By Rich Harvey, CEO & Founder, propertybuyer.com.au
Things haven’t been great for Melbourne property investors lately.
Despite high demand for rental property reflected in low vacancy rates and rising rents, it’s becoming increasingly difficult to own and maintain an investment asset in Melbourne.
But smart investors and their advisors aren’t worried – in fact many see the current situation as an opportunity rather than a challenge.
I’ve had a long chat with our Propertybuyers’s Melbourne expert, Amanda Jones, to determine why her city is currently on the nose with investors and how you can take advantage.
Victoria’s modern-day, bad-news investment story starts with COVID which plunged the state’s economy into freefall.
Melbourne became one of the most shutdown cities on the globe and the grinding halt to business – along with enormous government assistance packages during the pandemic – led to an almighty hole in the current state’s budget. Politicians now need to find a way to fill the fiscal gap, and they seem to have decided property investors are the easy target.
So, tax changes that are designed to extract funds from investors that will prop up the state’s recovery have been implemented.
As Amanda pointed out, Victoria has more than 16 property-related taxes compared to around three in other states and territories. Investors trying to navigate this minefield are finding it daunting. Throw in that out state has some of the nation’s most investor-unfriendly rental legislation. These laws are removing many of the rights of ownership from landlords and handing them to tenants.
These are the things seeing investors leave Victoria in droves.
You see, Australian property investors have become incredibly agile – particularly since the pandemic. They are increasingly happy to purchase assets well away from where they live. As such, Western Australia, which has far more investor friendly legislation, is lapping up the slack and watching its property market soar.
Recent data analysis distributed by Mike Mortlock of MCG Quantity Surveyors drives home the point. Mike’s data showed that over a recent three-month period there was a net loss of approximately 5000 rental properties in Victoria which equates to one per cent of the state’s private rental stock.
With all this bad news, why would Amanda and I say Victoria, and more specifically Melbourne, are ripe for the picking?
Well, it comes down to some investment and property fundamentals.
Firstly, smart investors have a long-term mindset. They aren’t buying to make quick bucks in 12 months, or even two years. The real money is made over one-to-two property price cycles. Purchases made now should be looked at in terms of what they will achieve in the next decade or two.
This long-term approach is backed up by historic norms as well. The chasm between Melbourne’s and Sydney’s median house prices is now huge. In addition, Melbourne’s median recently fell below Brisbane’s for the first time in 16 years. These disparities illustrate how relatively undervalued Melbourne’s property is in comparison to the other big capitals. But there is every reason to expect those gaps to eventually spring back to long-term norms, dragging up Melbourne prices and delivery huge benefits for those who buy now.
Investor should also apply the old wisdom of buying when others are fearful. There are investors eager to leave the Melbourne market and that means more listings and less competition for those who are ready to commit.
While buying property now to enjoy long-term upsides makes sense, the price rebound might start much sooner. The current state government is on the nose and could very well lose power come the next election. This should deliver a boost to confidence in the property sector depending on the policies put forward during the election.
Also, any future cut to interest rates will be a stimulus to activity. With most commentators expecting these to occur sometime in the next 12 months, those who buy now should be sitting pretty in a year.
Being confident about a market bounce back is one thing, but if you don’t invest in the right asset and location, you will miss out on exceptional gains.
Amanda said there are a few market segments worth considering at present. She particularly likes areas such as Cheltenham, Frankston, Chadstone and Geelong. In these locations there are planned infrastructure projects sure to boost future demand. In addition, local government is trying to stimulate housing supply in these locales by streamlining the development approval process. Amanda said a well-considered small development site with potential to create additional housing will be an extraordinary asset if purchased for the right price.
But even if your ambitions are more modest, there are plenty of chances for you to profit by sticking to the fundamentals.
Markets that appeal to traditional buyers are worth considering. Think about families looking for good school districts with excellent facilities and services. Detached homes in these areas will do well. A-Grade homes close to schools, transport and near the beach tend to flourish. There are good options for free-standing houses in the southern Bayside areas like Frankston, Seaford, Mt Eliza, and Berwick. And even more affordable areas where you can buy houses for under $800,000 in the West and North West Melbourne suburbs like St Albans, Kings Park and Taylors Hill.
If you can’t afford a detached home in a prime area, then consider an apartment for under $750,000. Amanda described how millennials are escaping the high cost of housing in Melbourne at present, but they will return eventually. Melbourne remains a central hub for major business operations – and that means both ongoing employment opportunities and investment by these corporations. When millennials return to Melbourne for work, they’ll be looking for things like good quality apartments in areas with great facilities. If investors buy assets in the right locations now, they can ride the popularity wave when it comes.
Making smart asset choices in Melbourne is all about selecting the right property in the right location while understanding the local market and the current price cycle. That’s why it makes sense to utilise the skills of an experienced, on-the-ground buyers’ agent like Amanda. She’s completed hundreds of deals in this region, applying her formidable local network of contacts to unearth extraordinary investment options.
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call us on 1300 655 615 today.