Buying premium property ahead of the pack: Mal James

Right now the wider market is being pushed out of all normal historical growth patterns for certain types of homes.

These homes are:

• New homes, especially bigger homes on smaller blocks (Balwyn formula) and it’s not just Balwyn. Last week we wrote that 12 Kyarra (Stephen Wigley) was quoted at $2.6 million and located in a part of Hampton where sales in the $3 million range of this type were non-existent. We suggested that it would set new records past $3 million today. It did easily – selling for $3,305,000.
  
  
• Land where you can bulldoze and build new homes. We got beaten today in Stocks Avenue, Ashburton (Steve Burke) with five bidders where the eventual winner was not a Chinese buyer, but a developer who will probably build to the “Balwyn” formula. It will probably be for the Chinese community and when it goes to market it too will probably bring Ashwood into the $3 million club unless somebody else already has.
  
  
• And of course big land. 

So what does this all mean, what can you do about it?

1. First up – don’t give up. In fact I’m not sure that sitting out for a year is all that smart either.
   
   If this is a structural change to the market (and it feels like it may be similar to early 2000’s and 2006 and 2009 and late 2012) then waiting out as you may have done during the GFC will do nothing.
   
   Sure you can wait till the pundits tell you it’s safe to buy – but none of them predicted a start of this magnitude in 2015 as they also did not in 2007 or 2010 or late 2012.
   
   
2. What is the market really doing? Has it gone crazy? No, not really. It is responding to fundamentals and the fundamentals are incredibly strong right now for larger landholdings with flexibility.
   
   That is why we have been strong on buying for clients for the last 24 months and are continuing to do so. Those fundamentals are turbo charged overseas demand completely out of whack with the dwindling supply of certain home types described above.
   
   So unless the wealth of overseas buyers drops (and it has increased for the last 40 years), or the government intervenes (showing no stomach to do so on any serious note at present) or Chinese buyers (in particular) reverse their preference to landbank (reducing supply even further) then the market is doing what it is doing based on sound demand and supply principles, not anything else.
   
   This may well continue for some time (with the odd hiccup).We wrote a number of times last year that each month was either a tread or a step in a rising staircase on price which reignited in October 2012 and hasn’t stopped since. But February 2015 is different – it has jumped off the staircase, gone up a whole floor in the lift (for the above types of properties) and we assume will now continue on its merry way.
   
   
3. Revisit your strategies. Two strong points we make – if you are no longer riding a wave of excitement but are instead drowning in a sea of disappointment then you need to change your strategy or your tactics.
   
   For instance, bulldozer homes with a good agent going cheaply aren’t going to happen too often. So do you really need to live in a new home and have a restricted lifestyle due to a massive mortgage or do you need a rethink? Please don’t go further out geographically for financial reasons as this doesn’t make sense. Have you considered period homes or what about different precincts or different suburbs?

If you buy ahead of the game, then you will be rewarded.

• Example 1: Bayside land has not kept pace with Inner East land, in fact nothing like it in the last five years. But it will return to its natural predisposition given time as the market rediscovers its many positive attributes.
  
  
• Example 2: What about Inner Melbourne smaller blocks, they haven’t been discovered by the Foreign Investors yet as the building and land size does not add up on the calculators. But eventually it will start to make sense as it did to Greeks and Italians in the 50’s, 60’s and so on.
  
  
• Example 3: Just as overseas buyers moved from Doncaster to Balwyn to Kew to Toorak as wealth increased so they will find other areas as those opportunities dry up.

Mal writes weekly auction reports, advice and in-depth market analysis on James' website.