Could The Block series 3 be a leap too far?

by Alistair Helm in


I must confess I had not been gripped by the TV series The Block, I am more a Grand Designs person. However I can see the appeal, and based on the level of interest evidenced from the recent open homes, TV3, the production company and the sponsors must be delighted. It appears to be the golden goose that just keeps on delivering.

However I hate to be the Grinch to rain on their parade but I fear that Series 3 of The Block is not going to end as happily as the first two series with a successful clean-sweep of auctions on the night. I think the 3rd series is going to be a leap too far and one, if not possibly all of the properties may end up not selling at the reserve and thereby being passed in.

If you need a reinforcement to this view then look no further than the most recent Australian series of The Block in which apartments in Melbourne's suburb of Prahran have struggled to meet the reserve set at the auction as the market they are competing in is flooded with similar apartments. This recent article provides a vital insight into the challenges the Australian series has faced in marketing these very unique apartments.

For NZ the issue for these 4 new properties is not in my judgement the same as Australia. It is not down to marketing to standout in a crowded market, the issue is simply there is insufficient demand.

The original series of The Block NZ in 2012 delivered 4 renovated houses in Takapuna sold at prices between $800,000 and $961,000. The second series in 2013 delivered 4 renovated houses in Belmont sold at prices between $970,000 and $1,126,000. The current 3rd series has 4 renovated houses in Point Chevalier with a price expectation of $1,450,000. This figure is the search price indicator from the Realestate.co.nz website. This price level is 40% higher than the last series and puts these houses in a wholly different segment of the market.

This price expectation is a big ask for 4 properties in the same sub divisions to be sold at auction on the same night. To find a single buyer for this type of property in Pt Chevalier at this time, at this price point is probably quite likely. To find two is less likely and to find 4 is a huge ask in my opinion. Simply put, the higher the price point the smaller the market demand and the pool of prospective buyers. Add to this the media profile which whilst great for a TV show does have the ability to be a negative factor for potential buyers, who value privacy when looking to spend over a million and half dollars and may well not to be associated with a TV make-over show when there are other 'new' renovations on offer. All of these factors drive a higher likelihood of a less impressive auction event.

To prove my point let's examine some data. Barfoot & Thompson kindly provide insight into monthly sales by price level. They as the largest real estate company in Auckland account for around 40% of sales so therefore it is possible to estimate the average number of property sales across Auckland at each price point, reflective of the properties for sale during each series of The Block.



So based on the sales data at the expected price point of $1.45m there are about a quarter the number of buyers than those at the $800k to $1m bracket of the 2012 series.

A house purchase at $1m is a serious consideration, at $1.45m it is ever more of a significant consideration. These prospective purchasers are not super-fans of the TV series buying a momento of the series to show off to their friends; they will be property buyers, buyers who are discerning, judgemental, critical, cautious and private. 

Time will tell, but I will watch as will many hundreds of thousands of viewers on auction night to see if they really can sell over $6m of real estate at a live TV auction.


What can be learnt from The Block

by Alistair Helm in


Transient

It’s been nearly 3 weeks since the nail-biting final episode of The Block and I thought there was value in sharing some opinion on the series.

The first point to make though is that my opinions expressed here will bear very little comment as to the entertainment value of the show or to the participants, or in fact to the renovations – mainly because my exposure to the TV episode was restricted to a single 20 minute segment of episode 2 as well as the full final episode featuring the lie auction.

I have separated my opinions into 3 areas: the show as a commercial venture, the marketing of the houses and lastly the lessons that homeowners can take away from the show. I have for ease of reading, split up the opinions into 3 separate blog posts so each component can be seen in isolation.

The Block as a commercial venture

The TV series was produced by Eyeworks TV for TV3. The series concept originated in Australia and has been exported to more than 8 countries and spans over 350 episodes. The concept is universal as the blend of human emotion reality TV is matched to the DIY / home improvement mindset so prevalent in so many countries and cultures.

The series was destined to be a success before even the first episode was made given the pedigree of international success; what might not have been so certain was the commercial success to the production company / TV company outside of TV ratings and the ensuing commercial revenue from TV adverts around the show.

The renovation of these 4 homes netted the production company and MediaWorks (there is no clear detail of the financial arrangements between the two companies on this production) conservatively well over a million dollars. The sponsorship alone from the 4 anchor sponsors – Bunnings, Kiwi Bank, Toyota and Wild Bean would have totaled many hundreds of thousands if not millions of dollars. To this can be added the profit from the house sales.

Transient

The amazing thing in relation to these 4 houses at 74 to 80 Anzac Street, Takapuna was the ability for the production company to find 4 near identical homes all next to each other, in need of renovation close to the Auckland CBD and on a road which provided easy access and low risk of neighbourhood disruption as that part of the locality of Takapuna was part commercial.

In retrospect it seems like a minor miracle; or more likely some well planned partnership with a property investor who bought up the properties one by one over time to allow the production company to acquire all 4 houses earlier this years as the land registry records show.

The collective cost to buy the 4 houses amounted to just over $2.5m – the total of the auction reserves (over which each couple would keep the margin) totaled $3.4m. The costs of the work was largely met by materials from sponsors and suppliers; there would certainly have been costs of services and people, however at the end of the day this must equate to a very profitable series. Not forgetting that peak audience of over one million who tuned in to the auction final – very close to or surpassing prior record audiences for NZ TV.

Most TV series would seek to fund the investment in production through sponsorship and advertising as well as any international sales; this series appears to have gone well beyond that in being self financing through property development - maybe the series was more than just human interest reality TV and more a business programme in disguise!