to the angst of purchasers.

Buyers advocate David Morrell said investors were being priced out of the property market by home owners, while those that do bid have to pay a 5 to 10 per cent premium over the market to get a foothold.

"One must think that we are getting to the pointy end of the plane - that is, seats 1A and 1B of the jumbo - when you get seven bidders bidding for a two-bedroom flat in South Yarra where the vendors would have sold it prior to auction for $340,000 and [it is] selling on the day for $406,000."

He said first-home buyers were being priced out of the inner-city property market, where prices start at $300,000 to $400,000.

"One answer is that we will follow Europe over the past 20 years - all inner-city properties in major cities will either be for the wealthy or you become a tenant for life," Mr Morrell said.

Source: Australian Financial Review, April 18 2002
Author: Jacqueline McArthur

PropertyInvesting.com Comment

It's stories like this one that make me wonder whether journalists have a list of 'old favourite' stories, such as booming inner city property values, that they can pull out of the top draw and easily rewrite to meet deadlines.

This article offers little by way of new insights except more hype about over heating inner city markets, which will continue to whip the uneducated investment market into a frenzy about missing out on the property boom. Hence the comment from the agent "Anyone waiting for the market to 'cool' or 'slow' or 'drop' before they buy will be out there on their own and wishing they hadn't".

However one valuable comment came from a real estate agent acknowledging that 'we are getting to the pointy end of the plane'.

Personally I'm worried that when interest rates go up that people borrowing massive amounts of money will be able to afford the repayments.

For example, buying a $611,000 property on a 80% lend with interest rates at 6% has monthly repayments of $3,133.68. In pre-tax dollars for someone on the top marginal rate this equates to $73,017.71 per annum!

And should interest rates rise to 8%, the monthly repayment rises to $3,747.65 or an equivalent of $87,324 in pre-tax dollars.

Perhaps the headline says it all - 'no slowdown yet', but watch out when interest rates move and the last people on the plane are also forced to be the first ones off!