With $5.3 million outlay, The Block 2012 terraces will have to outperform South Melbourne market to make close to a profit

It’s possibly the biggest property question in wintery Melbourne as home buyers and investors start getting shown through the renovated South Melbourne terraces on The Block 2012.

How much will The Block terraces on Dorcas Street fetch at their June 30 auction?

The appointed selling agents were advising $1 million plus as their indicative price guide. Some have moved along to $1.1 million plus already. All will monitor the progress of enquiry throughout the campaign to see how the price needs tweaking. Some have expressed the hope of achieving close to $1.2 million.

Property Observer has run the numbers over the expenditure to ascertain just where the profit would kick in for Channel 9’s hit renovation show.

The initial purchase of the four unrenovated terraces was $3.8 million through agents Karl Gillon and Kent Morgan, with another $209,000 spent on the stamp duty.

The television show production company then implemented a previously council approved $800,000 development application, albeit slightly reducing the scale of the proposal.

The contestant couples had equal budgets of a record $125,000, made up from cash and vouchers including:

• $20,000 from Mitre 10 for hardware;
• $10,000 from Carpet Court for flooring;
• $10,000 from Beacon Lighting for lighting;
• $20,000 from Freedom Kitchens for the kitchen;
• $5,000 from Freedom Kitchens for the laundry; and
• $20,000 from Reece for bathroom fixtures and fittings.

So for a real profit, it means each terrace must sell for $1,325,000 plus, not including the further expenditure arising from the weekly winning room/challenges cash prizes.

It puts the three-level terraces at well above the December 2011 median house price for South Melbourne, which was $1,097,500, and the more recent APM median of $1 million for the six months to April. There has been a $1.26 million average price over the past six months for three bedroom offerings.

Situated on the corner of Dorcas Street and Montague Street, the four terrace houses, constructed from solid brick with hand-carved timber staircases, would once have been considered among the finest homes in the suburb.

Its known costs total $5.3 million – and that is not including the unknown costs such as the architect Julian Brenchley who was enlisted to prepare the houses for renovation.

The production company spent a further $1.2 million on an adjacent Montague Street property hoping to secure planning permit to construct garage-loft space, which would have provided one car parking space and a studio for each of the dwellings.

But a Port Phillip Council spokesperson says the council refused the planning permit application. The production company did get some use from the acquisition, as it was used for workspace during production.

The four terraces, which are diagonally opposite former 1877 hotel The Star and Garter, have been tightly held, with the last known recorded sale being at about $360,000 in 1999.

It was bought by the television production company from Nottingham Funds Management, formerly known as Stanfield Funds Management, the corporate entity headed by the corporate lawyer turned property trust investor Darren Olney-Fraser since late 2009.

Channel 9 and the production company have generally not been too fussed by the actual sale price profit realisation, as they make their big money from the advertising associated with the hit series.

This article first appeared on Property Observer.