Market disguises hidden pleasures and perils
Whether you are looking to purchase in the inner suburbs, outer suburbs or a regional area, significant opportunities and risks abound in all three
Three property investors walk into a bar. They each currently own one investment property. The first investor has a two-bedroom house that has recorded 15% growth over the last 12 months. The second has a two-bedroom house that has recorded no growth over the last 12 months. And the third has a two-bedroom house that has fallen in value by 15% over the last 12 months.
What else do they have in common? They have all invested in Melbourne.
Jokes aside, this is a fictional example of what some confused investors are experiencing in the Victorian property market at the moment.
“Melbourne is a funny one. Some areas are performing; some areas are not,” says Todd Hunter, founder and director of wHereproperty Group.
“It depends on the type of property. It depends on the price point. It depends on the area. Overall, it has not been too bad, but when you break it down into different regions, they have some issues, and a lot of those issues are oversupply,” he says.
Hunter says a few examples of outer Melbourne areas that are affected by oversupply include:
– located 32km southwest of Melbourne’s CBD
• Whittlesea – located 40km northeast of Melbourne’s CBD
– located 56km southeast of Melbourne’s CBD
And then, of course, there is the oversupply of high-rise units in the inner city; Hunter believes that foreign investors currently buying that stock are just a short-term fix.
Terry Ryder, founder of Hotspotting. com.au, agrees, and adds that the construction and off-the-plan sales will go on for another two or three years at least.
He says it’s going to leave inner-city Melbourne with a “whole lot of empty apartments and high vacancies”.
Where to look for growth momentum
Along with Brisbane, the Melbourne market is currently one of Cameron McLellan’s favourites.
The CEO of Open Wealth Creation says Melbourne’s northern and eastern corridors are lacking supply of affordable housing, as opposed to population growth, making it ripe for the picking.
He specifically nominates Greenvale, a suburb 20km north of Melbourne’s CBD, as an area he thinks has potential for investors. Greenvale is roughly 20 minutes from the city and less than 10 minutes from Tullamarine Airport.
“Being affordable with strong rental demand means it achieves a good yield, meaning it has a low cost to hold,” says McLellan.
Other suburbs that are worth watching include Epping and Kew, according to PRDnationwide Research.
Epping is located 22km north of Melbourne’s CBD and is regarded as a suburb that suits first home buyers due to its affordability and ease of travel to the CBD via bus and train.
It also has approximately $80m in industrial development planned for 2015, which is expected to sustain local employment opportunities in the area.
Meanwhile, just 7km east of the Melbourne CBD, Kew is home to several schools and has easy access to Melbourne University and La Trobe University, and this is drawing more and more people for residential living.
In fact, competition in Kew’s residential market has prompted a high resale value and a fall of 28% in the average days on the market.
On the other hand, McLellan advises investors to be careful about investing outside of capital cities such as Melbourne.
He says it’s important to consider all positive and negative aspects of investing in the regional areas, even if they have higher yields, new infrastructure and strong economic drivers.
“The golden rule of investing that many seem to forget is that land appreciates and buildings depreciate,” says McLellan.
“This means it’s the land that builds real wealth due to a lack of supply. The issue with regional areas is that no matter how you look at it, the one thing that regional areas generally have an abundance of is land. This is the reason why investors will always do better investing in major capital cities.”
SUBURB TO WATCH
Travancore: Melbourne’s hip suburb attracts the yuppies
Just outside the heart of Melbourne, the suburb of Travancore is situated in a highly sought after position. Wedged between the CityLink and Mount Alexander Road, it provides a green and peaceful retreat that is not expected from inner-city living. For this reason family homes do not come up very often; units, on the other hand, offer a better chance to snatch a deal.
Being 5km from the CBD certainly has its benefits. A regular tram service runs down the west side of the suburb, and there are train stations in neighbouring Flemington and Ascot
Vale. A drive to town will take well under 10 minutes. These are just some of the reasons why Travancore is ever popular with younger people.
Young professionals make up about 37% of the population. Several bars and clubs operate in the area, as well as a range of restaurants and cafes. However, it is also popular with older couples and families. Mount Alexander College sits just outside the suburb, which is surrounded by a further five schools. Flemington Community Centre offers childcare and programs in art, exercise, cooking and music. A number of shops sit along Mount Alexander Road, which eventually meets up with the main commercial hub in Moonee Ponds. The Royal Melbourne Hospital is also just to the east of Travancore, next to the Melbourne Zoo.
Units/flats make up 64.4% of all dwellings in the area, and 37% of the population are renters. Travancore is known as one of Melbourne’s ‘hip’ suburbs, seen as an area at the forefront of cosmopolitan trends. If anything, tenants might provide their landlords with some excellent fashion tips.
Can you afford to buy in this suburb? Find out how much you can borrow