I was talking to an investor just a couple of days ago and they said something to me that amazed me. It was a viewpoint that I suddenly realised was possibly still being shared among some of our clients. Perhaps even you still think it. As they were thankful for me sharing it with them, I thought I’d share it with you.
Now this particular investor has a portfolio of several properties in top suburbs on the Eastern seaboard. Despite his properties being in “blue chip” areas, the last few years have delivered negative price growth. Rents have been somewhat stable but they haven’t been able to lift them. But as interest rates have been falling over that same timeframe, this investor was becoming more “comfortable” with their cashflow position as the debt became more affordable.
So I asked them what where they planning to do next? And the response startled me!
They said they weren’t planning to do anything. More specifically they mentioned that they were still waiting for the property market to finish dropping and hit the bottom at which point they would go out and buy some bargains!
Now don’t get me wrong. I can understand people still having this view when there are those out there still talking about property cycles and property clocks as well as still having foreign & local doomsayers saying our “GFC correction” is yet to come! (I think this message has been going on for 5 years now hasn’t it?☺) The point I hadn’t realised is the apathy this can put people in. This sophisticated and experienced investor (and developer) had been beaten down to the point his head was in the sand waiting for someone to tap him on the shoulder and tell him that the market had hit the bottom some time ago and was now firmly bouncing up in the opposite direction.
I said to him that there had actually been no “crash” and this bounce was more subtle but that it was already gaining momentum. He asked me how I knew. Well I explained I spend every day looking for deals for clients and development opportunities. When you are in the market all the time you see things happening well before the statistics even reflect the reality. So I explained the signals I have been seeing.
- Clearance Rates. The Melbourne and Sydney clearance rates from last weekend were 71% and 81% respectively, on great volumes of auctions. Prices are moving with this demand. For months now buyer enquiry on the ground has been generating good competition for quality properties and making it tougher to negotiate the best deals for clients. We are still getting them, but they are harder to come by. The window for massive discounts is closing if not already shut and established relationships will hold the key to the best buying from now on.
- Growth rates. With competition building and demand outstripping supply we have been seeing prices on the move all year. Last week we got the figures for the first 6 months of 2013 showing Melbourne and Sydney growing at 6-7% over the half year. There is good double digit growth ahead if that continues.
- Developments Sites. Our research “on the ground” is starting to see developers competing for new sites signaling price certainty and positive upside being built into feasibilities. For example, two deals we have been helping some clients with, have concluded recently. One highrise site skyrocketed from an agreed offer price of $3Million to a final sale at $5Million in just a few months. Another mixed use development went from a raw land price of $4-5Million, to genuine offers on the table at $7.1Million. Both projects are still showing returns to the buyers at over 25% even after the jumps in acquisition price.
- Interest Rates. Rates are still sitting at their lowest point for some time. The average Australian is saving more money than they have done for decades. Both these demonstrate the capacity that is sitting there waiting to jump into the market. Remember too, with repayments so low, both owner-occupiers and lots of investors are taking advantage of these rates to borrow significantly more than the banks would have allowed them just 2 years ago.
After pointing out just these few things, it was not surprising that this particular investor’s comment was “Gee I hope I haven’t missed the best opportunities, I better start looking!” I agreed and mentioned that we had been pretty active securing opportunities over the previous 12 months so we could review what might suit him.
So I would like to extend this awakening to all our clients. Please consider the cage officially shaken, the bottom has been and gone. We suggest if you were waiting then be quick now or you will miss out on the chance to tell people in 5 years time about all the bargains you grabbed in 2013 when they are still lamenting they waited too long.