Timing is Everything: The Melbourne Property Market.
This client was self directed and wanted an investment property up to $600,000 in value with strong capital growth to increase their capital and supplement their retirement income. They were self directed and only wanted a “Where, What, When to Buy” assessment.
The 1st Step was to look at 'Where to Buy'.
Melbourne had strong demand for housing in Australia. It also had the highest population growth and has since risen to 2.4%. This is an extraordinary figure for a western country. Let’s put that into perspective. Based on the population of Melbourne being 4.5M people that is about 2,000 new people per week and at 3 people per home, that means about 700 new properties per week.
On top of this Juwai.com, the largest Chinese language international investment property website, tells us Australia is the second most searched country and Melbourne has just risen to the most searched city within Australia. Even more people are wanting to buy in Melbourne.
These levels of demand have created competition for housing close to the CBD with short commutes. Median capital growth figures reflect this with double figure growth over Greater Melbourne for the last year, especially for houses.
What the population growth figures don’t include are international students who entered Australia on student visas. They number at about 400,000 with the majority studying in Sydney and Melbourne. These people increase the demand for housing on top of the demand from interstate and international migration recorded as population growth. Most of this increase is presumed to be for rental accommodation, however no one is reporting on this important information. This student population and those migrating or immigrating to Melbourne have created a very strong rental market though it has low yields.
The 2nd Step was to look at 'What to Buy'.
Peripheral land estates, while growing rapidly in price due to Melburnians’ love of houses, have a slower rate of capital growth compared to inner city properties. This is due to the barriers created by lack of infrastructure and the long commutes to CBD employment. Apartments were temporarily over supplied and prices were languishing. So we looked at in fill townhouses in areas that were gentrifying: they were in demand with young professionals and families increasing prices beyond the locals’ ability to pay.
In particular, we identified Pascoe Vale, traditionally a blue collar area, where median prices for houses where reported at $816,500 while units were reported at $540,000. The strategy was to buy a new property with first home owner appeal such as a two bedroom townhouse, for less than the existing house prices. This sweet spot offers room for further price growth within the suburb as well as participating in Melbourne’s overall capital growth drivers.
The selected property price was about $580,000. This was above median price for existing units in that suburb however it was going to be new and the floor plan, location, aspect and size were all above median for the suburb.
During its construction prices have moved up again and that sweet spot has closed. Pascoe Vale South, one suburb closer to the CBD has townhouses with 20% less floor space for $80,000 more. Hadfield, one suburb to the north, has townhouses for about $80,000 more a street away from the local cemetery. Wantirna, about 30km to the east of the CBD has properties that are similar for $45,000 more.
The 3rd step was 'When to Buy'.
The timing was right now! We wanted to line up other clients to experience this opportunity. However, some thing weird happened. There was no new stock coming onto the market.
What had happened? Have house prices gone so high that the land costs too much to deliver townhouses below existing house prices? Is the market unwilling to pay the prices required to have a new home in this area? Have the builders moved on to other areas where the opportunities are greater? You can get a townhouse in Cranbourne, about 50km southeast from the CBD for about $500,000. It seems that the ‘When to Buy’ window has closed for this property in this suburb.
The market had moved on very quickly.