What The Block can tell us about the Property Market

The live auction of 'The Block' properties last night was a media success. The format of matching reality TV with home renovation and the kiwi's fascination for all things property appears to be a goldmine not only here in NZ but in Australia, the commitment is there for a 3rd season. 

As for the programme as an insight to the property market, there are some interesting pointers to reflect on. 

Firstly reflecting on the 1st series which ended in early August 2012, I wrote a couple of articles at the time examining the lessons that could be learned from the auction, the insight as to marketing properties and also the overall commercial result for the media company. 

In anticipation of the auction held last night, I was of the opinion that there might be some very disappointed participants after the auctions. I questioned whether the scale of the projects might have pushed the properties into a price bracket that exceeded the market interest and potential. I felt that last year the programme was very lucky to sell all the houses on the night - the interest in the 4th house was so weak it only just made the reserve. 

In my opinion it is very unusual to find enough active, financially capable buyers who are prepared to spend c. $1m on a house in that area in front of the media spotlight, let alone find enough buyers for 4 properties.

The result of the 4 auctions left a single indelible message in my mind - The Auckland Property Market is very strong and holds strong demand which is why the auctions were successful. 

I think that unlike last year, this year's bidders at the auction comprised 4 discrete groups who each were focused on the house that they wanted to buy, whereas a year ago the interest was far more generic to 'the houses' collectively - which is why interest declined progressively after each of the houses were auctioned.

The success for Alice & Caleb was the result of smart renovation design combined with a property with appeal that offered good space. They had a property with character (a villa), their renovation was done to appeal to a broad audience and the result showed on the frenetic 95 bids that lifted the opening offer of $700k to the successful sale at $1,126,000, $181,000 over the reserve. It was irrelevant that their house was the 3rd to be auctioned, the property had appeal.

The same is true for Alisa & Koan who also had a character property which they renovated to appeal to buyers and 22 bids after their opening bid of $700k saw it sell for $1,014,000 a margin of $66,000 over the reserve. There was genuine demand for the property even thought it was the last to be auctioned on the night.

The other 2 properties which were the first to be auctioned achieved $25,000 and $27,000 over the reserve and attracted less bids and far less frenetic bidding simply because their properties lacked the character appeal and were somewhat more individualised in decor and design. Although ironically these were the properties that probably made for better TV.

So the lessons of The Block are clear - character properties renovated sympathetically with modern convenience to appeal to the broadest audience with good size and space will always capture top dollar, particular;y in that part of Auckland. As for the 'hoopla' of the live auction, I think this year it made no difference as the buyers of these houses came to an auction committed to buy these houses, the fact that is was televised was not relevant, the strength in demand for Auckland property shows no let up as was seen last night. There were undoubtedly pospective buyers who left last night not having bought one of the houses.

You are a savvy buyer!

I should qualify that statement; you are a far savvier buyer than your parents. The fact is buyers and sellers in today’s property world are smart, well informed and able to make informed decisions far in excess of what previous generations could hope to achieve.

This is such an important fact to consider when you first start thinking about stepping onto the property ladder or taking a step up. Consider for a moment the things we take for granted today in the property buying and selling process that would have been merely a dream a couple of decades ago.

Twenty years ago say, there were only 2 ways to find out what properties were available to purchase. You would go visit the local real estate office. Not just one thiugh; you would have to visit them all to ask what properties they had for sale. Alternatively you would wait until the weekend to check out what properties were advertised in the local paper or property magazine. No such thing as email alerts or live updates of new listings then. You had to do the hard work, a regular visit to real estate offices to collect printed sheets of property for sale, if you were lucky the local property magazine was dropped off at your house.

Details on an individual property was sketchy to say the least. In the paper you might get a single photo – more often than not, a black and white photo. It was not uncommon to have just a few lines of description as properties were listed by suburb under general classifieds – pages of them! To get so see more of a property you had to visit the home. Yes open homes were, as they are today a valuable means of assessing a property. Alternatively you had to succumb to the company of your friendly local real estate agent who would drive you around a number of properties encouraging you to see this one… or this one… and maybe you should consider this one!

As for background information on recent sales prices or the current rating assessment from the local council, that data was safely locked up behind government departments with stern looking counter staff who reacted to official compliance request at glacial pace as box files were referenced to provide answers.

