Price drops in Melbourne

Okay, I'm far from a 'seasoned investor' but the more opinions you get, the better informed you're likely to be. Besides, I'm sitting at home recovering from a bad ferret bite wound on my thumb, so I might as well write. Here's my personal opinion based on two properties.

Property 1 is based in an outer Eastern suburb of Melbourne, purchased in Aug 2009 at the height of the FHB frenzy. This was back in the day when people were willing to pay any price to knock out a competitor just for the sake of getting into the market. The house is a typical suburban late 1970's brick veneer, 3 bedroom/ 1 bathroom/ double carport on 860sqm of land. The median house price in this suburb at that time of purchase was around $385K, for an average of $396,300 by the end of 2009. The house was arguably in the 'premium' part of the suburb and was hence purchased for a little more than the median price.

The median price in the suburb of property 1 was $470K averaged for the year of 2010 and in 2011 has fluctuated between a low of $417K in July to a high of $545K in August 2011. Today there is a house for sale in the near vicinity for 'Above $415K'. This is a brick veneer, 3 bedroom/ 1 bathroom/ single carport on a subdivided block (roughly half the size of land on property 1). It is also newer inside and renovated, compared to the older style of the kitchen and bathroom in property 1.

Comments on property 1: It would be simplistic to say that the price of property 1 has increased simply because the median has done so, although this may indeed be the case. However it is also debatable as to HOW MUCH the value of property 1 has actually changed, since it is not considered a 'median-priced' property in the suburb. A judgement on its price should hence be made on properties in the near vicinity which would mean similar distance to desirable amenities. But a price comparison is not easy to construct. Even if the comparative property currently listed is sold and the sale price is known, it sits on a smaller block of land and is also renovated, unlike property 1. I will leave you to draw your own conclusions here.

Property 2 is based in a coastal regional center approximately 1 hour's drive away from Melbourne. It is serviced by highways and a train line that goes right into Melbourne CBD. Property sales are slim in this part of the regional center. The property is a 3 bedroom/ 2 bathroom/ double carport 1930's art deco weatherboard that was recently renovated and sits on 410sqm of land, approximately 66% the size of land of most neighbouring properties (townhouses excepted, although their land size is also lesser than 400sqm). It was purchased in December 2010 when the market was already considered to be weakening.

At the time of purchase, the median price for this area was $418K. The price paid was again higher than the median price for December 2010, but nowhere near the average median price for the year 2010, which was $723,750. Because there are limited sales in this area, it is difficult to analyse the monthly median price performance for the year of 2011, however it has fluctuated between a low of $365,250 in January to a high of $1,450,500 in March. The most recent median price available was for July at $455K.

Comments on property 2: To draw conclusions on the current price of this property based on median price trends would again be simplistic. Firstly, its land size is smaller than that of a number of other detached houses in its vicinity. Secondly, because this area is bayside, as you get closer to the water's edge and the parks, the houses can become exponentially more expensive, with more value added for bay views. Thirdly, the limited number of recent sales (ie. both coming on to the market and being sold as a result) in the area, making it difficult to compare prices. The price of houses for sale in the vicinity of property 2 currently range from $535K for a renovated 2 bedroom/ 1 bathroom/1 carport weatherboard on about 300sqm of land (or less) to $1,600,000 for a unrenovated 4 bedroom/2 bathroom/ 2 carport on 1250sqm of land with bay views. The 'median price' for the houses currently on sale would sit at around $700K.

In conclusion: it's not always easy to make a judgement on prices for each individual property. But a loss of 'hundreds of thousands' on these property purchases? Hardly, it seems. Perhaps the values have actually increased or remained flat? I'll let you be the judge of that.