The block flop

Back in June I noted that Channel 9 had completely overestimated the housing market for this year’s production of “The Block”.

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.

As I asked then:

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.

Well last night was the big night and as expected it was a “complete flop on its concept”:

Josh and Jenna

The first property under the gavel was Jenna and Josh’s, and things got off to a shaky start. Their auctioneer asked for an opening bid of $900k and a call came back: “$750k.” Things didn’t improve and the property was eventually handed in — a stinging blow for the young couple.

Polly and Waz

Next up Polly and Waz faced the buyers’ scrutiny. After an initial bid of $700k the numbers gradually crept upwards. Riotous applause was heard when the $800k threshold was crossed and after $840k the house was officially on the market. The word “sold!” finally rang out at $855k.

Katrina and Amie

Bidding on Katrina and Amie’s house got off at a cracking pace and quickly passed $800k — then ground to a halt. Despite the best efforts of their agent, bids didn’t rise above $822k and the property was passed in. The sisters were bitterly disappointed.

Rod and Tania

Rod and Tania’s was considered by many to be the dark horse that could surprise and the crowd cheered when their auctioneer began, speaking at a dizzying pace. Bids rose in steady $10k jumps — then, in another shocking surprise, things stalled at $832k. Sadly, their property was also passed in.

The winners

Polly and Waz, the couple who began the series with the least renovation experience, took out the major prize — in addition to their profit above the reserve, $15k, they also walked away with $100k in prize money.

To say the others were disappointed is an understatement. But Rod remained philosophical and he was genuinely happy for the winning couple: “Look, that’s just the way things happen. I’m really proud of Waz. He just soaked up the experience and learnt so much. He never complained or caused trouble. He just got on with the job. Well done.”

What a gobsmacking end to a fascinating series. That’s it for 2011 — but watch this space for The Block 2012!

Gobsmacking? Not the word I would use, and I am doubtful we will be seeing a return of the show in 2012 as it has probably been the worst advertisement for the property sector in the history of advertising. It would have certainly cemented in any doubter’s mind that housing is under pressure and “flipping” is on its last legs. Although, ironically, the road accident effect led it to be a huge ratings success. So, we may in fact be treated to the spectacle of such programs tracking the destruction of the market.

If the wipeout on the sales front wasn’t bad enough, it seems that the transactions themselves could be under investigation:

Real estate agents handling the sale of houses on Channel Nine’s DIY renovation hit, The Block, are being investigated for under-quoting the property values.

Inspectors from Victoria’s consumer watchdog seized sales documents and advertising material from the offices of Hocking Stuart, Biggin & Scott, Woodards and Jellis Craig on Thursday.

In Victoria, under-quoting occurs when the property is advertised for less than the agent’s price estimate on the sale authority or less than what the vendor has told the agent they are willing to accept.

The agents, who all denied any wrongdoing to The Sunday Telegraph, face fines of almost $25,000 each if found guilty.

“Consumer Affairs Victoria took a proactive approach to this high-profile sale that has been subject to a lot of media,” CAV spokeswoman Heather Abbott said.

The four Edwardian and Victorian properties, which stand side-by-side in Cameron St, Richmond, went under the hammer last night at an invitation-only event at Fitzroy Town Hall for the show’s grand finale to be aired tonight.

The three single-fronted properties were initially advertised for $800,000 to $880,000 while the double-fronted house was advertised for $900,000 to $990,000.

Those figures raised eyebrows in real estate circles, particularly as one judge, Sydney real estate agent John McGrath, valued them at more than $1 million. Quotes were later removed from advertising.

Biggin & Scott Richmond’s Russell Cambridge, agent for Polly and Waz at 37 Cameron St, denied under-quoting.

“I have no problem whatsoever with Consumer Affairs Victoria reviewing this sale, they will be pleasantly surprised,” Mr Cambridge said.

Given the auction results I suggest that underquoting is the exact opposite of the problem.

