Paperturn version MARKET NEWS Year Book 24 revised - Flipbook - Page 4
Insights
Buffetting the market
Today’s market feels reminiscent of 2014.
We’ve seen a period of stagnation, and now, people are
becoming a little apprehensive, especially at the Top End.
I
n times like these, price becomes
the key focus—stronger than any
brand or marketing effort.
Buyers are looking for a
bargain, but the question remains:
what exactly is a bargain?
If Warren Buffett were shopping
for a Top End Melbourne home, his
advice would be clear:
Rule #1: Don’t lose money.
Rule #2: Re-read Rule #1.
Here’s a breakdown of what
that may mean in today’s market,
couched in our PPPs and with
apologies if I am putting words into
Warren’s mouth:
1. Intrinsic Value - Price
Buffett would tell you to buy below
intrinsic value. With Melbourne’s
market cooling, some properties
are temporarily undervalued due to
broader economic factors. These
could be your golden opportunity.
When buying a property, always
think long term. After a downturn,
prime locations bounce back far
stronger than fringe suburbs.
3. Long-Term Durability of Property
A quality home or Property will
stand the test of time. Buffett,
I think, would focus on properties
with unique, lasting qualities—scarce
land, historical charm, or architectural
significance. These features give
properties staying power in any
market.
“Our favourite holding period
is forever.” W.B.
You want a home with intrinsic
durability, something that will appeal
in any market, not just today’s.
“Price is what you pay. Value is what
you get.” W.B.
In real estate, this could mean
identifying properties where the
market price is temporarily below the
long-term potential value, offering an
opportunity to buy at a discount.
Intrinsic value refers to the true,
underlying worth of an home, independent of its current market price.
2. Position Still Reigns Supreme
Buffett is a firm believer in location.
Focus on Melbourne’s areas with
enduring demand and growth
potential. It’s the classic inner-suburb
vs. fringe battle, and history has
shown that inner areas like Toorak,
Hawthorn, Brighton, and Albert Park
are resilient.
4. Risk Management is also a Key
Buffett is known for his conservative approach to risk, and avoiding
over-leverage is crucial in a falling
market. Financing a top-end home
might seem tempting, but keeping
debt minimal reduces your exposure
to market fluctuations is important.
“You only find out who is swimming
naked when the tide goes out.” W.B.
So, what are the good criteria for
buying a family home as a property
investment? When it comes to
making money real estate, making
money on your family home, I think
of three foundational elements:
5. Capital Growth, Cash Flow & Risk
And for me, it’s all about land.
Land with growth potential
reduces your risk while maximising
your investment (and it’s fun for the
children to run around on).
High Land-to-Price Ratio: The closer
to a 100% land value, the better the
investment. Apartments, for instance,
typically have only 10% land value—
the rest is tied to a building that
depreciates, like a car losing value the
moment you drive it off the lot. Some
new homes on smaller land are not
much better than apartments regarding
investments with capital growth.
Heritage Properties: If the land value
approaches 100%, even properties
with a heritage overlay can be
worthwhile. Large parcels of land
are always in demand, especially
in an upmarket, and heritage can
sometimes mean a built-in discount
if you know how to approach it.
Give me a big parcel of heritage
land with a home I can live in
without renovation over a heritage-free,
smaller block of land with a “Balwyn
faux special” or a brand-new home of
average quality, and the heritage home
wins every time for long term value.
Buffett’s approach to real estate,
in my mind, is clear: buy for value,
not for price, and focus on properties
that will appreciate over the long
haul. If you apply this thinking to
your next purchase, you won’t just
be chasing a bargain—you’ll be
making a smart investment.
