Feb 24

As another week passes the property market records another weekend of close to 80% auction clearance rates in all capital cities.

Melbourne rebounded from its brief lockdown with a clearance rate of 79.6% on more than 1,000 auctions, while Sydney hit 87.3% on its 624 auctions. Adelaide, Brisbane and Canberra all experienced 80% or higher clearance rates too. The market is booming and it’s tough times for buyers out there!

Alex and I were very intrigued by one sale this week. A Franklin Road in the Melbourne holiday hotspot of Portsea. The home was 4,400sq m of land which was on top of a cliff overlooking the ocean. It sold for $22m, which is impressive enough, but even more so was that it sold for more than 30% above its reserve of $16.5m and there were three active bidders above $20m!

So, what does that mean for the property market? It means the smart money-savvy businesspeople and property investors – have a lot of confidence in the top end of the market right now.

Meanwhile, Australia’s unemployment rate has fallen – for the fourth consecutive month – from 6.6% to 6.4%. The drop came as 29,000 new jobs were added during the month of January.

Most impressively, the number of total employed persons in Australia in January 2021 was only 59,000 people less than March 2020, which means most of the 872,000 jobs lost during the pandemic have been recovered.

For perspective, the below graph shows the 1990 recession in Australia which increased unemployment by 4%, which took four years to recover. By comparison the COVID-19 recession caused a nearly 7% increase in unemployment and has almost fully recovered within a year. 

 

This week also resulted in one of the stranger property sales we’ve ever seen.

It involved one property selling to two different and totally unrelated buyers. 

To understand it you really need to see a picture of the property:

As you can see, the property is a weird L shape, technically at 8 Ady St in Hunter Hill in New South Wales. The house fronts Ady St, however, the land wraps around in an L shape and also fronts Madeline Street.

The house sold to two buyers; one who bought the house that fronts Ady St and the second was a neighbour who lived next door at 29 Madeline St. The owner at 29 Madeline St bought their home eight years ago and have off-street parking but because of heritage rules can’t build a garage. 

The slither of the property they bought fronting Madeline St means they can now put in a garage. Meanwhile, the other part-buyer will live in the home at Ady St. 

How did they figure out who pays what?

“We developed a complicated formula, with regard to the value of improvements and the split in the land. [It’s] very close to 80-20,” one of the buyers said.

Well, there you go, you don’t see that every day (if at all).

It did raise the question of whether it’s a wise investment to buy the house next door? Alex and I debated just that in our podcast episode this week. The verdict? We think it makes sense in 9 out of 10 instances. Our rationale being that the benefit of buying the house next door is that you can make ‘1+1=3’, by getting a potential greater than normal increase in land value as a result of future development potential and additional land use benefits. 

Having said that, we use a strategy aimed at building a portfolio of properties so that we can access repetition and compound growth. Therefore, we need to be careful to find a good balance between cash flow and growth. For this reason, we felt we wouldn’t be buying the house next door if it was old, dilapidated, or was going to run the risk of causing us cash flow stress.

Otherwise, we think it’s a great idea and no-brainer where you can get the benefit of the “1+1=3” formula and strong cash flow!

 

Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.