The Block crumbling

The television hasn’t been to kind to the housing market recently. Sure the constant re-runs of Location, Location, Location, Selling Homes Australia and Grand Designs have been streaming out of the box, but more recently David Koch has been on breakfast TV informing the masses that housing was not going at all well. This was made worse when he teamed up with SQM research for a second serving of housing doom.

Former RBA Governor Ian Macfarlane has often said that one the bubble symptoms he identified in 2003 was the proliferation of property related television programs. Those with Foxtel certainly would have noticed the slow migration of English real estate TV show hosts to Australian shores as the UK housing market took a nose dive.

This makes me wonder exactly what would happen to the psychology of the bubble in Australia if one of these TV shows turn out to be a complete flop on its concept. It turns out I may not have to wait that long to find out.

The production company behind Channel 9’s hit, The Block, may have bitten off more than it can chew after paying $3.6 million for a row of rundown terraces in Richmond.

As the property market cools, Watercress Productions might struggle to cover the cost of sales and renovations to the houses, which are in the shadow of the troubled Housing Ministry estate.

Watercress bought four Victorian and Edwardian terraces in a row after they passed in at auction in November for $2.85 million.

It also paid $198,000 stamp duty, taking the cost of each house to just under $950,000 before a porcelain tile or glass splashback had been put in place.

JPP Buyers Advocates’ Catherine Cashmore said Watercress would be “very, very lucky to break even” on the deal on sales price alone.

“They are starting high and it’s a very big ask,” Ms Cashmore said.

The irony that Channel 9 may have fallen for their own spruik is certainly not lost on me.

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Comments

  1. Pass the popcorn, this may well be high entertainment.

    Didn’t “The Block” run a loss with it’s last show? I guess they really have fallen for their own spruik – property can only ever go up.

    • The_Mainlander

      They make there money from advertising not real estate.

      It is the eyeballs they are after not the property profit.

      In fact that could be written of as a business expense could it not?

      Drama, drama and more real drama. That is reality TV no fees for actors, just ‘real’ people living the dream.

      This will be fun to watch as they will struggle to break even.

      Hmm do the contestants put any money down as well?

      TM.

  2. A number of possibilities as to why such a show is airing just as the bubble is deflating:
    Producers know that there are ratings in reality shows despite RE prices softening.
    Possibly, one could say Watercress Productions is unconsciously sympathetic to RE agent. When auction day comes around and low prices/passed-in result – this is a message to sellers to drop prices. This helps sales volume.
    Also, possible the Producers are unaware of potential for a number of rogue/stooge buyers (funded by elements within RE lobby?) to deliberately overbid the prices in an attempt to boost public confidence.
    Who knows? Would have to interview the Producer of the program to find out underlying premise of project.

  3. I think this will play ok for them, a loss on the property may well be met with improved ratings. So long as they have their finger thrust into the drama-pie to which the people are addicted, media will win. A property crash would perhaps reduce their RE advertising take, but readership will not suffer. It may even improve. I think it is no coincidence that the media are now building an infatuation for the decline in RE vital signs. And what could be better for reality-ratings than losing money from the bubble and then trying to make the most of the situation on TV. The fans will love it, because they will be either: (a) in the same boat themselves (and hence want to see how others are dealing with minimising the pain), or, (b) having ‘missed out on the bubble’, will be relishing the losses of others being broadcast in coloured moving pixels.

  4. “The irony that Channel 9 may have fallen for their own spruik is certainly not lost on me.” Me either.

  5. The UK “Escape to the Country” showing on primetime Sunday night are a laugh – check the production date – all at the height of the UK bubble.

    The Block is reminiscient of US property shows, explaining how to “flip” houses back in 2005/6 at the height of the US bubble.

    On another note, the proliferation of sub-standard worthless shows on TV is another death knell for conventional competition theory.

    TV in Australia (sans SBS it must be said, and ABC struggling to maintain a similar standard) is a race to the bottom, contrary to the competition theory that states the cream will rise to the top.

    • Yep, the quality really is poor these days. I tuned into the National Geographic channel a couple of nights back and was horrified…..programs about hardened criminals…who cares?
      and nature programs where it’s all about subduing ferocious creatures…depressing.

