Market Report Victoria - (January 2009)

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17th April 2009

Inner city suburbs are buzzing with first homebuyer activity and as such, the place where growth is likely.

Fierce competition between first home buyers is usually the first sign that affordability has returned to a market and the best time for investors to make a come back, says Mark Armstrong, director of Property Planning Australia and joint-director of The Property School.

"Investors are traditionally nervous by nature, but as soon as they see first home buyers move in a particular market, they use their stronger buying power and come in over top of them to secure those properties in desirable locations," says Armstrong.

"This is the sort of trend we're currently seeing in Melbourne."

The ongoing benefit of strong rental returns and years of equity behind them allows investors to compete strongly against first home buyers in popular markets.

But Armstrong says the window of opportunity to take hold of this market after first home buyers have moved is quite small.

"Values can begin to pick up quite quickly. So investors are better off moving earlier rather than later," says Armstrong.

Areas to watch

The first home buyers dominated areas in which investors should consider watching include popular rental suburbs in the inner city ring of Melbourne such as Richmond, South Yarra, Brunswick and Elwood, says Armstrong.

"In particular, first home buyers have been looking heavily at properties priced between $400,000 and $600,000 in these areas," says Armstrong.

Autumn opportunities

Armstrong says the best time for investors to sink their teeth into the Melbourne market will be around autumn.

"As the year moves on, more and more investors will return to the market and this is not the competition that investors thrive on. They're much better getting in now and competing against first home buyers instead because they have smaller limits," he says.

Armstrong says first home buyers will be priced out of the 10km inner city ring after the autumn period, due to renewed competition. Hence, he has tipped areas such as Camberwell and Surry Hills as good investments for later on in the year as their villa style units and older style townhouses are the kind of dwelling popular with first home buyers.

"These inner middle suburbs 15kms from the CBD also have good infrastructure, good shopping and good transport, and they're only just out of the heart of the action," he says.

"This is where first home buyers will look to next and now is the time when investors might be able to get ahead of the pack and buy in these areas."

Growth suburbs

Adrian Jones, president of the Real Estate Institute of Victoria (REIV) says many of the areas within Melbourne's inner north and inner north west suburbs such as Thornbury, Northcote and Reservoir provide good opportunities for growth.

These suburbs, located within the 10km to 15km north west ring of the CBD, are now beginning to perform after being previously overlooked by buyers favouring Melbourne's eastern suburbs.

"These suburbs have good proximity to the CBD, good services, good schools and good parks. It is a natural progression that buyers will begin to purchase here more in the future," he says.

Jones says units in Thornbury, Northcote and Reservoir begin from around the $300,000 mark and return rental yields in the order of 4%.

"Good quality two bedroom houses priced between $400,000 and $450,000 with garage and a backyard will rent for $400," he says.

Spruiker alert

Armstrong says the major risk in the Melbourne market going forward is that spruikers will re-appear to take advantage of the increased competition.

"In the last cycle we saw a lot of people buying property that wasn't right for their individual circumstances, because when the spruikers re-entered the market, the product salesmen came back with them," he says.

"So first home buyers and less experienced investors should be weary of what they are buying during this cycle."

Armstrong says another risk is that investors will miss the boat and prices will spike quite quickly in the next cycle.

"Even though we're not sure when the boat will leave for the next cycle, it is close to leaving and someone is blowing the horn, so investors need to be ready to leave with it," says Armstrong.

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