Should investors avoid the inner suburbs?
Investors looking for a safe investment may find better deals outside the Melbourne CBD, for a few reasons
The classic TV show Green Acres
may have been on to something. Indeed, there may be 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 the latest 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 in Sydney, gross yields have fallen 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.
The latest 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 south Melbourne is one place where buyer activity has begun heating up, in 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, proximity to the beach, parks and shopping centres is another reason why this area appeals to both adults and their kids.
Wendt says buyers in his market are 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 a good number of investors are 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 would also allow plenty of time to purchase, wait for settlement, and find a tenant before the next school year.
The world’s most liveable city
It may be getting increasingly expensive and be in danger of an oversupply of apartments, but perhaps there are still good reasons for investors to stick to the city.
For one, Melbourne has just topped the Economist Intelligence Unit’s Global Liveability Index for the fourth year running, achieving perfect scores of 100 for healthcare, education, infrastructure, and in the subcategory
“Our low crime rates, great health system, harmonious multicultural community, excellent education system and road and rail network all played a part in our great city taking out this coveted award again,” says Premier Dennis Napthine.
The tourism industry is also getting a kick out of Melbourne’s outstanding reputation. The number of international travellers using Melbourne Airport has risen from 587,000 in July 2012 to 725,000 in July 2014.
Melbourne also won the Condé Nast Traveller
magazine’s 2014 award for world’s friendliest city, and Victoria overall was named Australia’s most litter-free state in the Keep Australia Beautiful National Litter Index.
SUBURB TO WATCH
Preston: Overlooked suburb brimming with growth potential
Nestled between Thornbury and Coburg, Preston was once an ugly duckling but will soon be like its more well-known neighbouring counterparts, says Cate Bakos, a buyer’s agent at Cate Bakos Property.
Located 9km north of the Melbourne CBD, this suburb has sought-after transport, shopping, a vibrant High Street precinct, and it could only be a few years away from acquiring a more ‘village feel’.
Preston also contains seven primary schools and four schools offering secondary education to residents from all cultural backgrounds. Additionally, the multicultural restaurants and shops also help attract a wide demographic of nationalities.
To get to the Melbourne CBD, there is an excellent train, tram and bus network.
Even though prices have been growing at a healthy rate, it’s definitely not too late to catch the end of the current growth phase. At a median price of just $441,500, units in Preston are still affordable but may not be so for too long. On average, these properties already spend just 54 days on the market, which is very good for the general area.
Some of the most in-demand properties include older houses on large blocks for potential unit development, in addition to smaller units and Californian bungalows which are increasingly being renovated.
Some of the best streets include Martin, Scotia and Paywit Streets, which are close to some of the best education, dining and shopping options the suburb has to offer.
Can you afford to buy in this suburb? Find out how much you can borrow