Discount property opportunities

Depending on how you look at the property market , now could well be a great time to buy.

As the market slows, vendor discounting predictably increases which means that the amount vendors have to discount their property in order to sell is climbing sharply as property value growth stalls and the volume of stock available for sale remains at inflated levels.

Based on the RP Data results, in the current market, volumes have been trending down since around September 2009, while capital gains peaked shortly thereafter. At the same time, vendors have had to offer greater discounts for houses and units since September 2009.

September 2009 was also the last month when the RBA had official interest rates at their recent low levels, from this time to May 2011 the RBA has increased official interest rates by 175 basis points with the first increase occurring in October 2009.

The fact that since the time value growth slowed, volumes trended lower and vendor discounting levels has increased which shows that the market at that point in time was and still is very sensitive to interest rate movements.

During March 2011, property values across the combined capitals fell by -2.1% over the quarter. Sales volumes in February 2011 were -13% lower than February 2010 and vendor discounting was recorded at -6.5% for houses and -6.6% for units.

Across the capitals, vendor discounting levels were varied, however there is a strong trend to indicate that discounting is increasing – Sydney units and Hobart units are the only exceptions.

For houses, vendor discount levels currently vary from -5.3% in Darwin to -7.7% in Brisbane. Across the unit market, Sydney is experiencing the lowest levels of discounting (-4.8%) while Brisbane is recording the greatest discounts (-7.9%).

Figures for the March 2011 quarter confirm that Brisbane is still the nation’s weakest performing capital city. Brisbane vendors have to adjust their asking prices by the greatest amount to sell up.

Generally, the results show that the vast majority of cities have recorded increases in vendor discounting. In comparison to five year average vendor discounting levels: Sydney houses and units, Adelaide units and Perth units are the only cities and property types in which current discount levels are below average.

The message for potential vendors is clear.

If transaction volumes are falling and value growth is limited or continues to fall, buyers won’t need to pay top dollar for properties. Given this, vendors need to question whether or not selling up is the best option based on today’s market conditions.

For potential buyers, the news is much more positive because buyers now hold the power and can really begin to negotiate and pick up a property at a reduced price.

There is a clear correlation between the growth in property values and levels of vendor discounting. Explained simply, over the past five years when values have increased, the level of vendor discounting has decreased and vice versa.

These latest results are to be expected given that when the market is growing there is increased competition for stock and vendors are likely to achieve prices closer to their asking price. Conversely, he said that when there is limited growth, fewer buyers are active and vendors have to become more flexible in their price expectations in order to make a sale.

Note: Vendor discounting simply measures the average difference between the price at which a property is initially advertised for sale at and the price at which it ultimately sells, expressed as a percentage.

Tim Lawless is the Director of Property Research at RP Data.