Possibly the most discussed subject in real estate at present is the level of prices being paid and how much they have increased over the past 18 months.
The rate of increase varies from area to area, however as agents working at the coalface, we have been genuinely surprised – and at times shocked – at the prices being paid for some properties.
Rather than trying to guess where a property price might finish up, we have been heavily focussed on our process to facilitate the maximum outcome. With at times up to 20 participants in a negotiation, this has been important. Nearly every negotiation at the moment is ending up in either a public or private auction (via Zoom).
What has been interesting is to understand how buyers are justifying to themselves paying prices well above what we expected when a property is launched. We have identified three main reasons:
Firstly, everyone does what everyone else does. These elevated prices are being driven by competition. Even though the prices being paid are well over the vendors expectation, the buyers are only winning these properties by typically $1000-$5000 dollars in an auction format, and this gives them comfort knowing others wanted the property too.
Secondly, many are asset swapping. In other words, they are selling another asset, usually another property, that has also risen in value and therefore they are often swapping like for like. They might be borrowing for a period between purchasing and selling or for a top up, but the overall net debt is limited.
Thirdly, money is very cheap. For many its less about the amount of debt and more about whether they can afford the repayments? With very low interest rates, affordable repayments are just that – affordable. When a potential buyer applies to a lender for finance, the bank will ultimately work out whether they can afford the monthly repayments. Interest rates are not moving anytime soon to facilitate the economic recovery from COVID. We know this because you can get fixed rates for around 2% for 2 years right now from some banks.
Please let us know if we can assist in any real estate matter.