Categories

A sample text widget

Etiam pulvinar consectetur dolor sed malesuada. Ut convallis euismod dolor nec pretium. Nunc ut tristique massa.

Nam sodales mi vitae dolor ullamcorper et vulputate enim accumsan. Morbi orci magna, tincidunt vitae molestie nec, molestie at mi. Nulla nulla lorem, suscipit in posuere in, interdum non magna.

Inefficient real estate sales

I have never understood why events such as this happen. 267 apartments were sold in Glen Waverley in 90 minutes for $70m.  It doesn’t seem to me to maximize profits to the developer – charging higher prices and stretching out the period of sale (or using a simple auction procedure) would make more sense.  It isn’t socially efficient either since this queue-based first-in, first served system does not allocate the units to their highest valued uses.

I have heard many explanations but none satisfy me.  Comments welcome particularly from those with real estate expertise.

7 comments to Inefficient real estate sales

  • Domain

    You’re make some glaring assumptions here, mate. You don’t know what relationship and expectations the developer had with the lending institutions and what such things as loans agreements stipulated.

    You have no knowledge on any of these things yet you think the sale process was inefficient.

  • hc

    Possibly but if so very poor contracting. The financiers want their capital back and may insist on a prompt sale but surely they would get their money back if profits were increased.

    The point I am making a general one – why sell quickly?

  • derrida derider

    Yes, Domain, if this happened because of lender’s requirements that just means it was inefficient of the lender, not the developer. Why would any profit maximiser want to sell at less than the market will bear?

  • derrida derider

    Actually, having seen the video I suspect this happened because many of those buyers have some combination of:

    a) being time-poor visitors debarred from buying existing Australian housing and with little knowledge of Australian real estate prices;
    a) wanting a property investment looking more secure than one in their home town (where prices are collapsing);
    b) needing a way to spend money outside the purview of their own tax/corruption authorities; and
    c) wanting a personal bolthole in case they fail to escape that purview.

    It may in fact be clever promotion rather than inefficient selling happening here. I bet the developer hired interpreters for the day.

  • If you wish for to take a great deal from this post then you have to apply such methods to your won weblog.

  • rog

    Off the plan has attractions – one being it gives the buyers time to find the rest of the funds. And for the developer it may be a requirement by the project lender to sell before the next release of funds.

  • 2 tanners

    HC,

    A number of reasons. First the process generates scarcity and urgency, the seller’s best friends. There is no opportunity to bargain on the price, it’s take it or leave it (and get out of my way, my next client is behind you). The $70 million (in my reading) came from the sale of 107 (out of 287) apartments, presumably with the highest priced going first. Quite often this can drag up the prices of the remainder which will be sold over a more extended period.

    The certainty of an already sold block is valuable to a developer as well. It ceases to be a ‘spec’ apartment and enables him to start planning not only the building of the block, but also the next project.

    I’ll bet if you had laid down your $2500 to walk in the door, the hysteria would have been palpable.