West behind the rest
Melbourne property prices as a whole, show tentative signs of stabilising, but suburbs on the city’s western fringe could be in trouble.
As traffic roundabouts go, the intersection of Cinel Crescent and Carandon Drive in Truganina is quirky, but hardly remarkable. A bright pink two-storey house sits on its eastern-side, while everywhere the pavement grass looks trim enough to putt on. At the centre of the roundabout is a small garden, distinctive only because its modest designer made it almost too small to spot.
To the keener observer, however, the view from the roundabout says a lot about what is happening in the western fringes of Melbourne. That’s because no matter which direction you look down Cinel Crescent or Carandon Drive, every house is newly built. It’s the same in the streets that run parallel and perpendicular and it’s the same even further afield in Tarneit and Wyndham Vale, other suburbs on Melbourne’s western fringe.
That’s the problem. With the stellar rate of building that was initiated in Melbourne across 2010, much of the city property market remains heavily oversupplied with new dwellings. Out west is where this is most immediately apparent.
In Truganina, where new houses rule the market, the proportion of all properties up for sale remains just above 6%, according to DSRscore.com.au. In nearby Wyndham Vale and Tarneit, that figure is closer to 4%. To put these numbers into perspective, the average suburb in any Australian city normally has roughly 1% of its properties up for sale at any given time.
The rabbit hole goes deeper
Vacancy rates in western suburbs are ringing their own alarm bells. A vacancy rate of around 3% normally indicates a market in balance – where the supply of rental properties meets the demand for them – but all of the three suburbs above are experiencing vacancies edging close to 5%, according to December DSRscore.com.au numbers.
Michael Yardney, director of Metropole Property Strategists, says this situation is hardly a surprise. “While the overall Melbourne property market is recovering, there are some parts of the market that are oversupplied and likely to fall further in price. With too many vacant house and land packages in the western suburbs, rents and values in these areas are unlikely to rise for some time,” he says.
Yardney believes that the situation on the western fringes of Melbourne is a sharp reminder of how dangerous it is to think of Melbourne as one, single property market. “Recently released figures suggest that the Melbourne property market could have bottomed around May 2012 … but it’s a little like me putting one hand in a bucket of ice water and the other in a bucket of hot water and saying that on average the temperature is fine,” he says.
Empower Wealth director, Bryce Holdaway agrees that general comments and statistics about the Melbourne market are not always helpful in showing what is happening on the ground, and this shows why, even though 2013 may be a better year than 2012 for much of Melbourne, the city won’t be without areas that struggle.
“Melbourne is made up of hundreds of submarkets,” he says. “It is a large metropolis with a big population base and a wide and varied job market. Different parts of the city have different community needs.”
If the western fringes of Melbourne remain a risky prospect for investing, Holdaway says that, conversely, the best opportunities are probably in the inner city. “Now is a fantastic time to be buying the city’s blue chip real estate,” he says. “You can secure it on terms much more favourable [than in the past] and if you look for property with some kind of scarcity value there’s a greater possibility of getting an outperform result.
Spotlight on: Greater Melbourne’s best yields
If you’re looking for a high-yielding investment within 30km of the Melbourne CBD, you’ll find the highest rental return figures, quite surprisingly, in Docklands, just 2km from the centre of the city.
A massive drop in prices over the last couple of years – a slide that has seen average annual growth figures plummet to -36% – has seen a significant narrowing of the gap between property prices and rents. This explains how a suburb within the heart of the city is seeing rental returns of 9%, numbers normally associated with mining towns.
Of course, strong yields don’t always translate into strong capital growth and with such poor price growth in recent times, obvious question marks hang over Docklands as a long-term investment choice. It’s a similar story with Carlton where rental returns are
Carlton has the benefit of being one of Melbourne’s most affordable areas and continues to see a lot of buying activity as a result, but recent capital growth, like in Docklands, has been poor (-18% in the 12 months to November, according to RP Data). This partly explains the high yields: rents have moved neither up nor down, but returns have become better because property prices are lower. Joining Docklands and Carlton among inner city suburbs with high yields, are North Melbourne and Central Melbourne.
Local agent Michael Tsigeridis of Hunter French Real Estate explains why his suburb remains an evergreen favourite among families.
Selling points: There are many selling points, some of which include affordability, close proximity to the CBD, close proximity to the beach, easy access to the Zone 1 train station and a great family environment. Investors typically look for good capital growth and secure tenants. and Altona Meadows offers all of this.
Most sought-after properties: Most of the homes in the suburb are contemporary, but the properties most in demand are 3-bedroom, 2-bathroom homes with two living areas.
Best amenities: There is a local shopping centre and sports complex, as well as bicycle and walking tracks. Public transport includes nearby Laverton Train Station. The council has recently completed an upgrade of the station and included more car spots to accommodate more commuters.
Altona Meadows neighbours the Princess Freeway and Western Ring Road, offering easy access to all parts of Melbourne and regional areas. Local industry and business: Hobson’s Bay has some of the largest heavy industries. Employers here include Toyota, Mobil, Coles and Myer.
Do you have more than $200k in your super fund? You could use your super to buy property - Find out how