Former RBA Governor Ian Macfarlane once said that one of the housing bubble symptoms he identified in 2003 was the proliferation of property related television programs. What does it say if they continue into the bust?

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  1. I’m a sick puppy I know but I found that a very satisfying night of TV viewing. The renovators looked dissapointed but no one really looked surprised.

    Also, reading the twitter feed for the show a couple of people said they recognised some of the bidders as estate agents!

  2. I remember that ridiculous MacFarlane comment. So the housing bubble wasn’t caused after he cut interest rates too low or that he took too long to raise them afterwards. And of course the boosted FHBG from his little buddy JWH had nothing to do with it either. It was TV!

    I guess the persuasive power of TV explains housing bubbles and the fact that teenagers never swear or have sex until after 8:30.

  3. If the housing market continues to be ‘floppy’ like this in Syd and Melb does this mean we’ll see an effective Zero Interest Rate Policy (ZIRP) in this country soon? I know quite a few people who’ll be relieved if interest rates go down instead of up.

    By they way, Richmond must be coming off its peak – a million each would have been right on the money eighteen months ago, now they’re struggling to get 800k.

    • Well there all losses. 3.6 mil + 200k stamp duty + 400k Reno = 4.2 mil

      They have to sell for 1.05 mil each to break even. It is quite possible that we will see a 1 million dollar loss across these properties.

      • I knew it would be a significant loss so thanks for the numbers, but I guess they don’t care given the advertising would probably cover that loss. The question, is will they do it next year if we’re further down the toilet economically?

      • They would be a massive loss for normal investors.


        Nine probably got all the building materials for free via sponsership’s advertising etc… So they would have broken even.

      • werent they always gonna have to pay too much anyways? how many terraces/houses in Melbourne are sale with 3 of its neighbours also up for sale. There was always going to be a premium paying for 4 side by side…

        i wouldnt pay more than 400k for any of them

        • Spot on. They had no choice but to over pay on acquisition. In terms of overall returns the show was probably a resounding success.

  4. It was awesome – closest thing to watching the housing bubble burst live on TV. I had the popcorn out and everything!!!

    Oh sorry, I am not allowed to revel in the misfortune of others am I…

  5. It’s a good warning to would be renovators (or investors) not to buy an inflated house/block for renovation and over capitilise. You are not going to make a profit and you’ll be lucky to break even.

    It did raise a few eyebrows in my circle over dinner when the places where originally bought by Nine. We said for those prices you can already get a renovated place in Richmond for less, and these ones are about to get capital thrown at them.

  6. I want to meet the guy that sold the production company the row of terraces for $3.6million in the first place. He is the big winner here. !!!
    He should of won the $100k first prize.

  7. As soon as there was a 900k vendor bid on the 1st terrace I knew we were in for a train wreck.
    Interesting times in my home town Port Kembla, For Sale signs have been appearing in front of houses faster than wheely bins on a Tuesday night & now we get the Bluescope news today that 800 will be laid off. There are a lot of very expensive knockdown/rebuilds that have been constructed over the last 2 years which are coming onto the market just as it takes a dive.

  8. As per the 2012 version of the show, the rumour is that they have already purchased the four properies they need in South Melbourne.

    It might be even more fun next year!

  9. The irony being that the couple who won the least amount of “rooms” (failing to win more cash for spec upgrades etc.) and appeared to be the most inexperienced as far as “adding value” with design and execution actually won because of that! Obviously having the lowest reserve helped things along slightly but their experience should tell us all the very fact that MB and readers seem to know already…property is overvalued in Australia…that’s all! Those projects were never going to break even let alone make a profit. I agree the entity who sold the four original terraces as they were was the smart one!

  10. jousting sticks

    I only caught half of ACA tonight, but looked like an attempt to positively spin the result. There were some assurances that the properties ‘would sell this week’, there were ‘interested parties’, it was part of ‘the real estate process’. Hard to spin the look on the contestants faces though, tears just have a way of cutting through. And the ‘a waste of time’ comment was gold.