Post to Facebook on 12/11/2018 at 1:26 PM
Commenting on “Four first home buyers fight for Footscray apartment at auction”
https://www.domain.com.au/news/four-first-home-buyers-fight-for-footscray-apartment-at-auction-782489/
Should you do the same as this young couple, stretching the budget to get the apartment?
In my opinion (IMO), the short answer is NO, unless you have a budget with a plus 5% tolerance. It is not desirable to have a budget and not stick with it, especially at an auction. It is different to buy in a private sale or private treaty, which allows you 3 business days to cool off. Should you decide it is a financial risk or too much of a burden, and you may pull out within the period, but suffer a penalty of $100 or 0.2% of the purchase price, whichever is greater.
One simple question you may want to ask is why do other bidders pull out? Why don’t they want to pay above reserved price? Well, one answer is that you see value that they don’t. It could also be that you are too emotional, blinded by the hype or not familiar with the market.
The sales record of this property is without doubt amazing. The property started from $50,000 in 1994, sold the year after at $74,500. The vendor of the property was purchased in 1999, at $165,000. In 19 years, it jumps to $587,000, or 3.55 times the purchase price or 11.74 times of 1994 price.
One reason for the low price in early days is that Footscray was a working class suburb with factories and warehouses close by. The close proximity of the shipping dock also made Footscray a thoroughfare of trucks.
The suburb was originally dominated by Italians, Greeks and Yugoslavs, but the demographics changed with the mess arrival of Vietnamese and South Africans. Footscray also has many Indians who moved from Dandenong. The newer migrants transformed the once run down, sleepy suburb into a multicultural shopping hub.
Closure of factories and just about 5 km from CBD have made Footscray attractive to many house hunters. In fact I witnessed the transformation took place, because I used to market and deliver cakes to a couple of customers in the mid-80s to early 90s.
Once again, the price jump is due to the Asian influence. Will it jump further at such big rate in the future? My crystal ball tells me it will not, especially the apartment or more precisely known as flat will get older and older, and more maintenance headache will set in.
Many of the houses in Footscray are small and due for demolition. If Melbourne population grows a lot more and at greater rate, developers will be attracted to this suburb. In order to make a comparison of Footscray future, we can take a page from Richmond and Springvale where Vietnamese are very visible and dominant. Even with a big migrant influx, Footscray is not affordable, and price jump is very unlikely.
The following paragraphs estimate the financial commitment incurs for the winning bid:
An additional $27,000 over the reserved of $560,000 is close to over 4.8%. If borrowed that amount at 4% over 20 years paying principal and interest, the extra interest is about $12,200. The additional monthly repayment is about $165.
Assuming the couple has 20% equity and borrow 80% of $587,000, as a first home buyer, stamp duty $30,290 is exempted, but other charges like lender mortgage insurance, transfer fee or other incidental amount to $10,588.
Thank you for reading.
Commenting on “Four first home buyers fight for Footscray apartment at auction”
https://www.domain.com.au/news/four-first-home-buyers-fight-for-footscray-apartment-at-auction-782489/
Should you do the same as this young couple, stretching the budget to get the apartment?
In my opinion (IMO), the short answer is NO, unless you have a budget with a plus 5% tolerance. It is not desirable to have a budget and not stick with it, especially at an auction. It is different to buy in a private sale or private treaty, which allows you 3 business days to cool off. Should you decide it is a financial risk or too much of a burden, and you may pull out within the period, but suffer a penalty of $100 or 0.2% of the purchase price, whichever is greater.
One simple question you may want to ask is why do other bidders pull out? Why don’t they want to pay above reserved price? Well, one answer is that you see value that they don’t. It could also be that you are too emotional, blinded by the hype or not familiar with the market.
The sales record of this property is without doubt amazing. The property started from $50,000 in 1994, sold the year after at $74,500. The vendor of the property was purchased in 1999, at $165,000. In 19 years, it jumps to $587,000, or 3.55 times the purchase price or 11.74 times of 1994 price.
One reason for the low price in early days is that Footscray was a working class suburb with factories and warehouses close by. The close proximity of the shipping dock also made Footscray a thoroughfare of trucks.
The suburb was originally dominated by Italians, Greeks and Yugoslavs, but the demographics changed with the mess arrival of Vietnamese and South Africans. Footscray also has many Indians who moved from Dandenong. The newer migrants transformed the once run down, sleepy suburb into a multicultural shopping hub.
Closure of factories and just about 5 km from CBD have made Footscray attractive to many house hunters. In fact I witnessed the transformation took place, because I used to market and deliver cakes to a couple of customers in the mid-80s to early 90s.
Once again, the price jump is due to the Asian influence. Will it jump further at such big rate in the future? My crystal ball tells me it will not, especially the apartment or more precisely known as flat will get older and older, and more maintenance headache will set in.
Many of the houses in Footscray are small and due for demolition. If Melbourne population grows a lot more and at greater rate, developers will be attracted to this suburb. In order to make a comparison of Footscray future, we can take a page from Richmond and Springvale where Vietnamese are very visible and dominant. Even with a big migrant influx, Footscray is not affordable, and price jump is very unlikely.
The following paragraphs estimate the financial commitment incurs for the winning bid:
An additional $27,000 over the reserved of $560,000 is close to over 4.8%. If borrowed that amount at 4% over 20 years paying principal and interest, the extra interest is about $12,200. The additional monthly repayment is about $165.
Assuming the couple has 20% equity and borrow 80% of $587,000, as a first home buyer, stamp duty $30,290 is exempted, but other charges like lender mortgage insurance, transfer fee or other incidental amount to $10,588.
Thank you for reading.
