Comparable sales vs comparable product

Posted by Roy Azzi

I thought of writing this article after a recent conversation with Fiona, our Client Services Manager, about an upcoming project settlement. The project is amazing! It’s an iconic building in a strong growth area. The challenge we face is that there is nothing remotely similar to compare it to on value. I mentioned to Fiona that valuers will struggle to accurately value the project. A valuer’s sole job is to value a property using comparable sales as evidence for the ‘market value’ they place on a purchase. To make it even more difficult for the valuer, those sales must have occurred in the last three months. The biggest frustration I have with valuations is that they can cause doubt in the minds of investors. Sometimes, people will not invest in a property which actually represents amazing value—solely because of recent comparable sales data which clouds their confidence in their investment.

One example of this was a multi-stage development in the inner-western Melbourne suburb of Footscray. Our clients invested in 90 percent of the properties in stage one, but those who didn’t commit questioned the price which was 10 percent higher than the median for the suburb. Again, it was a case of a far superior project in an area that had very average comparable property. Fast forward a couple of years to settlement and valuations were a mixed bag depending on who was conducting them. 20 percent variation in the valuation of the same apartment was not uncommon. This shows how subjective valuations can be. The larger issue with this is some clients withdrew from their investment after looking at recent nearby sales and thought they were paying too much. In the 18 months since, early resales and valuations for refinancing show six-figure uplift in the value of these apartments – that’s a lot of money! Those who didn’t commit missed out on an amazing property and significant growth.

In a couple of months, the project that prompted this article is due to settle. Just like Footscray, I’m curious to see how valuers will approach it considering it’s significant point of difference. After my visit last week, I’d say there is nothing within three kilometres of this project worthy of reasonable comparison – and that’s just the striking façade. Once the internals are complete, there really will be nothing quite like it. In other words, there will be no comparable product. The building is an iconic masterpiece delivered by ARC3 builders. To be honest, I was blown away with the project as a whole. All you have to do is talk to the locals and listen to their commentary around ‘how gorgeous’ the building is, or ‘this is setting a new standard in the North of Melbourne’. With little to compare it to, my guess is that valuers will err on the side of caution. My tip to you is remember that your valuation, conservative in nature, is not a true reflection of the value of your investment. In the local market, I believe this project would achieve a 10 percent premium on anything else nearby.

We are currently in unprecedented times in terms of lending and market sentiment, so remember not to lose focus on why you invested in in the first place. Buy awesome property, in awesome locations, and there will always be demand in both the rental and sales markets.

Posted by Roy Azzi, on 30th Mar 2021