So every time you flick up a browser window, receive an email alert, click a smartphone app or download a property file give a moment’s thought to how lucky you are to have so much insight and information to hand to make you such a savvy buyer!

Hometopia - everything home buyers & sellers need online

The new property website born of the excellent book "Where to Live in Auckland" was launched last week and certainly provides a rich online library of comment, articles, insight and data to help people better appreciate the Auckland market right down to the local level. In my view it certainly lives up to the proposition as "everything home buyers and sellers need". 

The site is certainly comprehensive, I would estimate over 230 individual pages, however it can feel somewhat heavy to use at times with a lot of text. There are though some beautiful components of the site!  

Where do I fit?

This would be my favourite section. A very subjective grouping of Auckland suburbs into somewhat 'tongue in cheek' descriptors such as Greenies - Titirangi / Grey Lynn / Swanson / West Coast Beaches / Hauraki Gulf Islands / Kingsland, or Culture Vultures - Auckland City / Parnell / Takapuna / Ponsonby / Howick / Titirangi. Many suburbs cross over between different categories to demonstrate the eclectic nature of Auckland.

This feature reminded me of an excellent feature from the Australian suburb selection website CityHobo which defines suburbs by shoe brands - the suburb defined by Converse as opposed to Jimmy Choo! 

Suburb Sleuth

This feature provides a whole new slant on property searching online, something wholly missing from all other property portals, the ability to search by lifestyle and amenities, style and schools.

It's very cool and provides some great insight into opening up new ideas on where to live in Auckland. So if you place a greater importance on excellent schools, than say commute to the CBD then you can apply this to your suburb selection criteria before you invest time in reviewing property for sale.  When using this section don't forget to tick the 'Advanced Search' button - this allows you to not only select a region or environment but you can also specify how important that is, thereby allowing yourself to be open to explore new ares of Auckland.

As with most of the site the core driver of the user is to individual suburb pages which are the distillation of the original book, across the 50+ suburbs in Auckland. These pages provide a good personal evaluation of the character and characteristics of the suburb. The site is very clearly and non-apologetically commercially focussed to encourage you to buy the complete book (Where to live in Auckland $44.95 / The Streetwise Buyer $29.95) or at least a suburb profile $5 each.

The site will certainly appeal to all property buyers (and renters) across Auckland, however its greatest appeal I think will be to people new to Auckland and keen to better understand the region and the make up of the suburbs whether they come from around the country or from overseas.  

No review of the site would be complete without some critique after all I would be the first to concede that we can always improve upon something and learn from others, so here are a couple of pointers to make the site even better! 

1. Property listing integration - Within each suburb page there is a link to view homes for sale in that suburb, this takes you off to the listing page on Trade Me for that suburb. A functional link, however these days integration and mashing of data can provide a richer user experience. Using the open read API from Trade Me would allow this site to showcase all the relevant properties on Trade Me in that suburb on this site, all dynamically integrated thereby adding to the appeal and relevance of the site. 
   
   
2. The site hosts a page for each suburb providing a sense of the character as well as a separate page for the same suburb providing property price trends (How's my suburb performing?) . These pages provide no cross links and yet are so critically interlinked for someone using the site for fact finding on purchasing a property. Some simple cross links would help
   
   
3. As this is a site helping you to answer the question of where to live in Auckland, there is a conspicuous lack of any dynamic maps to help you better contextualise the region or to provide a searching by map functionality. Also a simple search box to find a suburb again is conspicuously missing. 
   
   
4. The suburb page that provides the key numbers on property prices per suburb needs to detail the source and date of the data. Property data is critically important but only when context is provided, such data is meaningless when it is out of date.

Overall I think Stephen Hart and the team at Barbican Publishing have done a great job to provide property buyers and sellers with yet more valuable information and services helping them become smarter. 

Why taking a home for a 'test drive' is illogical?

Logically the idea of taking a new home for a 'test drive' always appealed to me despite the ensuing issues of security, privacy and logistics. After all you wouldn't put down $30,000 to buy a car without an extensive test drive which for many new cars is at least overnight, so why wouldn't you expect to at least try out a house you fancy buying for a couple of days - right? That was my view when I wrote this blog post in 2008 when I had seen such an initiative in the UK.