    • One of the tenants fo conventional competition theory is low to none barriers to entry.

      Whilst being diminished recently, the fees government charges for spectrum bandwidth is extortionately high in Australia (not a unique experience in Australia however).

      The two proponents of this medium that you cite as better quality do not suffer from entry costs or the need to pay dividends. Something in favour of government owned (utility) monopolies perhaps.

    • Absolutely Agree with your sentiments on TV standards. I cannot watch channel 7,9 or 10 as I can no longer stand the constant, mindless advertising, even with the sound muted.

    • “competition theory … states the cream will rise to the top”

      However, the “cream” in this context is measured by efficiency, rather than quality. It is also important to remember that commercial networks are NOT in the business of entertainment–they are in the buisness of procuring audiences for advertising.

      Conventional competition theory predicts that commercial networks will choose programmes based on the greatest ‘bang for the buck’ in attracting advertising revenue–thus they will favour programmes that are (i) popular with target audiences (consumers) and (ii) as cheap as possible.

      On the whole, I’m inclined to think that competition theory is entirely consistent with the cheap, lowest-common-denominator, product-spruiking rubbish that now dominates the commercial networks.

  6. I have always wondered about how successful these shows are/were in terms of the realised return on the renovation? Do they actually include all costs, such as labour, in their assessments?
    Those programs which follow a couple through their renovation and then ask them how much it cost relative to price it sells for are, I suspect, not including the many hundreds/thousands? of hours invested by the couple. I think they focus instead on the cost of contract labour and materials. You could also make a case for the opportunity costs of a functional bathroom foregone during the makeover…etc.
    Programs where all renovations are undertaken by the employees of the media company, supported by contractors should also count the hours spent by those employees on the project….does anyone know if that happens?

    • Russell, I”m sure there are accountants deep within these media organizations who try to point this out to the “powers that be” further up the line, but as the recent West Australian Newspapers/Seven Group merger shows, there is a deficit of intelligence when trying to work out rates of return on employed capital….

      Sadly, its mostly about empire building or a notion of “image”, in my opinion.

    • only a loss of about $260,000

      The Block lost about $260,000:
      http://www.stubbornmule.net/2010/11/do-your-block-in/

      “The entire unrenovated apartment block was bought for $3.4m.
      The total amount spent on renovations (not including the couples’ labour) was $470,000 (including $100,000 on common areas).
      That makes $3.87m. The total sale price was $3.89m.
      So the total profit was a pretty modest $20,000.
      And that doesn’t include stamp duty (about $200,000) or agent’s commission ($78,000 @ 2%) plus, let’s say, legal costs of $2,000.”

      The Block lost about $260,000.

      No doubt this was more than balanced out by ratings and resultant advertisement revenue.

  7. Sandgroper Sceptic

    I am surprised that the Block is still running, I thought the auction failed last time around. These things can rate badly if it reminds everyone that they are losing money on their houses. As I understand it the contestants do not put money up so there is no personal financial trainwreck on display.

    As for TV shows being a signal for business cycles and property cycles, it was in HK. At the top of the market there was some local Cantonese show about some grandmother (Mrs Wong) making oodles of market speculating on Hong Kong property. The moment I heard about it I realised the market was at its peak (1996/97).

    I concur on the worthlessness of our Aus TV. Aside from an hour of ABC Kids in the afternoon to appease the short domestic terrorists it sits turned off in our place as a blank monument to rampant consumerism. My GEN Y mates do not even own tvs which speaks volumes about this entertainment medium.

    • There are some reasonable english-language foreign channels free-to-air on satellite.

      Al Jazeera – Optus C1

      RTV (Russia) – Optus D2
      Press TV (Iran) – Optus D2
      NHK (Japan) – Optus D2

      These stations all have good international news services, and some decent documentaries from time to time. In all cases there is sometimes a slant to the news that reflects the origin of the broadcast, but that’s OK, it gives you a slightly different perspective to the predigested pap we are normally fed.

      Only problem is that Al Jazeera is the pick of the bunch, and it’s on a different satellite to the other three. So if you want to watch all four channels, you need two dishes and a DiSeqc switch.

