On any weekend in one of Australia’s cities, in what has become something of a ritualistic right of passage for aspiring home-owners, crowds of eagle-eyed punters gather on suburban curb sides hoping to secure themselves a slice of residential security, or at least to get a whiff of which way the fickle winds of the housing market are blowing.

Want a house? WELL IT'S GETTING DESTROYED BY A GAVEL. Picture: Thinkstock

As it happened last weekend I had the disconcerting experience of stumbling into just such an auction for an apartment in the building in which I live. In fact, it was for the apartment next door to mine in the Melbourne bay side area of St Kilda.

St Kilda is a suburb to which I hadn’t expected to return. I first moved here when I was a teenager finishing high school and juggling a fairly hedonistic lifestyle.

Yet with the encroaching gentrification and residential squeeze in Melbourne’s northern suburbs - the art-deco sea-breeze charms of the south side have again captured me. I would even say St Kilda is experiencing something of an urban renaissance.

The thing that annoyed me from the weekend auction was the way in which the real estate agent went about selling the place.

I understand that it is the real estate agents job to try to get the best possible price for a vendor but when the sales pitch veers into fabricating the true value of a property for the sake of a quick sale it crosses a line of decency and become a straight out con.

Among the usual spiel about The City on your doorstep, The heart of Cosmopolitan Bayside living, Prestige lifestyle options await - the auctioneer suggested the apartment could easily be rented for $500 a week. In truth, we had just rented our place next door – which was the same size, and in roughly the same condition - for $400 a week just a few months earlier.

So the auctioneer was engaged in over-inflating the potential return on the property before anyone had the opportunity to place a single bid on it. Regardless, the agent started the bidding at 475-thousand dollars and struggled to get an offer. After the second call, someone offered 480 and that was where the bidding stopped.

In a case of divine intervention one of my fellow-tenants, a shaven haired bloke with a bull terrier, walked out of his apartment and right through the crowd gathered just as the agent was seeking higher bids. He turned to the crowd and muttered “480 – you must be f—-in’ joking!” His bull terrier scanned the crowd vaguely threatening before taking a leak on a nearby tree.

All this might be merely amusing if it didn’t underscore a bigger story of denied home ownership opportunities.

Like many other Melbournians in my predicament, I had already been burnt in previous efforts to procure a property within 10 kilometers of the CBD by the phenomenon that has come to be known as under-quoting – where agents lure in potential buyers by setting prices way under the real vendor expectation – in the hope that they yield to a higher price when the auction day comes.

At 41, I am part of a generation that has been largely denied the privilege of home ownership – at least with out the ‘rat-in-a-cage’ feeling of mortgaging the next decades of ones life out to a bank. So instead I have put my head down, kept working full time across several jobs, lived in grungy share-houses longer than I might have liked, put up with grumpy flat mates and dishes never being done.

The problem with the real estate market as it stands is that it directly favours wealthy buyers and investors over tenants. Prior to St Kilda, earlier this year I was forced to move from an Abbotsford share house in Melbourne’s inner north when the owner decided to sell all the terrace houses in our section of the street complaining that he could no longer afford the land tax.

It is relatively easy to replace one rental property with a new one if you are in secure employment – but what can never be replaced is the community that might have formed there. We were given the legally required 90 days to clean up and move out of our house in Abbotsford. After a seven year stint of living there among neighbors we came to enjoy as good friends, almost as our local family.

When real estate agents and auctioneers manipulate the market by building up peoples expectations beyond what is reasonable, fair or based on reality – and attempt to appeal to investor buyers over those who simply want a good place to live - they push the prices up, keep home ownership out of reach to more Australians, and force locals further and further out of inner suburban areas.

Lack of housing density and inadequate tenancy protection is surely a large part of this. But unscrupulous agents and greedy investors merely looking to turn a profit rather than build communities must surely take part of the blame as well.

James Norman is a Melbourne writer.

