Should investors avoid Melbourne's inner suburbs?

The classic TV show Green Acres may have been onto something. Indeed, there may be a more opportunities for a better life outside the immediate city.

However, unlike the lead characters Oliver and Lisa, Aussie investors can remain living in their homes and take advantage of the present market conditions without even having to look at rural country farms.

It might just be a matter of looking about 25km outside the Melbourne CBD.

According to RP Data figures, in Victoria, investors have been mostly concentrated across the Melbourne apartment markets where capital gains have been strong but yields have been pushed very low.

In Melbourne, where rental yields are even lower than Sydney, gross yields recently fell by 32 basis points over the year to reach 3.2% gross.

There are potentially better investment returns away from the large capital cities, in places where the growth trend is less mature and yields are also healthier, says RP Data’s research director Tim Lawless. 

A recent Herron Todd White report agrees, adding that investors searching for a safe option may want to look outside Melbourne’s CBD.

This is because the recent increase in demand for new apartments has seen developers flood the market, meaning that in some areas supply will be greater than demand.

Exploring other options

The bayside area of Melbourne’s south is one place where buyer activity has begun heating up. This includes suburbs such as Mentone, Cherrybrook and Parkdale.

In particular, the education options are attracting an increasing number of families, says Simon Wendt, sales manager at Hockingstuart Mentone.

“We are finding that one of the main drivers has been the private and public schools, which provide just as good an education as schools in the more expensive suburbs closer to the CBD,” he says.

Furthermore, the combination of the proximity to the beach, parks and shopping centres are further reasons why this area appeals to both adults and their kids.

Wendt finds that their market is increasingly looking to move away from the CBD, as prices are getting too high in the likes of Blackrock, Sandringham and Hampton.

He also says that they are getting a good amount of investors looking at the area, with some buying multiple properties.

“They know they are going to get a good balance of capital growth, and there’s also every likelihood they are going to get a good tenant.”

Now would be an especially good time to buy because interest rates are low and it’s still affordable, says Wendt.

Buying now also allows plenty of time to purchase, wait for the settlement and find a tenant before the next school year.

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