The structure of the housing market in Sydney
The demand for housing in Sidney greatly outweighs the supply as Johnston, (2003) says. This trend is attributed to increased international immigration and reduced interstate movement of people and is expected to adopt this trend in the future. The population is growing steadily in New South Wales for the last decade; however, the housing supply has not been able keep up.
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It is projected by the Australian Bureau of Statistics (ABS) that by 2020, NSW will have 412,300 more households who will be in need of homes (Center for Affordable Housing, 2010). This leaves the market very fragmented and the choice of where to invest very important.
The housing market structure in Sydney is characterized by a number of factors such as the number of investment firms, market share of the large firms, product differentiation, diversity of buyers and renters among others which affect the price and competition for housing in the city. This market has the characteristics of an oligopoly where the industry players set the prices for houses for rental or for home owners.
The major players in the market are the private developers on one hand who operate on maximizing profits and the government agencies such as the State property Authority and not-for-profit agencies who mainly provide housing to the lower income brackets.
There are also barriers to entering the market especially for private developers such as the 2009 planning laws which extends the period for approving new buildings and new assessment procedures for development proposals, which favored the government and not for profit agencies, and curtailed the private developers (Battenbough, 2009).
Another barrier to new entrants in the market is the prohibitive land tax, stamp duty and infrastructure charges. The housing products also are differentiated as they range in low rent to prime properties which fetch high prices (Center for Affordable Housing, 2010).
Characterize the real estate auctions
The residential and rural property auctions in New South Wales are regulated by the government’ Fair Trading Agency and stipulated laws must be followed in the auctioning process. In order to buy a property in Sidney through auction, one must produce proof of identity during registration for bidding and an address.
If jointly buying a property with another person, be it a partner or a spouse, only one participates in the bidding. If a person is representing another or a company adequate authorization from the person one is representing or the company must be produced during registration (Australian Residential property Planners, 2011).
During the auction, the person who makes the highest bid is the purchaser, but will have to pay any reserve price the auctioneer may have. During these events, only one price is made by the vendor on behalf of the person or company selling the property, and he/she must announce during the bidding process when he is making a vendor bid will only accept a price that is in the interest of the seller of the property.
If a person makes a bid after the fall of the hammer, no matter how good it is the vendor has no authority to accept it. It is also illegal to make a dummy bid or to collude in the auction process, and such a crime is punishable by law with a fine of up to $55,000 to the person who made the dummy bid and a similar fine for the seller colluding, and also the agent if they are found guilty (McHale, 2007).
Sold prior to auction process
Many property buyers are unwilling to participate in an auction, maybe it is because they will be unavailable or simply they are afraid of the tension, and stress that go with auctions. They may also be unwilling to participate because they cannot be able to control the outcome, but they offer serious money for the property during the auction marketing period.
Under these conditions, if the agent does not have any other offer to match this buyer, the agent will sell the property before going to the auction. Contracts are exchanged just as it would have been in the auction in order to justify calling off the auction and locking other bidders out of the race (Boyd, 2010).
Some property experts recommend accepting a “sold prior to auction’ option if the property is not on such a prime street, or area since it faces a lot of competition from other attractive buyers prior to action for those who want to acquire a very attractive property that has created a lot of excitement (Australian Residential property Planners, 2011).
Recommendation to improve the regulation of auctions in the real estate market in NSW
The auction process of property in Australia is an important tool in stabilizing supply and demand in order to establish prices for property as Boyd, (2010) says. This has the ability to impact on the whole economy and; therefore, there is a need to efficiently regulate auction selling. This will start by increasing confidence in the process among the consumers by ensuring that both buyers and sellers are protected from unfair and anticompetitive practices in the auctions.
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In order to ensure auction selling achieves this, the government should put it as a requirement that agents and sellers provide all the details of the property in the public domain of all properties being put up for sale so that prospective buyers know what they are buying. Again adequate measures should be put in place in the auctioning room to monitor and deal with lot splitting or auction rings and appropriate punishment is implemented for the culprits (McHale, 2007).
Australian Residential property Planners, 2011. Sydney Property Investment Overview. [Online] Web.
Battenbough, G., 2009. Private developer Face Planning Discrimination. Architecture and design, pp. 1-25.
Boyd, C., 2010. Close the Deal Before its Hammer Time. The sydney morning herald, pp. 14-36.
Center for Affordable Housing, 2010. Step 2 – Understanding the Housing Market. [Online] Available at: https://www.facs.nsw.gov.au/housing
Johnston, C., 2003. Land Supply and Housing Affordability-a background paper. Sydney: Shelter New South Wales.
McHale, S., 2007. Review of the Auction Sales Act 1973. Sydney: Department of Consumer and Employment Protection.