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38 comments

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    • acotrel says:

      07:05am | 22/09/12

      I lived in Melbourne’s south east for most of my life, I now live retired in Benalla.  Which is lovely as long as you don’t want to work or get an education.  The NBN might change things, but most of us will still be chained to the treadmill struggling through traffic amongst the uncaring masses in capital cities, and stressed to the max. The cult of the indivual and lack of sense of community is pretty bad.  And the lack of a tolerable alternative makes it worse.

    • stephen says:

      05:00pm | 22/09/12

      That cult of the individual alcho is not so bad, only if they become cults who can develop with a reconciled sense of themself with the group.
      Quite hard, I’d reckon, and it is the great theme of Freud.
      (Not to mention with the theory of tax.)

    • gobsmack says:

      07:05am | 22/09/12

      The people who would be put off by the man with the bull terrier are the potential owner-occupiers, not the investors.

    • Alfie says:

      07:40am | 22/09/12

      Auctions are for suckers. The reality is: if the price has to meet/exceed a vendor reserve, then you are paying more than they expected.

    • acotrel says:

      09:29am | 22/09/12

      It is too easy to pull a bid off a bush, but if that is the way the property you want is being sold, that is the risk you take. As far as paying more than the reserve - don’t you believe in the free market setting the price ?

    • acotrel says:

      09:44am | 22/09/12

      Alfie
      Estate gents know the local housing market better than any of us, and they always put their own interests first.  It suits their purposes to get vendors to believe their house is worth less than it is and for you as vendor to set a low reserve, especially if they are on an incentive payment.  When they are dealing with buyers the reverse applies.  My experience has taught ne that when you are dealing with the agents always take great care because they love to play games which give them a better return. The interests of the rest of us are secondary.

    • Alfie says:

      10:19am | 22/09/12

      @Acotrel

      Your comments are correct (yes…wow!!!). There are only 2 winners at an auction. The vendor and the agent.

    • Gregg says:

      12:21pm | 22/09/12

      @acotrel
      Is that the mulberry bush you’re going to pull a bid off is it mate but you’re going around and around it it does seem.
      First of all you espouse the free market and then you claim the agents are fully running the show.
      Crikey, there sure are suckers and they’re the people who do not do their own homework and rely solely on the agents and that can apply to both buyers and vendors.
      As for:
      ” It suits their purposes to get vendors to believe their house is worth less than it is and for you as vendor to set a low reserve, especially if they are on an incentive payment. “
      And just how many agents do you know that are not going to get more in commission the higher the sale price is!
      There is a new cut price approach developing in some areas where you might be able to negotiate a fixed sale price but they’re very few and far between.

    • Lossy says:

      03:18pm | 22/09/12

      Sorry Greg. You’re wrong. Getting the sale as fast as possible matters. Incremental increases are so small and not worth the effort. Do some research on it.

    • Dave says:

      07:46am | 22/09/12

      So let me get this right, you would like your landlord, despite fronting up the initial capital to buy the place, the ongoing maintenance, rates and statutory charges, and the risk associated with residential investment, to not sell your rental property (at the place you rent below the cost for him to hold it) because you like your neighbours?

      If you like your community so much, go and buy the bloody place yourself!

    • marley says:

      08:15am | 22/09/12

      I’m not entirely sure what the point of this is.  Look, I get that real estate agents can be unscrupulous and unethical.  This is hardly news. 

      But there’s a sense of entitlement here that baffles me.  The author say he’s been “denied the privilege of home ownership – at least with out the ‘rat-in-a-cage’ feeling of mortgaging the next decades of ones life out to a bank.”  Well, sorry, but unless you’ve got a spare half million in your bank account and can pay cash, that’s the way it goes.  You indenture yourself to the bank for a decade or three. That too is nothing new. The boomers all had 20 or 30 year mortgages;  why does the author think he’s entitled to something more?

      As for the plight of the renters, that’s the downside of renting - you don’t own the property, you’re not paying the mortgage or the rates, so you don’t have the permanence that the “rat in the cage” mortgage gives you.  It’s a trade off - you rent, you have no long term commitments, but you have no surety of residence either.  You make your own choice as to which is more important, but it is a choice you have to make.