    • I can say the same here.

      Other than a bit of ABC Kids for the little one, and NRL on a friday night, TV is rarely viewed at our place.

      My wife now tends to stream shows from the net in her native tongue from India more than anything locally.

      • The_Mainlander

        My wife does the same and does not mind the ads in stream which she can skip anyway. Plus there is always bit-comet (torrents) which tick away quietly in the background giving us TV when we want to watch it in fact whole series ad free.

        Commercial TV in Australia is just that commercial.

        That is the cost for Bruce Public.

        TM.

  8. Any one else trip over CH31 “Melbourne property” on Saturday?

    http://melbournepropertytv.com/MPTV2/index.html

    What surprised me was the degree of straight talking to the camera about bubble concerns. And that their financial justification included a detailed cause & effect from the broader economy and mining boom.

    If anyone wants any sound financial advice that they don’t have to pay for……

  9. You’d have to be an intellectual paraplegic to style your investment career on what you see on TV. On the same wavelength “when bellhops start giving you share tips it’s time to quit the market”!

  10. Maybe instead of selling the properties at the end they could instead rent them out. I mean they would probably only be negatively geared to the tune of $30k per year or so, sounds like a winning strategy to me, think about the tax benefits!!

    The real winner from this program is already apparent, that was the vendor that sold the 4 terraces to the production company for $3.6m.

  11. So is this why there’s been a police crackdown on that housing estate? No one wants local junkies piling in on Open Inspection day.

  12. It is probably not a big deal for Channel 9, the auctioning of the properties only occurs at the end of the series, people will still watch the rest of it. And who knows, maybe failed auctions are good for ratings.

    And even if they aren’t, there is nothing stopping channel 9 from employing a couple of fake bidders to take the price up nice and high for the televised auction, only to quietly put the properties on the market at real prices a few months after the show finishes.

  13. michael francis

    I believe Channel 9 have poached ‘The Collectors’ from the ABC and teamed up with Prushka Productions, re-naming the program to ‘The Debt Collectors’.

    Eddy McGuire is going to follow the plight of people chucked out of their houses.

  14. I thought they should paint the block Vitamin C
    Cut the Lemon in half and suck on it before they get a sick rating..

    Could feel better..
    Nice topic your last ,with interest ,and this,a joke to lighten the mind..shows just how sliced Australia really is
    Thanks DE…JR

  15. > On another note, the proliferation of
    > sub-standard worthless shows on TV is
    > another death knell for conventional
    > competition theory.

    Based on the empirical evidence TV production obeys something akin to the Copernicus-Gresham (monetary) Law i.e. bad production drives out good production.

  16. Agree with the comments re: commercial television in this country.
    I cannot watch it anymore. I don’t know about others but it is mostly the fault of that voice over pair on channel ten. The ones that give you the glimpse of the next episode of master chef, or of the tenth rerun of some Steven segal flick. The female voice over is the worst, I dive for the remote whenever she comes on. The missus doesn’t even hear them. It feels like sand in my ears each time it come on. Oh the agony.

  17. Even an ex-real estate agent at work was asking me questions about the bubble a week or so ago. He wanted me to send him some articles about it (I did). Previously he had all but refused to consider that property was overvalued.

    The tide is certainly turning.

  18. Considering Nine pummel the ‘Made in Melbourne’ tag all over this show, negative results in the finale would do a lot to flatten the ‘hot’ Melbourne market. Emperor’s New Clothes, anyone?

  19. Once Channel 9 is done with The Block concept, they can keep the cameras rolling by repackaging it into

    *drumroll*

    The Slum.

    The concept is easy: Move in the drug dealers and other ne’r-do-wells and watch as the lively street theatre of Richmond plays out on our tellies.

    Conceal a stash of heroin.
    Rat on your neighbours.
    Decorate the walls with blood.

    Every week a new challenge!

  20. I watched the end of a series a few years back when they had the auction of the “completed” properties. One of the buyers was a well known property developer/investor from Adelaide, Cathy Pearce. I’m sure she only purchased the property to get her head on TV.

    The funny thing was this transaction could probably be marked down as the commencement of her downfall, a while down the track and numerous court appearances later she was pretty much broke.