VIC Excerpt from the 2014 February Market report

Is Melbourne too expensive for investors?

The property boom in Melbourne is pushing up housing prices and pushing out first home buyers and low income investors. What are governments doing (or not doing) about this issue?

It’s no wonder Melbourne regularly features in ‘best city in the world’ lists. The Victorian capital has exceptional food, arts, infrastructure, education and sport, not to mention one of the world’s best coastal drives.
It’s also no wonder that in this climate of low interest rates and high consumer sentiment, demand for housing in Melbourne has increased substantially and doesn’t look like heading south any time soon.

Consequently, property prices have increased which may be good news for investors already owning property in Melbourne, but for first home buyers and low income investors looking to buy, it’s not what they want to hear. Indeed, the latest figures by RP Data show that prices are up by a strong 8.2% over the year.
And if anything, recent decisions made by both the Victorian state government and the federal government look like doing anything but turn things around.

For example, the Napthine government’s metropolitan strategy for Melbourne could limit housing supply and unintentionally push up prices. The strategy, titled Plan Melbourne, involves councils choosing what areas they think are appropriate for high-density development. With some councils potentially choosing limited areas, this may result in housing cost increases.

Caryn Kakas, Property Council of Australia Executive Director, says that Australians have not been happy with how state and federal governments are responding to the issue of housing affordability.
“An Auspoll survey last year revealed that 84% of Australians rated housing affordability as a critical issue. Yet, less than 16% thought governments were doing a good job on the issue,” says Kakas.

Abbott the abolisher

One of the measures set up by the federal government in 2008 to help improve housing supply and affordability was the National Housing Supply Council.

However, the Abbott government has decided to axe this council, in addition to the position of housing minister from the federal cabinet – much to the dismay of some.

“Far from being ‘past its use-by date’ the National Housing Supply Council is the government’s only insight into housing affordability and undersupply problems,” says Caryn Kakas.

“If the Government is committed to scrapping the NHSC, they must outline an alternative strategy for working with industry to identify and meet the demand for housing.”

In the meantime, potential investors would do well to compare Melbourne’s prices with other parts of Victoria.

One of Melbourne’s most sought-after suburbs, Surrey Hills, has a median house price of $1,200,000. This is well over triple the median price of houses in some of Victoria’s more popular areas outside Melbourne, such as Ballarat ($316,500) and Bendigo ($326,250).  

Affordable suburbs in Melbourne

The following suburbs in Melbourne boast cheap prices and high rental yields – a handy combination for those feeling priced out of the market
Carlton (units): Median price: $270,000, Gross rental yield: 7%
• Meadow Heights (units): Median price: $275,000, Gross rental yield: 6%
• Broadmeadows (units): Median price: $275,000, Gross rental yield: 6%
• Dallas (houses): Median price: $275,000, Gross rental yield: 6%
Craigieburne (units): Median price: $281,000, Gross rental yield: 6%

Suburb to watch: Frankston

eView Real Estate Partners’ Arthur Proios says Frankston is continuing to improve

Selling points: The four best features for buying property in the area are: the beach, transport, affordability of housing and an abundance of infrastructure – which includes highly regarded public schools, hospitals, a university and shopping centres. The Frankston foreshore has recently been updated with new cafés and restaurants, new boat ramp facilities and several new major housing projects.

Sought after properties: Investors generally look for 3-bedroom homes with garages. Properties within the Frankston High School zone are the most popular. Gould Street, by the waterfront, remains a premier area, while the acreage properties in and around Humphries Road and Overport Road at Frankston South are considered great value for families.

Local industry: Many residents commute to the Melbourne CBD for work. Frankston itself is a popular regional hub for white collar workers, retail and tourism. A recent announcement by the local MLA outlined a further 750 jobs in Frankston, with South East Water opening a new regional office.
Recent changes: Major arterials are being built, while billions of dollars in infrastructure investment over the past 10 years has played a major role in buyers (both occupiers and investors) flocking to the suburb.

Transport: Being the last stop on the Metropolitan railway line is a huge advantage. An adequate bus system and reasonable taxi operation means Frankston is well-serviced.


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