      The other thing that I don’t get is the sense that the author has a right to live in the inner city suburb of his choice.  Why? What makes it a right?  And what on earth makes it the responsibility of investors to “build communities?”  Why isn’t the author just as responsible?  After all, he’s the one that wants the community, so why shouldn’t he have to have some skin in the game?

      Disclosure:  I own one rental property in a non-inner city suburb which has been rented out to the same family for 12 years, and which provides a small but welcome top-up to my retirement income. I guess that makes me a “greedy investor.”

    • acotrel says:

      10:31am | 22/09/12

      @marley
      The kids of the current generation are a bit different the previous.  They look at what we oldies have, and they think it has all been easy.  I was a bit gratified the other day when my son mentioned his activities as a kid when I used to come home extremely stressed.  He actually has some memory of what was involved.  And now he is in a very responsible job himself, he has a better appreciation. Through it all I am still looking at money problems which are about to have a bad effect on my quality of life.  I have choices, but the thought of a nine to fiver makes me feel sick.  The good thing is that my cholesterol problems have been solved, so my options are not limited by that.

    • DocBud says:

      11:37am | 22/09/12

      My parents bought their first house in the 1970s when they were well into their 40s. Without a mortgage they’d never have bought. I’m 53, we bought our first home when I was 28 and have had a mortgage ever since. A couple of years ago our son and his partner bought their first home when he was 26. The first permanent building society was founded in 1845 in the UK. So in what generation did the majority of homeowners not take out a mortgage? When was the golden age when people rocked up with a bag full of money and bought a house for cash.

      I too am baffled, marley, the sense of entitlement is strong in this one whereas normally people have come to a better understanding of the nature of life in a free(ish) market economy well before they reach 41.

      I too should declare being an evil, greedy capitalist, we own a rented residential property and one third of a commercial building, and no, I can’t sleep at night with my guilty conscience.

    • Gregg says:

      03:16pm | 22/09/12

      @acotrel
      ” when I used to come home extremely stressed.  He actually has some memory of what was involved.  And now he is in a very responsible job himself, he has a better appreciation. Through it all I am still looking at money problems which are about to have a bad effect on my quality of life.  I have choices, but the thought of a nine to fiver makes me feel sick.  The good thing is that my cholesterol problems have been solved, so my options are not limited by that. “
      Some kids may have what some oldies feel are strange mind sets but I’d not let yourself get too stressed on that and you’ve got good and better news it seems:
      Cholesterol down and you just need to remember that your options are not so unlimited for if you sit around too long on the keyboard that is potential exercising time gone.
      Now if you keyboard less and get an active job that might even mean less keyboarding still, that’s all good and better hey!

      Just what will we do without your cheery thoughts!

    • Lossy says:

      03:23pm | 22/09/12

      Yeah I agree with this. I’m 39 so same gen as author but own 3 properties. I made sure it happened. I am a landlord but ATM a tenant as well. No way is the balance in favor of the landlords. And if you want to stay in a community then buy in. When something belongs to someone else- well seems obvious - but it’s their choice. There’s a few statements here with no arguments to back them.

    • Gregg says:

      08:20am | 22/09/12

      James, in short I’m somewhat amazed at your attitude, especially in being 41.

      So you reckon it is all the fault of agents and investor owners is it?
      Have you ever considered that investors one way or another may have saved, scrounged, gone without and had many hastles to deal with in amassing whatever assets they have.
      It is likely that many have also at some time worked more than one job and may well still do so to meet all the costs that go with ownership even when you have a tenant.

      It is certainly not a get rich quick scheme.
      ” At 41, I am part of a generation that has been largely denied the privilege of home ownership – at least with out the ‘rat-in-a-cage’ feeling of mortgaging the next decades of ones life out to a bank. “
      Many home owners be it for their own residence or investment do ascribe to the practice of having mortgages and yes, it does still mean working and doing without to meet repayments, that being part of life that would see you not in the position you are now if you had made commitments much earlier instead of pursuing your hedonistic piss it all away lifestyle, poor sop you.

