The PROPERTY DOCTORS, Sydney Australia Novak Properties

EP. 1454 HOW MANY UNITS IS TOO MANY IN YOUR SUBURB! DEPTH OF MARKET

• Mark Novak, Michael Burgio • Season 51 • Episode 1454

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Ever wonder why some properties sell for premium prices while seemingly identical ones struggle to find buyers? The answer often lies in a concept real estate professionals call "depth of market" – and it might be the most underappreciated factor in property pricing today.

Depth of market refers to the absorption rate of properties in a specific area – literally how many units a suburb can sell each month. Whether you're a developer planning your next project or a homeowner timing your sale, understanding this concept can have more impact on your bottom line than broader market trends.

Through our memorable "banana analogy," we illustrate why even the most attractive discount won't move excess inventory when demand remains constant. We explore why developers must strategically stage sales across pre-construction, building, and completion phases rather than flooding markets with inventory. For property owners, we reveal why new development projects might actually boost your second-hand property's value by creating a price ceiling and value perception in buyers' minds.

The most fascinating insight? Timing your property sale when similar properties are scarce can net you significantly higher returns – we call this the "banana bump." Just as Rolex masterfully creates artificial scarcity to maintain premium pricing, property sellers can leverage market depth knowledge to maximise returns. Listen now to discover how understanding depth of market could be your key to smarter property decisions and superior financial outcomes.

Speaker 1:

Guys, discussion off the back of yesterday with developers. We deal with all spectrum of developers big developers, little developers and often we're educating them on our market. Depth of market was a topic we had yesterday to talk about our area. It applies to all areas. You've got to know what this means because it makes you money. Depth of market.

Speaker 2:

Stay tuned. Welcome to Morning Minutes Myself, michael Bergio, mark Novak. Episode 1454, jamming in the background. Depth of market is the topic today. I think it's a really important topic and, as Mark said in, and especially when it comes to developers, is the amount of, let's say, units that suburb can sell each month, month to month, and where this is very important. For example, if you've got a suburb where you're typically typically selling three units a month and then you have a developer who's building a 40 store, 40 unit development and their idea is, oh, we'll just sell them at the end, that's going to be very difficult when the uptake per month is normally three and you're going to try and expect to sell 40. So depth of market is very important.

Speaker 1:

Mark, take it away yeah, I think if you want to. I liken it to bananas and like if your family's eating five bananas a week and you're ordering five bananas a week and suddenly 50 bananas turn up to your family in the shop and they're really, really cheap, would you buy them? The answer is probably no because you're thinking to yourself well, I have no need for 50 bananas. It works like that for property on a massive scale. If you look at dy, for instance, we may trade 550 units, a which is bigger than sydney cbd. In a typical year 550 units would trade.

Speaker 1:

Now what happens when a meritan comes along with 360 units and simply wants to sell them in that year? There's not enough depth of market. Doesn't matter how well you discount those products, it just won't sell at a decent price when you're with discounting. There just won't be that take-up because there's not that depth of market. So say it's 550 units a year, that's maybe 45 units a month. If you're trying to sell your 360 units, you've just got to accept that you're probably going to do 10 a month but you're not going to be doing 50 a month. You're not doubling the volume into that marketplace and this is very important.

Speaker 2:

Like dy is a is really a great suburb for developments because that that depth of market is massive. Like we're looking at other developments in monoval, narrowbean, where there is only single digit apartments selling per month and some developers looking to do the bigger developments, because it's always that catch 22 rule of thumb is you get more for your property once a buyer can walk through it, once the development is built. But if the depth of market is single digits and you have a large volume same with your banana example you're only going to if they, only if the family only needs five, you might be able to entice them to buy eight if you're giving them a discount, but if you need to get rid of 50, it's not going to work. So therefore you have to stage the selling through before the building has started, during construction and then at the end as well, which is why it's very important Stage and discount.

Speaker 1:

Stage and discount. People simply don't need um, so you know whether the existing stock gets gets discounted or the new stock gets discounted in, the marketplace is going to be discounting when there's more stock being dropped in suburbs.

Speaker 2:

fact yeah, and that's like what we say to developers. There's like a price list, but then there's a selling stage and a selling price list as well. There's some units you more, you want to sell sooner rather than later. And then we all know there's some of those hero units in every development. They may have the great view, they may have the great courtyard, the access. There tend to be ones. If you've only got 10 to sell at the end, then you want to make them your best 10, which is very important and people think it's actually the amount of.

Speaker 1:

It's the amount of units in that suburb. So they're going oh my god, I've got a thousand units in my suburb and now there's going to be 2 000 units over the next couple of years. I'm actually not that concerned with the two, with the extra thousand units coming into the suburb. I I would be more concerned as a developer and I would be more concerned as a landowner and a buyer on that flow hitting the market, which is what we're talking about today. That depth of market. That's what I'll be concerned with, because you can see now that once Merit and DY has locked in, everyone's moved in. It's the markets really stabilized and those are shit hot, expensive units now because you just can't get one in there anymore. So there's the fact that there's more units in dy doesn't really matter, but the fact of when they were dropping that supply into the market, that's.

Speaker 2:

That's what you really got to watch out for, guys and I think if you have a second-hand apartment, a lot of the time when there's new stock on the market it actually works in your favor, especially with build cost and everything being so expensive.