But recently I came across this video news article from Yahoo Finance in the US about a New York Realtor who had offered prospective buyers the chance to spend 12 hours in an apartment she had listed so they could take it for a 'test drive' .

Watching the video was enlightening, if you can see beyond the slick scripting of the presenter; for it provided for me a very powerful insight into the psychology of home buying.

Admittedly based on a sample of one, the comments of the prospective buyer were so insightful. These were his comments based on first impressions (before he spent 12 hrs in the property): 

• "loved the apartment"
• "great sense of energy"
• "great storage space"
• "lovely sunny southern aspect"
• "great location"
• "emerging area"

"Overall a really good feeling for the property"

Yet he decided not to proceed with the property because of these issues: 

"light switch in the bathroom not meeting code" & "no central heating" 

This says so much about the process of property buying. That initial impression or impressions gained via the walk through when the property was open for inspection speak directly to the features and benefits of the property that appeal to the buyer - location, aspect, facilities, amenities - these are the drivers of property buying. Contrast that with the negatives - suspect wiring and a broken heating system! Spending even a couple of hundred dollars could have solved this and yet these relatively small items played such an important and in the end critical part in the decision making process.

So for me this tells us heaps about marketing property for sale. Buying property is about the heart - an article I wrote last year reinforces this "Blink and you've bought a house". The little things can effect decision making - fix broken appliances! but more importantly present the house to really play to the emotional triggers. 

Don't even think about letting people go for a test drive - it's neither necessary nor beneficial, not because you are hiding things, its more about the impact that time plays in letting the logical brain start to overrule the emotional brain. This of course assumes you are buying a property because you want to live in it and enjoy the life it can offer you. 

The inappropriateness of using the emotions of fear and greed to prospect

Many years ago, just after I had bought my first house I was visited by a salesperson who on the front door step started to tell me and my wife about the spate of burglaries in the area. The emotion he instilled in us was one of fear.

He used approach this to convince us to sign up for a burglar alarm that we could barely afford. This tactic taught me a valuable lesson – be wary of self-interested groups playing on your emotions.

The other day a leaflet was dropped into our letter box from a local real estate firm – its emotional message was not couched around fear but around greed!

Here is the leaflet:

and on the reverse: 

The text of the message:

The Reserve Bank wants to dampen the Auckland Market. What does this mean for you as a home owner?

Strategically you can use this to your advantage. Consider this… sell now on a higher market with a long settlement, so you are in a position to buy in a lower market next year.

If you are considering a move then call us urgently and we will explain how to ride this wave with success.

On second thoughts maybe the emotional tactic is two fold – fear at the impending crash, which is likely to follow this action by the Reserve Bank and greed at the opportunity to sell now, buy later ‘short-sell’ tactic. All we need is the herd instinct to complete the three main emotional motivators of stock markets and business behaviour.

So here we have a case of future forecasting by local real estate agents. Next year according to them the market is going to be ‘lower’ – the inference being in terms of prices.

Big call!

There is no sound statistics to back this up and therefore there is no basis for a real estate agent to make such an assertion. Selling a service based on possible gain from market movement is neither professional nor ethical. Selling based on emotion is not appropriate.

I propose to bring this to the attention of the Real Estate Agents Authority as in my mind it breaches their Code of Conduct 6.4 “A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client”.

Some ideas on being a smarter buyer or seller

In addition to my articles here on Properazzi I also working with John Bolton at Squirrel, the property and mortgage experts. I am contributing some regular articles on subjects of interest to property buyers and sellers.

Here are a few more of theses articles which I think are of value especially to buyers and sellers : 

Access to finance to buy a house is not a right, shame though that is! 

Regardless of whether you find yourself in a position of having the now more appropriate 20% deposit to qualify for a mortgage or not, the fact is; access to mortgage finance is not a right. You need to treat it as with anything you want in life - as a challenge, which if you prepare appropriately for you will be more likely to succeed at. 

Also the new Reserve Bank LVR changes do not mean you cannot get a low deposit mortgage, they are available to the right borrower, so be the right borrower

Read more.... 

Buy First, or Sell First? 

It will be a situation you have been in potentially, finding the home of your dreams and you have not even got your property on the market or even in a suitable condition to sell!  

So the question is, is it better to be on the market with your own home and then start looking to buy or vis versa? Naturally there are pros and cons. Here are a few

Read more... 

