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Despite the possibility of a moderate slow down in the higher end of its property market, Melbourne continues to provide good opportunities for property investors through the increasing demand for residential apartment spaces.

One of the leading indicators of growth in Melbourne is the strong market of less expensive assets, ranging from $2 million and below, as well as the unprecedented demand for apartment units—a result of undersupply in the city’s land market.

According to Positive Real Estate’s Sam Saggers: “Land in Melbourne is very, very difficult to acquire … Sometimes, local buyers are waiting two years for the land to be parcelled, titled, registered so they can eventually build their family home on land in Melbourne. It’s actually the most undersupplied market in Australia today, the Melbourne land market.”

“[However], the capital growth statistics that have recently come out are very, very encouraging, so there is [an] opportunity in Melbourne. We are seeing, for the first time, movement in apartments in Melbourne.

“In about 2007, we saw the last market high in apartments in Melbourne, and really, apartments have gone fairly well sideways ever since for a good 10 years,” he added.

Last year’s statistics indicated a rise in value close to 10 per cent in Melbourne apartments, and prices are expected to continue accelerating as it becomes more costly for developers to build new dwellings. A $400,000 one-bedroom unit close to the city centre might cost around $450,000 by the end of 2018, Sam said.

The property professional said: “We are definitely entering a new phase of Melbourne’s apartment market. It’s probably fair to say Melbourne had a saturation of apartments … as it reshaped its city … from sort of not having an inner-urban residential market to creating it … around 20 years ago.”

“Today, if you walk the streets of Melbourne at night, it’s alive. It’s one of the most fun cities in Australia … Much more alive than the city centre of Sydney.

“That’s because, for the first time in the history of Melbourne, people are now choosing the residential apartment space to live—close to … a 24-hour city. It’s becoming that New York-style concept,” he explained further.

The demand for apartments provides opportunities for property investors to acquire good capital growth for lesser costs.

Demand for apartments

Ten years ago, several property investors who bought off-the-plan apartment units in suburbs like Docklands and St Kilda failed to see growth in the value of their investment due to oversupply. Now, the market has shifted—there’s more demand for apartments than there is supply.

Long-time local residents are starting to opt for living in smaller spaces near the city centre and vertical living has become a more acceptable concept even for families.

Sam said: “The absorption of locals is really the key fundamental behind the revival of apartment living. Obviously, when people [choose] vertical living as a concept, the levels of stock certainly start to disappear.”

“You don’t need the investors to produce the stock. Typically, when a marketplace is in its infancy, you go and find investors [and use] their capital to produce the buildings … then, it becomes a rental kind of environment. We’re seeing that transition now happen in Melbourne—[it’s become] owner-occupied,” he added.

This transition has started a “next wave of growth”, according to Sam, especially as Melbourne’s population is expected to keep growing in the future—from 4.5 million people to 8 million people in the next 30 years, making it Australia’s biggest city. Instead of buying or renting in prestige markets like Brighton and Prahran, where prices are very expensive, a big number of people in Melbourne choose to be in the proximity of the central business district.

Overall, the market transition has provided more options for both owner-occupiers and investors, and it’s best to “stress test” a strategy before fully integrating it into your journey.

“All of a sudden, people are going … ‘Should I do the proximity thing and live close to Melbourne’s CBD [where] it’s fun, or should I actually go out, travel a little bit further and get into the land space?’ It’s very, very buoyant at the moment,” according to Sam.

If you want to explore the market as an investor, both Phil and Sam suggest sticking to the fundamentals of property investment. Aside from listening to experts’ advice, conduct your own research and establish yourself in the area by actually going out there to check the assets for yourself.

“Irrespective of where you’re buying, [you should consider] some fundamental principles there in terms of what creates value in property. It’s about uniqueness, it’s about supply … [and] all these [growth drivers],” Phil concluded.

Tune in to Sam Saggers’ episode on The Smart Property Investment Show to know more about his take on the so-called property crash as well as his advice to investors about the ‘big three’ points he looks for before purchasing a property.

 

Source: Smart Property Investment