The Block: faux or real profit?

The Block: faux or real profit?

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What we all saw from The Block auctions, buying and selling property comes down to the same things time and time again: location and demand.

The Block’s Sunday auctions highlighted the very large range in capabilities of the auctioneers. A much more effective way would be to appoint one auctioneer to conduct all auctions; allowing consistency of approach with each auction. Although a live auction probably creates the most drama and is best for television, an Expressions of Interest campaign or Formal Tender may have been the best way of achieving a more consistent outcome.

Everyone has their opinion of what went wrong for the teams that didn’t make a large profit on their sale, but what if the new owners want to try and sell for a profit?

Looking back over the seasons, every property from season one and two, except one, and a few from season three and four, has been re-sold since purchased at The Block auction.

We decided to dig a bit further and unearthed some interesting facts.

Since season one in 2003, 10 of the properties bought on The Block auction night have been re-sold. Of the 10 re-sellers, three did not make a profit. Two of them had a $100,000 or more negative price difference; indicating immediate profit loss.      

In season two, two out of the four houses were re-sold at a price that is lower than the suburb median price. Furthermore owners of  4/77 Whistler St, Manly NSW did not make a profit, selling the property for the exact same price as when bought at auction.

The same can be found for houses bought in auction in season four, with the property at 43 Cameron St, Richmond VIC sold at 9.75 per cent lower than suburb median price for houses of the same characteristics.

So what can we conclude from the data?  

a) The four season one (2003) properties in Bondi Beach, NSW, were, on average, purchased at auction at a price 32.66 per cent higher than the suburb median. They were then resold at a price 18.71 per cent higher than the suburb median.

b) Season two's (2004) four properties in Manly, NSW, were, on average, purchased at auction at a price 0.76 per cent higher than the suburb median. They were then sold at a price 0.55 per cent lower than the suburb median.

At first glance, you’re probably thinking a profit is a profit. However, when you consider the entry and exit costs, and compare the median price at time of the auction and at the time of the re-sale, based on properties of similar nature (i.e. one bed, one bath), you’ll see that relative to the market when purchased; profit isn’t maximised.

If they were, on average, bought at 7.26 per cent higher than suburb median and re-sold at 5.22 per cent higher price than suburb median, there is a loss in profit based on the price originally paid.

Just about every owner of a 'Block' property may find this analysis helpful as seasons seven and nine were the only times where the properties sold above the median suburb price at the time of the auction.

Note: Analysis is based on available data through PriceFinder and RPData, and is meant as commentary and not intended as investor advice.

Tony Brasier is the chairman and managing director of PRDnationwide, a wholly-owned subsidiary of Colliers International, where he is responsible for the growth and strategic direction of the Australian business. He was the CEO and chairman of Colliers International Holdings (Australia) Limited between 1999 and 2009.

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