Auction clearance rates have improved as upgraders find value hard to resist
Spirits have risen somewhat in the midst of the spring selling season in Victoria; listings have risen and clearance rates are tracking nicely, with upgraders looking to take advantage of some value opportunities in high middle to prestige markets.
“Auction clearance rates have been pushing low- to mid-60% range,” says Andrew Wilson, senior economist at Australian Property Monitors. “Price growth is nothing to write home about, but it has been a solid performance. We’re seeing that underlying capacity of sellers coming to the fore now, with large numbers of properties being offered for sale and the prestige change-up market almost in full swing.”
Prestige properties presented value opportunities throughout most of 2012 and Wilson believes the rising trend of auction clearances in that market could be traced back to autumn.
“The increase in competition for inner-city properties has really grown, but we must remember it’s a particular market that’s activated here,” says Wilson. “That’s the inner-east, inner-urban, bay side and inner-south areas and that’s where all the action is happening.”
Much of the activity generated in this space has come from higher net worth individuals, whose decisions are not necessarily motivated by job security, cost of living, and other issues that can spook the general populace.
“They see that they can secure these properties at a premium, in terms of being lower than what they would have got them for a couple of years ago, even if it means selling their current property for less,” says Wilson. “You buy at the higher level and the discount you have there is larger than the discount you have on your own property; eventually that creates value momentum and the competition fuels some price growth.”
Victoria lacking stimulus
While the prestige market is enjoying an improvement in activity, the Melbourne market remains patchy as a whole and plenty of areas are still experiencing a softening of prices. Victoria’s continued exposure to the struggling manufacturing sector and state of nervousness over the jobs market mean many are reluctant to take on more debt. People are also seeing the state government struggling to find funding to implement projects and this has a flow-on effect to confidence at a household level.
“Mining is putting a layer of cream on our economy and Victoria is not exposed to that,” says Andrew Peterson, from The Next Hot Spot. “Victoria is manufacturing based and is losing industry, because work is being outsourced to Indonesia or Bangladesh, where people are willing to work for much less.”
Despite a number of projects being planned to fire up the economy and property markets, Peterson says these are struggling to come to fruition.
“The Baillieu government put its first budget in and they had to basically remove all the infrastructure works, because they just can’t afford it,” he says. “The state is just lacking the stimulus at the moment.”
One such ill-fated project was a $1bn urban renewal plan slated for Coburg, north of the Melbourne CBD. The plan was to add new transport links, some lifestyle features and developments, but it fell through when private investors withdrew from the joint venture with the state government.
Public service on the move
One state initiative that has gone ahead as planned is the decentralisation of some government departments to regional areas, as well as incentives offered to other industries that agree to relocate.
“Bendigo and Ballarat are being driven by these initiatives, meaning they have solid profiles for employment growth,” says Wilson. “There is a very strong government commitment to this, and there has been since the Kennett years, because they suffered in the past from a lack of resources.”
Larger regional centres have also benefited from an increase in first homebuyer activity earlier in the year, while remaining free from the high end unit oversupply that has offset similar positivity in the city market.
“We’re still seeing plenty of activity in Geelong,” says Wilson. “It doesn’t have that high or low end, employment is still strong, and overall, it has managed to show some resilience in what has been an up and down period in Melbourne for the last two years.”
Unit oversupply worsens
The worrying glut of new apartments in inner-Melbourne suburbs such as Docklands and Southbank is showing no sign of improvement any time soon, with new developments continuing to come online.
“There were quite large numbers of building approvals reported by the ABS in the October series,” says Wilson. “Those record levels are continuing, after looking like it had run out of puff. I’m not sure who is going to buy these properties, but it’s certainly not local investors.”
The story is starting to emerge that the continued building activity is being fuelled by cashed-up foreigners.
“A lot of these are coming from offshore developers, particularly from China” says Wilson.
“They’re not using pre-sales to generate a commencement but are happy to fund their own projects. These sorts of things are encouraged by the local government because high rise developments are a significant generator of economic activity, but as far as local investors are concerned, this market is a bit of a no-go zone.”
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