Fragmented market offers rich possibilities for investors
Despite the strong rate of growth that’s continuing in some parts of Melbourne, it’s important to look closely at how the different areas are performing in isolation before making any major purchases
Don’t get too caught up in the hype about strong capital growth predictions in the Victorian capital.
While this looks likely in some cases, other areas are looking rather ominous, argues Tim Lawless, Head of Research at CoreLogic RP Data.
“When you start to dissect the market and look at the different geographies, the inner city apartment market of Melbourne isn’t functioning very healthily,” says Lawless.
“We are seeing high supply levels, and Melbourne’s inner city apartment market is making a gross loss in 20% of all resales.”
Melbourne is one of two capital cities (along with Sydney) that have recorded the strongest increase in home values in the past 12 months, while also recording the lowest rental yields.
“This seems to indicate that the majority of investment activity is premised on expectations of capital growth rather than rental return,” says Cameron Kusher, CoreLogic RP Data research analyst.
Investors should tread lightly because the capital growth will inevitably slow down and they should pay closer attention to the rental income of their property, warns Kusher.
Best and worst areas
According to Michael Yardney, director of Metropole Property Strategists, there are better opportunities in buying established apartments in southern and eastern suburbs, with many having the added benefit of potential to increase value through renovation.
“We are seeing an oversupply of newly-built house and land packages in Melbourne’s outer northern and western suburbs where buyers are showing a preference for two- to three year-old homes, which can be bought considerably cheaper than new stock,” says Yardney.
He says the inner and middle ring suburbs are set to perform well with locals who have high disposable incomes. However, the outer suburbs, regional areas and ‘blue collar’ suburbs are more likely to be affected by poor job confidence and poor overall consumer confidence, with the market in these areas likely to languish, he says.
Two relatively affordable Melbourne suburbs offering promising future capital growth and rental returns are Seaford and Frankston
This is mainly due to the expected population growth of the City of Frankston, in addition to their convenient locations and infrastructure, according to the most recent Herron Todd White report.
“The rental and investment demand is strongly supported by close proximity to public transport and amenities, as well as local employment opportunities,” says the report.
The median prices for a three-bedroom detached house in Seaford and Frankston are $435,000 and $370,000 respectively.
Meanwhile, Noble Park and Box Hill North are also showing increasing signs for popularity, says the report.
Infrastructure plans are being put in place to improve the appearance and development of these suburbs, which is being strongly encouraged by the local government.
Chinese buyers target Melbourne
The weakening Australian dollar is attracting more foreign investment and this seems to be particularly the case in Victoria. Foreign buyers appear to be targeting suburbs 10-20km south-east or east of the Melbourne CBD, according to myfun.com. In fact, the four most-searched areas across
Australia all come from this part of Victoria’s capital.
Top of the list is Glen Waverley
, located 19km south-east of the Melbourne CBD, followed by Mount Waverley, Doncaster and Balwyn. Glen Waverley is attracting a lot of interest due to it being halfway between the city and hills, while still retaining a cosmopolitan atmosphere with over 100 cafés and restaurants in the area, says Damien Moore from Ray White.
“Two of Victoria’s best state schools, Glen Waverley Secondary College and Mt Waverley Secondary College, along with two of Melbourne’s best private schools, Wesley College and Caulfield Grammar, have campuses in the area,” he says.
SUBURB TO WATCH
Knoxfield: Residents spoiled for choice
Simply put, Knoxfield is a suburb that has almost everything to offer. Top-of-the-range golf courses, great schools, lakes and shops are just a few of the many amenities available to those who call this area home. With a vacancy rate of just 1.14%, property in Knoxfield is in high demand. Listed properties receive an average of 1,071 visits a month, which is relatively high.
With so many amenities in the area, Knoxfield is becoming more and more popular with both families and older couples. A small industrial area resides in the south of the suburb together with a range of small businesses and shopping areas. Three great schools are also located in the area as well as many parks and reserves.
Knoxfield is well known for its sporting community. With the Knox Athletics track, a BMX track, skate park, golf course and football club, residents are spoilt for choice. The suburb also has two main shopping centres with sought-after medical clinics, restaurants, hair salons and fashions stores.
Sitting 27km south-west of the Melbourne CBD, the average trip by car would take around 40 minutes. However, Knoxfield is well serviced by bus routes criss-crossing the suburb, and the Ferntree Gully Rail station is nearby.
Popular areas include locations around Kathryn Road and Harley Street, which provide quick and easy access to the wide range of amenities in the suburb.
Can you afford to buy in this suburb? Find out how much you can borrow