      ” The problem with the real estate market as it stands is that it directly favours wealthy buyers and investors over tenants. “
      Yes James, it does require some commitment and preparedness to do what is often tougher than a tenant wants to accept and then there is no guarantee that investors will not have troubles balancing their books either, land tax being just one of the costs involved.

      ” It is relatively easy to replace one rental property with a new one if you are in secure employment – but what can never be replaced is the community that might have formed there. We were given the legally required 90 days to clean up and move out of our house in Abbotsford. After a seven year stint of living there among neighbors we came to enjoy as good friends, almost as our local family. “

      If you want something in the way of permanence and whatever measure of security it offers, remembering no guarantees, then make the commitment and decide what you’ll go without to amass some savings to get into ownership.
      In other words, it seems you still have some growing to do.

      ” When real estate agents and auctioneers manipulate the market “
      This is just so stupid James for owners whether for their own use or investing need to make their own appraisals on what they think is a reasonable price based on market and their own finances and it’ll come down to demand that drives markets either up or to stagnate or even fall, perhaps properties even being handed in.

      Sure the agent will do their spruiking to get whatever they can for a vendor, that being their role and buyers have their own responsibilities.

    • Brando says:

      08:28am | 22/09/12

      Ten years ago when I returned to Sydney I looked at house prices and saw they were terribly overvalued. I couldn’t see why I would pay a bank 7% interest plus all the other costs of home ownership (including $3,000 a year strata levies) when I could rent for less than 4% p.a.  of the apartment selling price.

      I had a fairly substantial deposit which I then invested in the sharemarket buying companies that paid fully franked dividends and had a dividend reinvestment scheme.

      I worked out what it would have cost me each month if I had bought the apartment and put that into a special bank account from which I deducted the monthly rent. When the balance in that account reached $10,000 I invested it in more shares.

      Ten years later, even after the GFC, my investment has quadrupled. An apartment in my building on the next floor up, exactly identical to mine, sold last month for $10,000 less than the asking price when I was looking ten years ago.

      I now have sufficient funds in my investment account to pay cash for a similar apartment although CGT may mean I have to borrow a small amount.

      Best decision I ever made

    • acotrel says:

      09:33am | 22/09/12

      We didn’t have crystal balls in the sixties, what you’ve said would look ridiculous in that climate. The GFC has happened and the paradigm has shifted. It now requires a change of mindset to succeed.

    • Joan says:

      08:50am | 22/09/12

      What gets me is how the bidders for a property try to outdo each other to get the property for the most expensive price they can - especially those idiots that pay thousands of dollars more than the reserve.  Somthing really stoopid about that type of buyer. Having paid thousands above reserve and taken out life time mortage same person will brag how he/she saved a couple of dolllars buying off net rather than DJs.

    • DocBud says:

      11:12am | 22/09/12

      “What gets me is how the bidders for a property try to outdo each other to get the property for the most expensive price they can - especially those idiots that pay thousands of dollars more than the reserve.”

      So what do you think should happen, Joan? Perhaps the prospective bidders should flip a coin and the losers walk away from their dream home even though they can afford it? I don’t think those who pay what they can afford to buy the home they want are the idiots.

      The value of a property is what people are prepared to pay for it. If there are two or more bidders, then to acquire the property one has to bid the highest price, that’s how auctions work. If the bids exceed your valuation or your means, you drop out. If the reserve is not reached, the sellers have possibly overvalued the house but they can also have been unlucky with the right buyers not being present.

      The house we have lived very happily in for the last 10 years was passed in at auction before we arrived in the area. We paid about 13% more than the top bid at auction three months later. We negotiated hard and were happy to secure a beautiful home at a price we could afford. Seeing as it has appreciated about 400% in value since (we’ve spent about 20% of its original value on improvements) it was worth every cent. I know the person who had the highest bid and he wishes he’d been less stubborn and willing to negotiate after the auction.

