It’s 10:55am. The inspection doesn’t start until 11:00am. You’re even a little proud of yourself for being early so you could be one of the first to get talking to the selling agent. As you turn into the street, you are met with the sight of 20, 30, 40, perhaps 50 others waiting to be the first to inspect a home open.
You park down the street and walk up to join the queue. When you eventually get into the property, you find yourself fighting through a sea of bodies simply to get into a bedroom or squeeze down a hallway
You eavesdrop on the selling agent speaking to a young couple in the living room and hear that there have been 5 offers made above asking price on the property already.
Rinse and repeat for the next few home opens on your Saturday afternoon.
The reality is, we are officially in a seller’s market and have been now for some time . We anticipate this will be the case into the foreseeable future.
The general sentiment towards the current market, be it from a family upgrading their home, or a downsizer, is one of unenthusiasm. Our experience is people are expressing angst at the pressure on housing prices and excessive demand with low stock available to purchase.
However, these current conditions have meant that many Perth residents and investors are finally in the black. A purchase in 2009 may only just be reaching breakeven point. A 12-year period with a return of 0%, which is still far better than being in a negative equity position.
‘I’ll wait until the market cools down’
Many potential buyers could be forgiven for saying or thinking this.
Unfortunately, a lot of our clients put their search on hold in the mad rush lead up to Christmas, as the market was ‘too hot’ for their liking. They have now either left money on the table or been priced out of their desired location and their search has been downgraded to the next suburb down the list. In Perth, suburbs which have huge owner occupier demand (think Shenton Park/Subiaco/Cottesloe), we have seen growth of 5-20% from late 2020 to date, all within a 6 month window
The same conversations are being had with buyers in the current market, with hope of an impending ease of pressure in house prices. The data suggests otherwise, that we are only in the early stages of a growth cycle. Refer to link below for our most recent property research package for Perth, prepared by our extensive research team.
Choosing to wait for the cool down which could be years away could mean potentially paying 10-20% for the same asset rather than purchasing today.
We have found strong correlation with people who complain about the current state of affairs are the same as those who are the least prepared. Their only strategy is to have a saved search in realestate.com.au and refresh the search daily. This is limiting your ability to buy well.
One fallacy about property, is that buying well is solely about getting a great price outcome on negotiation. Due diligence checks are arguably as important as price when purchasing a property, yet often they are overlooked. If you purchase a compromised asset, then you are often stuck, as moving in and out of property has a high transaction cost thanks to state stamp duty.
Some of our due diligence checks which we perform on every property we intend to purchase for a client, are as follows:
• Title easements (i.e. sewerage lines/right of way)
• Council easements (minimum setbacks)
• Housing Commission in surrounding area
• Flight paths
• Site contamination
• Adjoining use
• Zoning and council overlays
• Legal checks
• Flooding checks
• Building and pest inspections
• Non-conforming structure checks
• Noise checks
• Proximity to busy roads
• School zone catchment areas
• Sale frequency
• Price analysis/valuation (recent sales in the area)
Getting the above right can be the difference between a dream home or a mistake. Or the difference between an investment which gets you to your wealth goals, versus an investment which gets you hamstrung in negative equity
Method of Purchase: Off-Market Vs. On-Market
There are alternatives to the status quo in Perth, which is to purchase property on-market via private treaty through Realestate.com.au or Domain, and in bygone eras, the West Australian property lift-out (special mention to the now defunct ‘O.N.O’.).
We are finding that the best way to get into the market in current conditions, is through off-market transactions. 85% of our transactions for clients are in an off-market space. That means we are able to complete our full due diligence correctly without time pressures (we are seeing some properties on-market transact the same day as the home open).
‘Why would anyone sell off-market in a sellers’ market?’
There are a plethora of reasons why off-market might be a preferred option for the seller:
• Property currently tenanted
• Deceased estate
• Divorce/family issues
• High profile vendors
• Time pressures
• Financial difficulty
• Lower selling fees
Sometimes achieving the highest price at all costs is not the sole aim of the vendor. Perhaps they want a longer settlement, or a leaseback option so they can rent back until they find their next home. The leaseback is attractive because once settlement occurs, their offer on their next home can be a cash offer not subject to finance, which is a huge advantage especially in current conditions.
We often advise our clients that in a sellers’ market, we need to be creative to ensure our offer gets accepted and have found that being flexible around settlement/leaseback has been the biggest drawcard. Appealing to non-price factors that the seller really values, is often key. Out of our last 10 purchases for clients, 6 purchases have featured a leaseback agreement in the contract between 3 and 9 months in duration.
Where to from here?
We can only rely on the data available, and whilst we do not have a crystal ball our research team have analysed multiple datapoints and produced metrics which our buying team rely on. From that, we have been buying in Perth since 2018 and will continue to do so throughout this growth cycle.
If you are interested in using a buyer’s agent to aid in purchasing your next home or investment property, feel free to get in touch with us.