The value in a property file

The standard documents that are considered critical in the property purchasing process are the legal title and the LIM, however I would add to this list the property file. This collection of documents held by the local council is a virtual treasure trove of valuable information, records and documents that amount to the potted history of the property. Well worth the time and minimal cost in examining and reviewing

Read more.... 

We need young blood in the real estate industry

A somewhat depressing statistic was shared with me recently - less than 1 in 5 of all real estate agents in New Zealand is under 40, barely 1 in every 20 are under 30 years of age. The reality is that the vast majority are well over 55 with many past what would be considered retirement age. Now I am by no means ageist, but I feel that the imbalance needs to be addressed.

Real estate has for many years been considered a second career, or more appropriately described as the 'last career'.  

I find this fact depressing. In today's world we admire young entrepreneurs who by the age of 30 have built companies generating real value and employing many people, they have struggled against adversity and won through, some may have failed once or twice, only to pick themselves up and learn from their mistakes. However when it comes to real estate and especially New Zealand real estate we find very few young aspirational agents.  

Whilst when it comes to many facts of real estate , it is often commented that NZ is no different to other countries. When it comes to age profile we are different. Take a look at the Australian industry and you will see many more agents under 30. Individuals who see real estate as a career to aspire to. A mindset that we don't seem to see in NZ. We seem to have a view that a career in real estate is something best left until later in life. One clear differentiator in Australia is that agent are effectively paid commission with a base of a minimum wage as a starting structure. In NZ all agents (well almost all) have no income outside the commission, no sales, no earnings. That is partly why we have the age profile we have. It is one thing to look to create a start up company 'boot-strapping' it with the aspiration of creating something of real value, it is a different thing to join 9,500+ others all clambering over each other to secure a listing in a process that makes it hard to differentiate one agent from another. 

With this as a backdrop I was delighted to see the emergence of a new organisation  'Young Professionals in Real Estate' (YPIRE) - originally formed in Australia, a NZ chapter has been established and is generating interest from this sector of the industry.

I was recently invited along to chat to a number of them - all under 30 and all ambitious young people from a number of real estate firms. We chatted about the things people in the industry chat about when having a coffee - nothing new there!  However what I was impressed with was how collaborative these individuals were, too often given the cut-throat nature of the industry, agents rarely aggregate together outside of conferences. One of the principles of YPIRE is collaboration and sharing.

The organisation is squarely focused on events and collaboration. I hope it succeeds as it is a valuable platform to help young people in this industry make contacts and potentially influence change in the industry. That was one of the emerging discussions we had over our coffee meeting. These people naturally get digital, yet they experience at best reticence from managers and at worst rejection of new digital marketing focus!

As an ideal I would love for this industry to aspire to the pinnacle of professional credibility as epitomised in the tweet I saw recently from Redfin in the US. Redfin is a new model of real estate. A high successful technology enabled real estate company that employs agents on a salary and performance incentive based 100% on customer service measures, not on the value of sales they facilitate. These agents collaborate and work in building a true brand experience. They recently took their recruitment platform to Stanford University - that is aspiration. To be recruiting some of the smartest minds in the graduate world to work for a real estate company. 

Speaks volumes about this Real Estate company as it visits @Stanford to talk about working @Redfin pic.twitter.com/1pfpZ3psHM

— Alistair Helm (@alistairnz) October 1, 2013

TV3 - The Nation, How to address the Housing Crisis

I was invited to contribute to the TV3 programme 'The Nation' over the weekend to talk specifically on the impact on the Reserve Bank's LVR changes and the impact this is likely to bring to the housing market.

My contributions were matched by both sides of the political arena with Nick Smith - The Housing Minister and Phil Twyford the Labour Party Housing spokesperson.

I was asked by Rachel Smalley the question as to what would be the one thing that I would do right now, to bring some correction to the market in Auckland?

I highlighted the UK policy of New Buy. This UK government backed initiative seeks to provide a government underwriting of higher loan to value mortgages for the purchase of new homes - allowing people to buy with 5% deposit

This initiative launched earlier this year appeals to me as it provides a means of creating real demand in the housing market for new building, something that is seriously needed if we are going to meet the requirements of the future growth of Auckland. 

