Should property developers process auction rates as part of their research?

Auction rates are among the most important factors to consider when assessing the performance of property markets, but should property developers depend on these data for their major financial decisions?

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This weekend, CoreLogic released a property market indicator which stated that “there were 3,400 homes taken to auction across the combined capital cities this week, returning a preliminary auction clearance rate of 66.9 per cent, overtaking last week as the third busiest week for auctions so far this year”. 

Based on final results, only around 60 per cent of more than 3,300 were held with successful results last week, making it the lowest clearance rate since late 2015. In comparison, over the same week last year, there were 3,398 homes taken to auction across capital cities, with a recorded clearance rate of 73 per cent.

Even Sydney and Melbourne, which see a weekly increase in clearance rates as the largest auction markets in Australia, have experienced their lowest clearance rates for the year last week.

According to Smart Property Investment’s Phil Tarrant: “Once final results are collected, the combined capital city clearance rate tends to revise down, so at this stage, it's looking like the final clearance rate on Thursday will be in the mid- to low-60 per cent range for the sixth week in a row.”

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Should property developers worry?

Eric Brown, who’s already on his way to building his third development project, believes that the current state of auction rates in the country’s property markets won’t necessarily affect property developers like him.

“If you're building quality property, the buyers will come,” he said.

While knowing these data could definitely help in decision-making, it’s more important to know what these trends could mean to you and your own portfolio.

According to Phil: “What does it tell us? It tells us some trends, but what does it mean to me? How is it going to help me do what I need to do better as an investor?”

“You've got to be pretty careful [about analysing] the information you need to be able to make those decisions,” he said.

Being so immersed in collecting data can overwhelm an investor, which could delay or ultimately derail his wealth-creation journey. In order to become a smart property investor, you have to be able to filter all the information you receive and focus only on those that matter based on your personal financial goals as well as your capabilities and limitations.

Eric said: “If you listen to all the data out there, your head just spins around … In the end, I think it leads to procrastination, which is not a good thing.”

Participating in auctions

Even though clearance rates have been on record lows in the past few weeks, property investors need not worry about growing their portfolio—after all, one of the “busiest times of the year” is fast approaching. In the spring, more stocks are expected to come in Australia’s property markets, but investors must still be wary about the possibility of oversupply because “the market is not as hot as it used to be”.

Phil explained: “The problem is that there's not enough stock on the market to shift properties and the properties that are going up for auction aren't moving as much as what they used to—[meaning] either reserves are too high or there's no buyers in the market buying these properties.”

Their advice to property investors: Do your research and don’t limit yourself to capital cities.

According to Eric, there are always “pockets within pockets” that one does not necessarily have to worry about collective data from Sydney or other major capital cities.

“There's so many different microclimates within that data … I [only] like to worry about the suburbs that I'm buying or developing in and focus on them because they're completely different,” he said.

The property investor explained further: “The quality of stock within those microclimates has a massive effect on whether you're successful in selling or buying.”

While Sydney and Melbourne’s auction rates are down, Perth, Adelaide, and Brisbane have seen an increase last weekend—Perth from 27 per cent to 38 per cent, Adelaide from 63 per cent to 67 per cent, and Brisbane from 43 per cent to 57 per cent.

Even if auction rates vary from city to city, property markets almost always present an opportunity to buy for property investors.

Eric said: “The best time to buy is when you're financially able to buy, and with the market flattening off, I think there'll be a few more bargains in the mix.”

While this strategy might work for most, it’s always best to consult a property professional in order to make the best decisions. At the end of the day, it’s always best to keep yourself informed through self-education and mentorship and be able to determine which information you actually need to keep in mind in order to succeed.

According to Phil: “Every market presents opportunities, so if you're ready to buy ... make sure your finance [is] ready and go for it.”

“Don't get too confused with all the data out there. Make yourself informed, know what data you need to know about,” he concluded.

Tune in to Eric Brown’s episode on The Smart Property Investment Show to know more about how his most recent purchase of a warehouse is performing two months on. 

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