    • St. Michael says:

      07:19pm | 22/09/12

      @ Joan: it’s called the “greatest fool” theorem in economics, and it’s the theorem on which all auctions are based.  Unless you’re an idiot, you never go as a buyer to an auction.  There’s no one home worth bidding in a hothouse environment for.  Paradoxically, it’s also a bad deal for the seller, because the lack of bidding typically forces the seller to drop their price to “meet the market”.  Neil Jenman’s books make for very eye-opening reading on exactly how big a pack of sharks the real estate industry are and how they trick people into their feeding grounds.

      @ DocBud, as is probably apparent from the above, what should happen is that you should neither sell nor buy at an auction.  The only party who wins out of it is the real estate agent.

    • DocBud says:

      09:52am | 22/09/12

      What a pathetic whinge.

      ” At 41, I am part of a generation that has been largely denied the privilege of home ownership – at least with out the ‘rat-in-a-cage’ feeling of mortgaging the next decades of ones life out to a bank. “

      I’m 53, we bought our first house when I was 28 and we’ve had a mortgage ever since. My parents were in their 40s when they bought their first house, they did it with a mortgage. Our son and wife bought their first house a couple of years ago when he was 26, also with a mortgage. The majority of homeowners of every generation have bought their homes with a mortgage.

      We have not mortgaged our lives to the bank, we have borrowed money to buy something we want.

      I’m surprised that you’ve reached the age of 41 without understanding how the world works for the majority and with such a pitiful sense of entitlement that is usually only found in high school kids.

    • George says:

      10:30am | 22/09/12

      Dodgy auctions are only a small part of the matter. Easy credit, nimbyism and massive immigration are the main culprits. The First Home Vendor’s Grant (First Home Buyer’s Grant) for existing builds and stamp duty exemptions are kaput in NSW soon. So that should take house prices down a bit.

    • Mouse says:

      10:39am | 22/09/12

      Yes there is a definite sense of entitlement here, isn’t there.
      Remember James, a house is only worth the dollars that people are willing to pay for it, so the market sets the price, not greedy investors, realtors or sellers.

      I suppose that the generations before you (41 is not a kid either!) had it easy and houses where cheap and they never had to compromise on where they could afford to buy as opposed to where they wanted to buy. I suppose the previous generations also didn’t start with a smaller place initially and expand as their family did.  No, it’s just not fair that you can’t buy in the CBD for the same price as a country property! Bloody greedy investors, they are ruining the country for all of you poor wannabes, pricing you out of the market!  :op

      Honestly James, if at 41,  working full time and living in grungy share-houses, with no dependents or responsibilities, you don’t have the finances to buy your dream home, in the area that you want and with all the perks that go with it, maybe you have been doing something wrong then.  Setting financial goals and sticking to them is not an easy task, but it can be done with preserverance and dedication. Unfortunately though, sometimes you just have to go without to get there.  Life’s a bitch ain’t it!!  lol   :o)

    • averagebloke says:

      11:36am | 22/09/12

      Negative gearing killed the aussie dream stone dead.

    • Alfie says:

      06:30pm | 22/09/12

      Negative gearing was always a furphy. Burdening yourself with debt to reduce tax might be fine if you can: a) afford the risk, and b) assume a reasonable capital gain on the property.

      Many a mug has fallen victim of ‘negative gearing’ .

    • OzTrucker says:

      11:40am | 22/09/12

      What really should be regarded as a criminal offence is the fees the agents charge. Usually more than 10k. For what?

    • Sam says:

      12:21pm | 22/09/12

      That was a good article excpet for where you played the victim.  At 41, you had HEAPS of time to get into the property market.  A you had a decade of adulthood before the last propery boom started.  YOU missed it.  Dont blame anyone else.

    • Nick says:

      12:54pm | 22/09/12

      I don’t know why the author thinks people used to just walk in and buy a home.  We’re in our forties too - my parents had a mortgage from their late twenties until my dad retired, my sisters had mortgages for nearly 20 years and we had one for over 15 - our first house cost $105K and we did a stack of work to double it’s resale value.  We then lost over $80K in the drought, had to move into a city for work security and had a huge mortgage, then were “lucky” and got an inheritance large enough to punch a hole in most of it and our own earnings knocked the rest over.  So in the end we had it a lot easier than my parents although it was still really stressful but with two kids we wanted the security of a stable home for them.  We’ve now got a pot of money saved but aren’t yet sure where we’ll put it long term.

