Upgrade Bonanza

Sydney Morning Herald

Saturday August 2, 2008

Lucy Macken

If you've outgrown your home, now is a terrific time to find a bigger one.

When agents start admitting that times are tough, you know all is not well in the property market.

The latest Australian Property Monitors figures show in the past year clearance rates are down 10 per cent and median house values down 8.4 per cent, with discounting up from 6.7 per cent last December to 7.5 per cent in June.

The good news is that when the market falls it is a good time to buy - especially for those hoping to upgrade to something more salubrious.

As Australian Property Monitors general manager Michael McNamara explains, when people sell and buy in a tough market they have greater buying power than in a boom market.

PROFIT MARGINS

The trick to making the market work for you when you upgrade is to sell first, McNamara says.

"Once you have sold you are cashed up at a time when the market is falling.

"And the longer you wait to buy again the further the market will fall in the meantime, and the greater your buying power."

RP Data research director Tim Lawless adds: "By 2009 we expect official interest rates to start winding back which will see higher levels of confidence restored to the property market."

For now though, with median house values down 2.1 per cent in the June quarter alone, buyers are being rewarded with a greater discount in dollar terms when they trade up.

As an example, a buyer's agent at Rose and Jones, Stuart Jones, says a 10 per cent drop in values means a $1 million house sells for $100,000 less, whereas the $2 million house sells for $200,000 less.

"There are two types of vendors right now," Jones says. "Those who are trading up to accommodate their lifestyle with a bigger and better house, and then there's the distressed or concerned vendor who wants to sell but is stuck in a stand-off with buyers."

This latter group of vendors presents the most attractive real estate options to buyers.

UP-MARKET MOVERS

Woollahra's Snowden Lane Estate Agents selling agent Nicholas Tsoucis can trace the impact of the US subprime credit crisis on the local market back to March.

Seemingly overnight, Tsoucis says, five Victorian terraces listed with various agents in the entry-level price range of $800,000-plus had between 4 and 8 per cent taken off the asking price. "There has been a domino effect since then," he adds.

Those dominoes have led us back to 2004 prices, says buyer's agent Jones.

The downturn in the sharemarket and the fallout from the US subprime crisis were always going to have an impact on Sydney's more affluent areas, such as Paddington, says BIS Shrapnel senior economist Jason Anderson. "Employment within the financial sector predominantly comes from the eastern suburbs. And there are more fragile employment conditions in that sector."

In Mosman, sales director at [w] Estate Agents, Sandie Dunn, says houses in the $1.5 million to $4 million range are proving harder to sell.

"If the house ticks every box it will sell well. But unless it has the views, the three-bedrooms with study, the open-plan layout, internal garage access and is on a good street, then it is going to take longer to sell."

For people trading up in the market, that means there are good deals on these "compromised" properties with a good 10 per cent or more off the value compared with six months ago.

It is a similar story in the prestige market on the northern beaches.

Lionel Busquets, principal of Lionel Busquets Prestige, adds that there are bargains for the discerning buyer because the auction system is not working as well in the current conditions as it does in a boom market.

"The auction system needs a limited supply and big market demand. But right now we have the supply, but the demand is lagging," he says.

FAMILY AFFAIRS

Few areas of Sydney have been hit as hard by the past 12 consecutive interest rate rises as the mortgage belt, Anderson says. Then there are the independent rate rises on the part of the banks this year.

Interest rate rises have been hurting homeowners in the south and western suburbs since last year but that pain is now starting to affect more well-heeled areas.

Rising interest rates are making an impact but so are petrol prices and wavering market confidence, says Craig Alexis, sales manager at Elders Real Estate Castle Hill. "A property that is now selling for $900,000 would have sold for upwards of $1 million last year."

It is a similar story in the inner west, says selling agent Maria Hodgson, of Raine & Horne Marrickville. "There's a good 10 per cent or more off many properties, so a house that was listed for $550,000 last year is now going for $500,000."

To illustrate her point, Hodgson has a three-bedroom house on Terry Street, Tempe, listed for $499,000, down from $530,000 in June. "In a good market it would sell for $550,000."

RENOVATED DELIGHT

For many homeowners, the real appeal of trading up is to avoid the inconvenience and work involved in renovating, says Craig Pontey, director of Ray White Double Bay, who has seen more buyers in the east looking for something already renovated.

That makes sense, says valuer and state manager at WBP Property Group, Gareth Woodham. More importantly, Woodham says: "It is much easier to over-capitalise in a softer market like this. It's far better to take advantage of someone else's over-capitalisation by trading up."

Callaghers Estate Agents director David Giezekamp says many homeowners are put off renovating in case the building costs blow out in the process.

"When you start a renovation with a price tag of $300,000, you know that could blow out to $450,000 quite easily. Whereas trading up you can control your costs far more because you can see the end product with a calculated price attached."

BEFORE YOU SELL

LJ Hooker managing director Warren McCarthy agrees that upgrading makes sense right now but says it is important to factor a safe buffer into the budget for things such as further interest rate rises and inflation "regardless of whether you think those things are likely or not".

Woodham says it is not just important to make sure you can afford to sell and buy, but that the move is worth the effort. "Bear in mind that the property's value is in the land. So if you are upgrading to a bigger house in the same area on a similar-sized block of land then it's not really an upgrade. And as density increases in Sydney over coming years the land values in the inner areas are what will reach the higher premiums."

Jones says: "If buyers can buy in this market and can take the interest rate repayments for the next 12 months then this is a great time to trade up because we're at the top of the interest-rate cycle."

SYDNEY ON SALE

Down 19%

34 Alma Street, Clontarf

Was $3.5m Now $2.8m

Lionel Busquets Prestige, 9949 4550

Down 21%

7 Niblick Street, North Bondi

Was $2.8m+ Now $2.2m (Auction Aug 13)

Ray White Unlimited, 0412 072 178

Down 10%

Avalon, 87a Marine Parade

Was $2.5m Sold $2,238,500 in May 2008