Outperforming Properties

Melbourne’s market is in a state of correction and can best be described as ‘patchy’. Buyers are generally erring on the cautious side and feeling less compelled to pounce on a property in anticipation of what could happen in Spring, and agents are more amenable to selling a property prior rather than taking a risk at auction. Auction pass-ins are more frequent, and a higher proportion of properties are selling within or below the advertised range.

The properties which are bucking this trend and well exceeding expectations at auction feature one thing in common – scarcity.

There are two types of scarcity to consider. 

The first is the actual number of properties within an area that could be considered as comparable. Whilst a suburb might have an overabundance of single fronted Victorian cottages, we must ask ourselves; how many of them have a central bathroom, open plan living and north facing rear? Another suburb might be dominated by houses and townhouses, with a proportionally small number of villa units or quality boutique apartments within the first home buyer price bracket. When a property with a particularly unique and exciting feature is listed for sale it can be challenging to predict how far buyers are willing to stretch. It might be a property with city or bay views, a house along the tightly held banks of the Yarra, a block with a self-contained granny flat, a villa unit with an exceptionally oversized courtyard, or a heritage property with a distinct historical significance. Understanding the importance our client places on the distinctiveness of the property will help us determine an appropriate bidding limit, knowing that the intrinsic value will be different for each person. Caution must be taken when purchasing a property prior to auction or via private sale, as a bank valuer might not appreciate the rarity value to the same extent as the purchaser.

The second scarcity consideration is the number of comparable properties currently for sale in an area. When there’s an above average number of similar properties for sale and buyers are spoilt for choice we call this a micro glut. The buyer pool is diluted and people aren’t prepared to pay a premium knowing there’s plenty of other options to fall back on. On the flipside we can see micro shortages where a property has no competing listings, and perhaps one of its kind hasn’t sold in that area for some time. The pent-up buyer demand fuels bidding and generally results in an auction sale price which leaves the crowd mouths agape.

Some recent sales we’ve witnessed (and sadly missed out on) have combined the powerful force of both scarcity factors –  

1. 3/71 Heller St Brunswick West. Scarcity value: no other villa units with such strong owner occupier appeal had sold in this premium part of Brunswick for over a year 

Advertised $520-570k, sold price $695,000

2. 6 Denman St East Geelong. Scarcity value: beautiful deco character in a tightly held street and a glimpse of bay views

Advertised $580 – 650k, sold price $752,000

3.  3 Hope Street West Footscray. Scarcity value: the only fully renovated 4 bedroom period home currently on the market, and no other comparable sales for some time 

Advertised $1.25-1.3m, sold price $1.485m

4. 1/26 Begonia Road Gardenvale. Scarcity value: the only single level unit with street frontage and no shared land which had sold in the area in recent years 

Advertised $700-750k, sold for $1.211m

5. 1/272 Barkly St Fitzroy North. Scarcity value: balcony with a view over the river and two undercover car spaces

Advertised $650 – 700k, sold for $785,000

Buyers who are fearful of changing market conditions and capital losses need to remind themselves that quality properties in highly sought-after areas will be less vulnerable to market downturn and longer sales campaigns due to this scarcity factor. Focusing on the avoidance of compromised floorplans, difficult locations and imperfect options should be top of mind when considering the long term, investment potential of a property.

Being cognisant of micro gluts and micro shortages at any given time will better prepare buyers for price spikes and good buying opportunities.

Understanding and recognising scarcity is a powerful piece of knowledge to be armed with in this market.

– Amy Mylius