Property agents say Melbourne is now a bargain hunters' market

Real estate agents say “value hunters” are getting more opportunities to buy B- and C-grade properties at fair and below-market prices.

The residential market is seeing a distinct wedge develop between the prices achieved by A-grade properties (renovated, in quiet streets, near infrastructure) and by “fixer-uppers”.

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Buying properties in need of an overhaul or on a main road isn’t for everyone. But agents say this is where much good-value buying occurs and that competitive buy-in opportunities are on the rise due to higher-than-normal listings this winter and for August.

Some agents also believe last week’s swift unwinding of Chinese sharemarkets and official government attempts to stop a wave of share selling will hit sentiment in segments of Melbourne’s real estate market. This, in turn, could hold back price growth here, they say.

The metropolitan auction clearance rate nudged 84 per cent for most of May but fell in June.

On Saturday, the Domain group posted a clearance rate of 79 per cent from 433 auctions.

This level-pegged with last Saturday’s 78.7 per cent clearance rate, which was below the 79.2 per cent recorded the previous week.

Domain Group senior economist Dr Andrew Wilson said the result on Saturday reflected the absence of inner-east vendors from this weekend’s market.

He said  the market was “just strong, not super strong”.

Falling clearance rates and listings are normal for mid-winter, when school holidays and chilly weather slow down sales.

Nelson Alexander sales director Arch Staver said the winter market attracted a much higher proportion of motivated sellers compared with spring and autumn and a lot of property currently on the market was being offered by people who had bought elsewhere.

“There is good opportunity out there if you look closely enough,” Mr Staver said. “Buyers shouldn’t roll their eyes and think, ‘This is going to go for 30 per cent more than what’s been quoted’, because with some properties it is not happening. You just have to be in the right place at the right time.”

Capital gains made through detached housing is trumping growth made through units. House values were 10.4 per cent higher across all capital cities compared with units at 5.6 per cent over the 2013-2014 financial year, according to a home value index compiled by CoreLogic RP Data.

Melbourne house values grew 11.2 per cent over the financial year, with apartments notching up just 2.4 per cent.

The underperformance of units is likely due to higher supply levels for units compared with houses.

Even so, forward-thinking buyers with an eye on coming population growth see value in well-located units.  

“I am not a Toorak agent but I still think Toorak flats and apartments can be value, whereas the houses have extremely high prices,” said Simon Derham, of RT Edgar’s Kew office.

He said single-level villa units from the 1950s and ’60s, even when they were on a main road, were selling strongly because they appealed to downsizers.

Mr Staver said the residential market could “be on a slight cusp of change” because of the turmoil on Chinese sharemarkets.

It’s commonly accepted that major sharemarket volatility encourages investors to turn to the safe haven of property. 

“I am not as convinced of that because there are a lot of taxes when you buy property which aren’t associated with the sharemarket,” Mr Staver said. “You can also become liquid very quickly with shares as opposed to waiting for property settlements.”

He said the China market turmoil “goes to sentiment, and sentiment is such a critical part of the residential real estate marketplace”.

“It will be an interesting developing story to see how areas like Glen Waverley and North Balwyn perform. There has been an insatiable Chinese Australian appetite for property there and it may not remain as strong.”

He said there was a clear trend to more isolated buying activity: “People are focusing on the same houses and pushing up prices significantly, but that isn’t happening across the board. The reality is that we are back to a market where the real rock stars are the A grade properties. The other properties are not riding the wave as they were a month or two months ago [and] value hunters are well served by looking at the other properties.”

There are 616 auctions scheduled for next weekend.