Chinese buyers in Melbourne: A simple case of supply and demand

2014 is still motoring along very strongly. The lull we reported of the last few weeks seems to have been nothing more than another stair landing in the continuously rising price-staircase which began in October 2012.

This weekend was another Super Saturday, with over 150 auctions in Melbourne’s inner east and Bayside. It was a very solid test, in that bidders were spread out over a large number of auctions – i.e. there was significant choice. The bidder depth held up, in fact it increased marginally with over two bidders per auction on average – this is strong.

If you look at the roughly 200 $1 million plus auctions that took place across all of Melbourne, an average of two bidders means that not only were there 200 buyers, there were also 200 bidders who missed out. Most of those “wounded” bidders are not discretionary buyers – they have to buy and next time they will be more aggressive on price, even if only a tad.

For a number of our Chinese clients, one of the reasons we are engaged is that they are concerned what other Chinese buyers may do and they don’t want to miss out.

However, after next week it gets very tight for new stock going into the school holidays and Easter. So the pool of choice will diminish. That means many of those 200 “wounded underbidders” may well be competing against you over Easter but on lower stock levels. That means we’re likely to see 200 underbidders competing not on 200 homes, but on, say, 100 good homes which would double the bidders. If that number is spread out over 50 good homes, that will be four times the bidder strength we saw this weekend.

So what to do as a buyer? Maybe it’s time to wait until the steam goes out of the market?

For those buyers still waiting on the edge for a downturn – good luck. I’m not sure that is a proven good strategy.

But surely it can’t last forever!

Why has our market been so good for so long and will it last?

The Chinese community – simple demand and supply

The reason our market has been so good for so long is very simple – the overseas Chinese community.

Here are the top 10 reported sales on Saturday.

The Top 10 reported on Saturday

• 14 Selwyn Av, ELWOOD – Above $3,600,000
• 21 Monash Av, Balwyn – $3,520,000
• 17 Rolls Ct, GLEN WAVERLEY – $3,416,000
• 65 Metung St, Balwyn Above $3,200,000
• 30 Wills St, Kew Above $3,000,000
• 4 Mt Ida Av, Hawthorn EAST  $3,235,500
• 69 Alfred Cr, FITZROY NORTH  $3,140,000
• 2 Barnsbury Rd, Balwyn Above $3,000,000
• 9 Fairfield Av, Camberwell  $2,888,000
• 65 Yarrbat Av, Balwyn $2,850,000

40% of those sales were in Balwyn for new homes or land blocks to build new homes. Where is Brighton, where is Toorak? North Balwyn and Balwyn reported 13 bought from a reported 15 auctions. Brighton had 9 bought from 16 and Toorak and South Yarra just 7 from 12.

So how long will it last?

This is my potted history of Chinese involvement in Melbourne’s property market.

1973: I went to Camberwell Grammar in the early 1970s (I’m not sure they want me to advertise that fact – it could be bad for new enrolments). Camberwell Grammar is in Balwyn and a number of my classmates at that time were Chinese.

1983: Chinese start buying into Doncaster and Box Hill, which were then more affordable suburbs. I grew up in Doncaster.

1993: After economic reforms start having an impact in China, wealthy overseas Chinese start buying into premium Melbourne suburbs such as Balwyn and Canterbury. Why? Private schools. Chinese people want to give their children the best education (see 1973) and now a few could also afford to buy a home near the schools of their choice such as Carey, MLC, Scotch and Camberwell Grammar. But it was still difficult under Australian buying laws for overseas people.

2000: With restrictions on what Chinese people could buy and Chinese wealth increasing, off the plan properties became popular for many Chinese buyers. There were very few restrictions on Chinese people buying new properties and Chinese people were used to buying new apartments. High rises went up left, right and centre in Melbourne, many on the back of Chinese money.

2005: Chinese wealth had increased dramatically over the last two decades and as Chinese buyers became wealthier they also became more sophisticated in their knowledge about Melbourne properties and Toorak became a place where land banking became popular. It still is today.

2009: Australian government changes the laws making buying “second-hand” family homes in Australia a lot easier for Chinese people. This one decision really brought the inner Melbourne property market out of the GFC a lot quicker than other countries.

2013: By this time, every one of the bigger buying or selling real estate agencies, ourselves included, has at least one Mandarin-speaking staff member.

2014 : At this weekend’s Super Saturday, 40% of our Top 10 $3m+ sales were in Balwyn, rather than Toorak or Brighton.

So in my 55 year history I have seen this equation of simple demand (increasing Chinese buyers) versus supply (no new land in inner Melbourne) push prices up and up and up. I cannot see anything changing anytime soon. So waiting for the market to turn in 1970, 1980, 1990, 2000 and 2010 hasn’t in my mind proven to be a winning strategy. If you see the right home for you (emotionally, physically and financially) then you should buy it now.

You may be interested to know that for a number of our Chinese clients, one of the reasons we are engaged is that they are concerned what other Chinese buyers may do and they don’t want to miss out.

Auctions in Bayside see around half  the number of people attending as in Boroondara. A good auction in Brighton has 40 people while in Kew it would be 80. The Chinese community is nowhere near as well established in Bayside as it is in Boroondara.

Why not? There are some great private schools in Bayside! St Leonards, Haileybury, Caulfield Grammar.

Its a historical thing. But you can see more and more Chinese people considering say other areas such as Brighton when:

• Chinese people become more comfortable with Bayside as a place to live, and
• Demand in Boroondara and then Stonnington forces some Chinese people to consider other options.

Over time the Chinese community demand and supply equation will have the same effect in Bayside as it has had in Boroondara, unless China’s wealth begins to diminish.