Speaker 2:

Like, let's face it, these new apartments are the cream of the crop, are the most expensive in each asset class and a lot of the time it can make a buyer take a step, bang going okay, I'll buy second hand that looks like more value. And when they can see, let's say, for a one bedroom, uh, a new one comes out at a million dollars and you were at 800. There's 200 grand of growth there as well and fluctuation where, if that one million new property wasn't on creating that glass ceiling for buyers, they may think 850 is too much, 820, 880 is too much to pay for your property. But when they see a million dollars over there, they go well. If you get in a bit of a bidding war or the price goes up, they're okay with it because it's still better than the next option. So a lot of the time it can work in your favor.

Speaker 1:

Um, selling second hand alongside brand new so how would you make money out of depth of market? When, now that we've talked, now that we explained depth of market, what's an example where we'd make money from, where a buyer would make money from that?

Speaker 2:

where? Oh, and this is what I said, the great thing I said before we got on air Knowing the depth of market can have more of an influence than the market on the price of your property. And I had this with my brother I was chatting to him about he's got one of those duplex houses which is single level. He's got the front and backyard and then a two bedroom upstairs, owned separately but effectively he's got that single house level. Feel. So, a buyer who's by looking at his property, is also looking at single level homes. Now, with depth of market, if there is 10 single level homes who aren't duplexes on the market, then that's going to impact him more because that single level home buyer will choose a property that doesn't have an external property upstairs. But if you can pick the market when there's one or no other single level homes on the market and all those single level buyers are going to be looking at floors, that could create some competition with buyers and have a bigger influence on the price.

Speaker 2:

Knowing the market, knowing when's a good time and a bad time and or when it is saturated because we see a consistent amount of people looking to buy throughout the month so, just like you said there may be 45 properties selling a month. There may only be 55 buyers. So there there is. There. There is that curve where there's almost too many properties on the market and buyers have that um bidding war like they're. They're pitting properties against each other because they've got so much choice. Exactly. So I think it's recognizing what what else is on the market and knowing a lot of time. The buyer doesn't need to do this, but it's up to the agent, but not the buyer. The seller doesn't need to do this, it's the agent doing it for you. But as a buyer you should be, because a lot of time you're representing yourself. You should be aware of this as well.

Speaker 1:

And I guess that works for the rental market as well.

Speaker 2:

Depth of market applies to the rental market we see it all the time in the boarding house, in the studio apartment games, where we have a block of 30 studio apartments. When we only have one come up for lease, we get a hero price. We let's say it's 450, but when we have three of them we're likely renting them for 400 425 because there's only a certain amount of people and you don't want it having empty on an extended time period.

Speaker 1:

Did you see that what I sent you about watches, on Rolex watches, when you go into their shop and they don't have any for sale.

Speaker 2:

Yes, it's one of the weirdest things in the market and you wonder how they in business, but it just shows our society loves the fluff, scarcity, and is that depth of market? They're controlling depth of market. Yes, they're controlling it. So, guys and girls.

Speaker 1:

You can find this on Insta. It's really interesting to watch. There's a guy that goes all around the world and walks into all of the rolex stores, um, and says I want to buy rolex and every single person behind the counter says don't have it, don't have anything. You know, I've, I've done it. I don't have that for sale, I don't have this for sale, I don't have that for sale. That's don't have this for sale, I don't have that for sale. That's a really hard one to get. That's a limited collection and they never have what he wants all around the world and for what he asks for. So they're almost controlling that depth of market. It's not like you want one of those. We've got 20 here today. Have the 19th of 20. Watch, it's like scarcity. So depth of market is very, very important. If you've got too much, you're gonna you're gonna tank your market, as you know, badly as well as as a seller.

Speaker 2:

It's amazing. I think in that clip it's like rolex made 1.3 million watches and then you got this guy walking into every store trying to buy one, not being able to. He's like well, how did they sell these? Or they sold 1.3 million. He's like how to who? If it was any other company, you'd think it's some type of bloody ponzi scheme or laundry like money laundering or maybe it is yeah, yeah, it's that it's that thing, but you can benefit from it.

Speaker 1:

I think that you know what. I think that, michael, that's what you call off-the-plan buying or off-the-plan value. I think that's where you're getting value with off-the-plan. If you're buying into a suburb where there's scarcity of stock and suddenly there's a new building and then after that is scarcity of stock again, that's when you're actually getting discounted stock. When you're buying um off the plant because it's there's too many of those of those stock um coming on the market, you buy one, you buy one cheaper because they're discounting. Then when you go to sell it, there's none of them on the market. You get a bump. I call it the banana bump.

Speaker 1:

But um, we saw it in jubilee in warrywood. You know those we got for the exact same town, exact same warehouse. We got 150 000 more um. So we had, we had like eight for sale. They're all like one, one, one, one, one, one, one, one, one, one. All sold out except for one more. The one more that we had went for 125, went for the 150 grand more a couple of weeks later and it was like what the hell happened there.

Speaker 2:

Yeah, and it's like with that's where, yeah, depth of market can influence pricing more than the market.

Speaker 1:

There you go. Well, have a great day. Mr Berger, you too, mr Norlack. All right, depth of market. Hope that helped you guys out there. Love you, see you Bye.