The Block result reflects current Melbourne market

Television ratings reported considerable interest from Australian viewers in the most recent series of property reality TV program The Block. But the significant publicity resulted in little benefit for the four renovated Richmond properties when it came time to sell last weekend. 

Only one of the four properties sold under the hammer while the other three have since sold via private negotiation. While the result was considered disappointing for the shows finale the outcome is closer to reality than many may think.

This year buyers’ cautious approach to the market has resulted in a large number of properties passing in for post-auction negotiation. Unfortunately, a great number of buyers are opting to compete with other buyers in blind bidding behind closed doors, which ultimately may cause them to pay considerably more than they otherwise would have at auction. Though buyer uncertainty is understandable, many buyers fail to realise that there is significant advantage to buying at auction, particularly at a time when most buyers are reluctant to partake in the bidding process.

At present, Melbourne’s average overall auction clearance rate for the last quarter is just below 60%. However, while weekly clearance rates continue to paint a relatively consistent picture of Melbourne’s residential auction market, area-specific demand has been anything but homogenous. 

In recent months auctions have showed considerable divide in interest from buyers, with some properties drawing significant competition while others fail to attract a single bid despite sizeable crowds. Of the properties on offer in the last quarter, crowds showed strong interest in inner city real estate, particularly houses in the inner east and units and apartments in the inner south. This indicates that buyers are still willing to pay well for quality well-positioned properties. 

But although quality well-located property in Melbourne’s inner suburbs continues to move, discrimination from buyers remains high towards flawed property. 

Period homes such as Victorian Terraces have always been highly sought, due largely to their quality construction, scarcity and usually due to their well-positioned location. However, The Block properties aren’t your typical renovated period home. Many of the period features such as fireplaces, decorative cornices, architraves and ceiling roses have been stripped away, robbing the properties of much of the their popular heritage. 

Other important factors that are likely to have impacted the level of interest from buyers were the location and the price. Situated in Cameron Street Richmond, the properties are located opposite residential garages and a paid parking garage, and right behind busy Richmond Plaza. 

Parking in Melbourne’s inner suburbs is becoming increasingly scarce and can add or detract significant value from a property. As none of the properties offer off-street parking, parking limitations may be an issue for some buyers with implications for the value of the property. 

It is fairly well-known that the show’s producer paid approximately $3.6 million for the four properties and invested hundreds of thousands of dollars more in renovating and fitting them out. 

However, a property’s value is not solely determined by the cost of the construction of the dwelling. In fact, value in inner city areas is underpinned by the land component, which can account for 70% or more of the total value of the property. While Richmond has a high underlying land value, in this instance, the subject properties have overcapitalised on renovations – an investment that has not provided a dollar for dollar return. 

This means that the more than $1 million cost of each renovated property hasn’t translated into more than $ 1 million dollars’ worth of value for the properties.

Greville Pabst is CEO of the WBP Property Group.

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