Bank sales on the rise, prices discounted by more than 50%

The situation in Karratha – a mining town in the Pilbara region of Western Australia – has been dire since the market peaked in 2011, and Mr Waters, director of Realmark Karratha, concedes that mortgagee in possession sales have increased in the past year.

“I would estimate, and this is a pure estimation only from what I’ve seen on the market, probably 10 to 15 per cent of property that is available for sale is bank sold by mortgagee in possession, potentially a little bit more. That’s obviously quite high for any area but to put that in perspective, we’re talking maybe 15-20 at any one time available out of 200 properties,” Mr Waters explained.

Last week, rival estate agent David Hipworth, principal of LJ Hooker Karratha, told the Australian Financial Review that he would get “two to three phone calls a week looking for us to value a property for mortgagee in possession”.

On top of that, the market has been grappling with the prospect of seeing 2011 prices – when the market was at its peak – reduced by 50 per cent or more.

“In some instances it’s more than 50 per cent, especially where we’ve got a case of the property being quite old, or maybe if it’s a highly desirable property but it’s sold for a higher price in the boom because of the value that it was achieving through the rent – as we know, back then, properties were basically commodities,” Mr Waters said.

“Those are the prices that we’ve seen discounted the most and in some cases even greater than 50 per cent – I’d say up to 60 per cent.”

But the dramatic price declines and increase in bank sales could be strengthening buyer confidence in the owner-occupier market, as vendors face up to realities of a dramatically different market, according to Mr Waters.

“I don’t think it’s really impacting confidence, I actually think it’s opening opportunities, we are seeing a lot more people actually having an interest in purchasing if it’s a mortgagee in possession property. Obviously, there’s that perception that they’re going to get a great deal which in some cases they are. So I wouldn’t necessarily say that it’s been a negative, at first, maybe 12 months ago when there were a few more bank sales popping up, definitely buyers were a bit more nervous about where the market was heading but prices were also a lot higher. Now with the bank sales, they know that the banks have to sell,” he explained.

“If you look at last year’s transactions, the number of transactions in the Karratha area for 2015 versus 2014 was up by about 43 per cent. So there were 43 per cent more transactions in 2015 than there were in 2014, so that tells me that things are improving transactionally.”

But investors looking to scoop up a bargain, be it through a mortgagee in possession sale or a highly discounted vendor sale, should still be realistic about the prospects of Australia’s mining towns, according to CoreLogic RP Data research analyst Cameron Kusher.

“I think we’re still a fair way off any sort of rises in most of these markets. The commodities price is still falling; there’s not the same level of investment in that sector at the moment; there’s not a growing need for workers in a lot of the mining areas, and that’s really what fuelled the strong growth in housing between 2005 and the last few years – the fact that there was not enough housing, there was a shortage and a huge amount of demand for it,” he explained.

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