A core issue of the current building market as I highlighted in the interview is the fact that we lack scale in the NZ new-build market. We operate new builds as a craft industry, building to bespoke designs and thereby creating no real opportunity for scale. We need to build spec housing to create a supply upon which the demand can be satisfied. A government scheme which only requires an underwriting to cover default liability rather than grants, would allow accredited building companies to make investment decisions to get more houses built.

New built houses complying to the Building Code provide a vastly improved housing stock for the country, insulated, energy efficient and built around amenities that suit the communities that can be created around scale developments rather than piece-meal bespoke homes.

I went on in the interview to also highlight my concerns around the approach we have in this country to residential property investing, how we have too biased an incentive structure towards property investing as compared to other investing options, especially superannuation. I drew reference to the need for 'patient capital' to be invested into residential property to provide more secure rental accommodation of a higher quality and surety. In other countries rental accommodation is more the remit of corporations and institutional investors than "mum & pop" landlords. As an example in the UK again, Legal & General, one of the largest insurance companies with significant assets under management made a strategic move this year to invest in rental properties.

As ever there is never a simple single answer to the housing crisis, however whilst not wishing to believe that answers only lie outside of our borders there are always valuable lessons to be learned from examining overseas markets and initiatives. 

Plain speak - why is it so hard for the real estate industry?

I am staggered that for an industry that has ready access to timely, accurate and relevant data, we have comments made by some in the real estate industry which show a complete lack of insight and other who seem unable to speak clearly. To my mind what I have seen is obfuscation.

Let me explain.

The NZ Herald reported this week on the latest NZ Property Report from Realestate.co.nz. A valuable monthly report into the state of the property market as measured by the collective listings of all the licensed real estate agents in the country during September. The report is comprehensive and very timely – published on the 1st October covering 11,000 new property listings that came onto the market in the month.

The journalist writing the article spoke to a couple of representatives of real estate companies to provide context to the data. This is what some of them had to say:

Peter Thompson – Managing Director of the largest real estate company is Auckland said

“it was difficult to gauge average asking prices in the Auckland market because of the large number of auctions”.

The requirement of the Real Estate Agents Act is that for every property listed by a licensed agent, an assessment must be made and provided to the vendor as to the comparative market value (sometimes known as a CMA – Comparative Market Assessment) of the property. This is the output of the collective experience and skills of the agent and is a vital input that powers the search by price on all websites. So to say that it is difficult to gauge average asking price shows a lack of insight or a desire to ignore the facts. The fact is that it is difficult to gauge the final selling price – that is down to the unique market factors at the time of the sale, but the asking price is effectively the CMA and the search price on the websites.

Further to this comment, Peter Thompson went on to say

“About 90 per cent of the agency's sales were by auction, where listing prices were not quoted”

Very true listing prices are not quoted publicly for auction properties, but 90% of their sales are by auction – I don’t think so.

In July as cited by the advert below 564 properties were sold by Barfoot & Thompson as successful auctions with 88 auction listings not sold. In the month they reported total sales of 1,133 – so in fact in July less than half of their sales were by auction. In the past 3 months the average has been around 55% of their sales have been by auction – not 90%.

The journalists then sought out comment from Bayleys' national auction manager Daniel Coulson who said

"rapid movement in the Auckland market also made it difficult to price"

Again nobody is looking to be the perfect fortune teller as to final selling price, all that is expected is a CMA leading to a “listing price” which helps guide the website search.

His next comment dumbfounded me:

"A growing number of vendors are leaving it over to the market to ultimately set the value of a property."

Wow!

Ultimately all property sales result from the market setting the value of a property, regardless of whether a property is marketed with a price or without a price, whether it is by auction, tender or deadline sale; the price will be that level at which a willing buyer sets an price that exceeds competing interested parties price offer and which satisfies the vendor.

I have always felt that the real estate industry has got carried away in describing property in marketing materials, it seems now that somewhat flowery language has crept into media commentary. Please let's talk facts borne of data. Let's analyse facts and help those looking to buy and sell to get a clear handle on the market and avoid obfuscation.

Note: I have written this article based entirely on the NZ Herald article, I have not spoken to the parties concerned to verify what they said or confirm in any way what they said in terms of accuracy. I trust that the NZ Herald as a responsible publisher have verified these facts before publishing.