Is The Block a flop...?
Updated: Jun 29, 2022
Few asset classes enjoy as much media attention in Australia as residential real estate, and for good reason. Season 17 of Channel 9’s series The Block ended in November 2021, with some eye-watering auction results that caused us to question “Are reality TV properties a good investment?” so for a bit of fun, we thought we would test it.
Our analysis suggests that the average property on The Block appreciated in value by 12% compared to 19% for the residential market over a 3-year period. In other words, properties auctioned on The Block underperformed the benchmark residential property index by 7% in the short term.
In the long-term, however, we observe a reversal of this outcome. By taking into consideration only the second and subsequent sales of each property, The Block properties outperformed the residential property market by a whopping 21% over an 11-year period.
So why do The Block properties perform worse in the short-term, but better in the longer term? We’ve come up with a couple of possible reasons for this apparent conundrum.
Firstly, the “celebrity” status of The Block may result in bidders overpaying at the televised auction; meaning that without the media glitz and glam helping to spruik sales (and bump up auction prices), the subsequent non-televised auctions perform like any other real estate auction.
Second, The Block properties are sold fully furnished and we think that a reasonable amount of value in the televised auctions is attributed to the depreciating furniture and fittings. Now if the same properties are sold unfurnished in the subsequent sale, this would also explain the lower return achieved the first time it is sold after the televised auction.
In the longer term, The Block properties outperforming the residential property market is simply due to location, location, and location. The Block properties are located in highly desirable, high-growth areas and housing prices in these suburbs have grown faster than the average.
So, would we invest in a reality TV home? We are still unsure but if you were looking at it from a pure investment perspective, being the second owner of a Block property is where the above-market returns appear to be made.