How to find property bargains

With rumblings in the media about the Australian property bubble bursting and prices starting to come down, it might seem like the time to find yourself a property bargain. But property forecaster Louis Christopher says bargains are thin on the ground.

Christopher, managing director of property adviser and forecaster SQM Research, says even though it is slowing down, the Australian property market is not ripe for bargain-hunters. Many segments of the market are overvalued, and the withdrawal of the first-home buyer’s grant combined with higher interest rates are likely to result in a lacklustre 2011. However, that doesn’t mean there is not good value anywhere.

Potential bargains now on the market include these three examples, taken from the Home Discounts Report, published by SQM Research.

• A three-bedroom house in the Adelaide suburb of Elizabeth Grove with a huge backyard, on the market for $159,950. This is 53% less than its asking price when it first came on the market more than 500 days ago.

• A five-bedroom house in good condition in Dunalley, Tasmania, with water views, beautiful gardens and a dam on a 7.37-hectare site is listed at $395,000. The price was cut by 47% during its more than 800 days on the market.

• A four-bedroom waterfront property on Russell Island in Queensland is selling for $449,000. The property, which has a huge backyard with mature trees, has been on the market for more than 900 days and the price has come down 39%.

Here are eight top tips for bargain-hunters:

1. Only fools rush in: “Look now, don’t rush,” Christopher suggests. “The only trouble in trying to theoretically work out whether you have a bargain is that it may be a bigger bargain tomorrow because the market continues to fall.

2. Time it right: The best time to buy is at the bottom of a market trough, just before prices start to rise again. But as Christopher rightly points out: “No one rings a bell at the bottom of the market.”

However, that does not mean it is impossible to know when the right time is to buy. “Potentially, there could be bargains towards the end of this year [if most national markets have stopped falling by then],” Christopher says.

Buyers should study the market closely now to be ready to buy when the time is right and they have found the right property to suit their needs.

3. Be especially wary in over-priced areas: Darwin is “massively over-valued,” according to SQM, and properties in south-east Queensland and Perth are selling for far more than they should. Christopher says housing markets in these and other over-valued regions will remain sluggish or will continue to correct. If interest rates rise again this year, that could cause prices to fall further.

4. Everything is harder in Sydney – but that does not mean impossible: Sydney prices are rising, making bargains even more difficult to find. “In the next three years, I am not expecting any dramatic falls in Sydney,” Christopher says.

But that does not mean it is impossible to buy in Sydney. There are fewer bargains than in other capitals, but there is also much less risk that the price of an apparent bargain will fall after purchase – provided that you buy into a sought-after suburb.

“When a market is on the move, what someone paid for a very similar property a month or two ago can look like a bargain,” Patrick Bright, chief executive of buyers’ agent EPS Property Search in Sydney, says.

Bright says most deals that seem too good to be true usually are. He warns that buyers of properties with “something that’s not good about them” will either have to fix the fault or flaw or will have to sell the property at below market rates for the area.

However, some properties are listed at below market value because owners had initially asked too much and have cut the price out of desperation to sell.

What types of properties should savvy Sydney bargain-hunters look out for? “Stick to the inner ring, three to 15 kilometres from the CBD,” Bright says. He says buyers should look for properties close to beaches or those with harbour views.

“Correct property selection for the particular suburb is critical,” says Bright, “if you want to achieve a better-than-average return.”

Dennis Kalofonos, director of Sydney Property Finders, urges caution. “It is too early [in the year] to predict whether a property is a bargain or not,” he says.

“I think there needs to be a few more weeks and a couple more auction phases to go through to get a really good idea of where the pulse of the market and the direction it’s going.”

Kalofonos says suburbs with houses with large gardens that are still close to the city could be good value. He says these markets have risen dramatically as couples with young children move out of the inner city and into the closest suburbs to the CBD with big backyards.

“There’s no lawn in Paddington and Queens Park [inner eastern Sydney suburbs] and those suburbs are so expensive,” Kalofonos adds.

5. Watch for desperate vendors: Christopher says some vendors in areas with falling prices become desperate to sell and lower their prices below market rates.

6. Look for properties on the market a long time: Prices will sometimes fall on properties that have been on the market for more than two months.

Marketing of these properties often follows a pattern: vendors start off asking too much; agents lose interest, sometimes even warning prospective buyers that the house is overpriced and the vendor is difficult; vendors become desperate to sell; vendors cut the price heavily, sometimes below market value.

7. Monitor housing supply levels: When the supply of housing is rising sharply, buyers are in a much stronger position to negotiate for good deals.

According to figures compiled by SQM Research, the number of listings in Australia rose by more than 40% last year. Sydney had the lowest rise in housing supply, at 19.5%.

8. Future rezoning can increase value: Kalofonos says that housing with views over industrial areas could be worth buying, as they will be much more expensive if the land is rezoned to residential and new housing is built on former factory land.