Even the way Joseph Drago, 69, allegedly killed his neighbour was unusual, Justice Betty King said during a Supreme Court bail application.

Despite this, Justice King granted bail on Tuesday to the retired engineer from Balwyn North who was charged with the murder of Thornbury car dealer Tony Dockerty, 63.

Justice King said the nine months it took to charge Mr Drago, who police suspected of the death early on, was the major factor in bailing the father and grandfather.

He was bailed on a $600,000 surety with strict conditions to live almost under house arrest with his wife in McCrae on the Mornington Peninsula. He is only allowed to leave the home in the company of his wife to visit his elderly mother, and for medical and legal appointments.

"It's most important you have no potential trouble with neighbours that would lead anywhere," Justice King warned.

The court had heard Mr Drago created a manifesto of ways to maim or murder his neighbour after a long-running fight that started with a barking dog and got "catastrophically out of hand", Crown prosecutor Andrew Tinney, SC, told the court.

Mr Drago wrote in his "Tony Dockerty Action Plan", found shortly after the death, that he wanted to place an inflatable or cardboard cut-out of a kangaroo on the road in the hope his neighbour, driving a car, would swerve and crash into a gum tree.

"Out of all the murder plans I've heard in my time, and I've heard a few, it's the most bizarre," Justice King said.

"It's an unusual killing as well."

Mr Drago was taking notes during the court proceedings, later telling Justice King he was recording his thoughts.

Mr Dockerty died after he was hit by a car allegedly driven by Mr Drago outside Mr Dockerty's Darebin Road car dealership in December last year.

Security footage taken from the dealership was shown in court on Friday showing the pair fighting in broad daylight across the street before Mr Drago jumps in his car. The footage showed Mr Dockerty banging on the passenger window, before he approaches the driver's side and then stands in front of the car. He is fatally run over, with Mr Tinney telling the court he was dragged down the road for more than 100 metres.

Justice King initially questioned Mr Drago's level of interest in proceedings on Tuesday, but his lawyer Con Heliotis, QC, said his client, described as obsessive, was taking notes.

Mr Drago, a slight, articulate man with thick-framed glasses, was placed on the stand.

"I just write thoughts that come to me and I also do a lot of meditation which helps me to concentrate a bit better," he said.

He described his time in custody as a "good opportunity to come to terms with the situation" he faced.

A committal hearing will be held in April.