If anyone needed proof of the unique Australian obsession with property as a method of quick capital gain, they need look no further than hit TV show "The Block."

As most people know, the reality show pits contestants against each other to renovate - and subsequently flip - properties, hopefully for a decent return. This year, the show has chosen Melbourne as a location, with host Scottie Cam claiming in one episode that Melbourne was rated one of the world's hottest property markets. But three of the four houses featured on "The Block" failed to sell at auction, with the lowest-priced property the only one to get above reserve.

SQM Research managing director Louis Christopher hotly contests the positioning of Melbourne as one of the world's hottest markets.

"Rated by who? By them, of course. That's rubbish. Melbourne's one of the coolest markets right now. It's on all the official data. APM, ABS and RP Data all say the same thing: that house prices are falling in Melbourne," Christopher said.

Christopher believes the market faces some serious challenges. With auction clearance rates consistently below 60 percent and around 43,000 houses sitting on the market, Christopher said demand in Melbourne has disappeared. The overhang of stock in Melbourne, Christopher commented, is larger than during the GFC. Vendors, though, have yet to adjust to the selling environment.

"It's a great mistake to try to sell above the market right now. A lot of vendors are being frustrated at this point in time," he said. "A lot of stock on market is not selling. It's just piling up. Lots of vendors are still trying to sell at an inflated asking price. That's meant less sales have been achieved."

A stagnant market

MPA Top 100 Broker Mario Borg of Mortgage Achievers in Melbourne has witnessed this oversupply firsthand.

"It's all about supply and demand. At the moment the market is in equilibrium, and to that end capital growth has stagnated," he commented.

Borg is optimistic that the stagnation will pass as buyers regain confidence and re-enter the market.

"I see slow growth for a little while with a pickup in demand and prices by this time next year. If interest rates are reduced, then this will happen sooner. Fear is holding back the market, but this will pass, just like every other time in the past," he said.

Christopher, however, does not believe recovery will come so quickly.

"It's going to take a while to clear this overhang. We'll need a sudden increase in demand to absorb it all. We saw a little bit of this back in '08 when Sydney had a bit of overhang. It went very quickly as buyers snapped up some properties and sellers took others off the market," he remarked.

But clearing this overhang will require vendors to either readjust their expectations, or remove stock from the market. Until this happens, Christopher said many vendors are clogging the market with overpriced stock.

"Vendors who really aren't that keen to sell and have properties listed above the market are foolish, because they're wasting everyone's time and money. They'd be far better off either meeting the market or withdrawing their property," Christopher commented.

Big money scarce


Develop and Invest director Andrew Brumby, also an MPA Top 100 Broker, said vendors at the upper end of the market are having the most difficulty attracting buyers.

"The top end - $2 million-plus - has been affected the most. We hear stories of property sold at $5 million two years ago, and [it] can't get anywhere near that now," Brumby stated.

Christopher agreed, saying the $1 million-plus segment of the market has been hit hardest. This is the market segment Nine was banking on for its houses on "The Block," reportedly shelling out $3.6 million for the four Richmond properties. While the network no doubt recouped its costs many times over in advertising dollars, everyday vendors expecting big prices may find themselves sorely disappointed. With increased buyer access to valuation and research tools, Christopher said Melbourne vendors can no longer get away with inflated asking prices.

"The days of finding some poor sucker to pay an inflated asking price are gone," he said.

Melbourne's days as the hottest property market in the world seem to be well and truly behind it for now.