Melbourne: Get in while it’s cool
With the next growth point projected, strategic investors have the rare chance to time their entry into the market so that they can buy just before Melbourne starts growing again. If there is anything the last 10 years of property price movements have shown, it is that affordable opportunities don’t last. This should give anyone interested in investing in Melbourne pause for thought.
Despite being named Australia’s second most expensive city in terms of living costs in an Economic Intelligence. Unit study, Melbourne property prices remain cheaper than some of its large city contenders and appear to be hanging back, at least for the moment.
The current median house price of $490,000 is cheaper than Sydney, Canberra, Perth and Darwin (and Sydney units), as well as just a fraction more expensive than Brisbane. This is a far cry from early 2010 when Melbourne was a good length ahead of the pack, second only to Sydney in
median house price rankings.
Melbourne property may still be a long way from what could be considered affordable, but, to be fair, prices are more affordable, comparatively speaking, than they have been in a long time. And with city property prices projected to remain fairly flat until 2015 (QBE LMI forecasts 1% growth over 2013 and 2014), investors
shouldn’t bemoan the lacklustre rate of capital growth – they should be on the lookout for opportunity.
“Opportunities don’t last, so act while properties are still within your reach,” advises Tim Fletcher, director of
Fletchers Real Estate. Fletcher says many areas that were once heavily in demand but that have recently remained dormant could one day return to growth, and buyers should be aware that once they start surging again the cheaper opportunities to buy will have passed.
Considered this way, flat growth in the next two or so years gives investors a great advantage. “Right now, you can be patient,” says buyer’s agent Graham Holding.
“There is still a lot of bad grade investment stock coming onto the market, but you can wait for only the good opportunities to come and you can negotiate a favourable deal for yourself,” Holding says. “That’s not a freedom you’d get in a place like Gladstone, or wherever, because when a market is soon going to boom or is booming you’ve got to be decisive; you’ve got to be quick on the draw. That’s a hard thing for many people to do.”
Be it two years away, there is enough in the way of tightening vacancy rates andlowering stock-on-market figures to suggest that a return to strong price growth will be a reality for Melbourne.
To understand why, some perspective is needed. Towards the end of the last decade Melbourne property prices were performing exceptionally well, prompting builders to rush into the market like shoppers on Christmas Eve. So much residential property was being built that supply started to exceed demand. Coupled with a weakening economy, property prices began to fall, setting Melbourne on course to where it is today: a market that hasn’t seen significant price growth since the end of 2010.
A clue to price growth is in building activity, which Deloitte Access Economics’ Business Outlook report says isn’t looking good. Investors should see this a positive sign that markets now in oversupply are going to gradually tighten up.
“The stunning success of housing construction in the state has mostly drawn to a close,” the report says. “There were a number of years in which housing starts in Victoria easily surpassed those in New South Wales and Queensland, and there have even been times in which Victoria’s housing activity matched that of the rest of the East Coast added together. But now the magic has gone.”
Melbourne delivers worst city yields
The latest figures from RP Data show that Melbourne investment properties as a whole are heavily negatively geared, with the city-wide rental yield for houses a mere 3.8%. This figure is the lowest among all Australian capital cities, despite Melbourne rents being higher than the national average.
Rental yields in the unit market are not much better, with Melbourne also the lowest yielding unit market among capital cities.
At a more local level, roughly a third of Melbourne suburbs with detached housing have a yield of 3% or lower on houses, with 8% of unit markets fitting the same description. The city’s lowest yielding market is currently East Melbourne, where the median yield for houses is just 1.9%.
More affordable Melbourne areas with poor yields include the Banyule and White Horse areas.
Spotlight on: Melbourne’s fl attest markets
Average annual growth rates give you a good indication of how much property prices have grown in a specific market. The figures track the level to which prices have moved up over the last decade, revealing how markets have averaged across good times and bad.
For Western Melbourne’s Point Cook, the figures show a market that continues to struggle. The suburb is the only property market in all of Melbourne to record a negative average annual growth rate, suggesting there is limited demand for properties there.
Owing to the huge supply – or rather, oversupply – of units that came onto the market during Melbourne property’s last boom in 2009/10, it is also no surprise that the areas that saw the largest portion of unit development – Docklands and Southbank – have also remained flat.
Yet it is not all bad news for these suburbs. A low average annual growth rate can often indicate a market overdue for some increases in price. The minimal growth could mean these suburbs have become more affordable, and when the buying market catches on to this, increased buyer activity could help boost prices. Of course, this also relies on the suburb being in a desirable location, as is the case with Parkville and Carlton, which are just 3km from the CBD.
Investors on the hunt for value – properties that are less expensive than inner Melbourne but still in reasonable demand – may consider Endeavour Hills worth a look
The suburb is three minutes away from a freeway that leads straight into Melbourne CBD, 30km to the northwest. A fairly small suburb, it packs a big punch. “There is a major shopping centre that has everything from a Coles, Woolworths and Aldi, as well as 80 other shops,” says Gavin Andrews of Nicholls Gledhill Real Estate, a local agent.
Andrews adds that this part of Melbourne is blessed with ample parking and is very motor friendly. Recent upgrades to roundabouts in the area have ensured smoother-running traffic and put more destinations within easy reach – Frankston Beach is roughly 30 minutes away by car.
The suburb is family friendly, evidenced by a good supply of children’s sports facilities, and the most sought after properties tend to be three-bedroom houses in the range of $350,000, Andrew says.
“Overall, there are roughly 8,300 homes in Endeavour Hills,” he says. “The shopping centre side is the most sought after, but the most expensive too, and then you get off Daniel Solander Drive and there are houses priced at around $600,000 to $800,000. Generally, the closer to the shopping centre, the more expensive the properties.”
Other recent changes include an upgrade to bus services in the area, ensuring the suburb is well connected by railway links, via the Dandenong and Hallam train stations.
Can you afford to buy in this suburb? Find out how much you can borrow