      I think home ownership is more about taking a deep breath and jumping in than anything else.  Some people think it is an investment, and to some extent that’s true in the sense that you can’t be silly, but it’s more about having a home at whatever price you can afford.

    • St. Michael says:

      07:15pm | 22/09/12

      My folks did walk in and buy a home - after 2 years up north, living in a caravan, and working in crapholes like Roebourne and saving up to buy it.  Which, ironically enough, is an option that’s available again today - if you’ve the gumption and the perseverance for it.  There were piss-it-up-against-the-wall types back then, just as there are now.  Nothing changes.

    • Sickemrex says:

      02:29pm | 22/09/12

      41? Wow. I’m 39 and have managed to buy in without too much trouble, on an emergency services wage, having pissed many $$$ up the wall in my 20s. Be buggered if I can work out what the author has been doing for 20 years. Maybe it’s because I don’t feel entitled to art deco St Kilda. But I certainly was in a position to buy in beachside Seaford in the late 90s before succumbing to the charms of Cairns instead.

    • Bear says:

      03:05pm | 22/09/12

      @nick. Because they did. I did.

    • marley says:

      07:31pm | 22/09/12

      @Bear - if you and your parents were able to walk in and plonk cash down to buy houses with no mortgage, then you’re in a different financial world from most of us. 

      My grandparents couldn’t do it in the 40s, my parents couldn’t do it in the 60s,  and I sure as hell couldn’t do it in the 80s.  We all carried mortgages.  I’d be very interested to know how you managed it.

    • Angry Bill says:

      03:34pm | 22/09/12

      Immigration numbers are running at record high levels. It should be no surprise house prices are soaring.  When demand exeeds supply,prices inevitably rise. The electorate should be questioning immigration numbers and the lack of infrastructure.  Politicians seem determined to see future generations of Australian’s live in mega cities, housed in crowded vertical villages with poor air quality and a lower standard of living. Perhaps its time to say enough is enough!

    • Esteban says:

      03:45pm | 22/09/12

      I think we should curb the use of curb in lieu of kerb.

    • 1% enough says:

      04:35pm | 22/09/12

      Being the “winner” of a few auctions myself it always surprised me how people are congratulated,you just paid more than other fool in entire world is prepared to pay.
      I don’t want to give agents to hard a time, they are caught in the middle between some-one who want to sell for the most and some-one who wants to pay the least but I can’t forgive them for those years when I was renting and being treated like a piece of chit, such a contrast these days as an esquire!
      I’ve sold 2 properties in my life,one privately and one on 1% commission, I probably could have got more but I was happy with what I got both times. I never intended to make money out of real estate, just hated paying rent and wanted a roof over my head, i’m a lucky idiot I suppose.
      Property is a bit risky at the moment but it is a long term thing.

    • Tubesteak says:

      04:44pm | 22/09/12

      People that are buying have done their research. They know potential rental returns and the price of similar properties. Doesn’t matter what an agent says. Agents are just there to make sure that most aspects of property law and consumer law are adhered to.

      When I have been looking to buy a place I don’t think anything I’ve looked at was going to auction. They were all me sending in an offer to the agent who took that to the owner.

      I was able to buy a house in my early 30s because I got a real job that paid a good income. This was something I had planned on doing since my teens. Don’t whinge that you don’t get the results because you never put in the effort.

      If you’re 41 then you should be in stable, well-paid employment and this should be in a senior management position. Dont whine because you never earned anything in life.

    • Michael S says:

      07:58pm | 22/09/12

      Housing prices, whether buying or renting, have tripled in real terms in the last 20 years.
      I’m concerned we’re heading into a new feudalism; where today’s property owners will be the ancestors or the landed aristocracy, while the children of today’s renters face a bleak future as serfs.
      If that’s not the future, what will break the cycle?

 

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