The Best Value Pockets in Melbourne - September 2021
September 14, 2021 / Written by Rich Harvey
By Guest Blogger, Pete Wargent,
Next Level Wealth
The two-speed Victorian market
The state of Victoria has seen the emergence of a two-speed housing market.
The pandemic encouraged homebuyers and renters alike to seek more space in 2020 and 2021 to date, while eschewing share-houses and the high-density and high-rise tower blocks of the Central Business District (CBD) of Melbourne.
While houses in some desirable Melbourne suburbs and especially regional locations recorded exceptional price growth over the past year, at the same time some sectors of the unit market struggled and experienced lower prices and rents.
Oversupply had been an issue for some time in the inner-city unit market of Melbourne in particular, and this has been reflected in weakness in price performance.
Strength in detached houses
Despite the COVID-19 virus and related impacts on the Australian economy, the Victorian property markets are still forging ahead.
Housing price growth has been spectacularly strong in regional housing markets over the past year, while many suburbs of Melbourne have recorded also strong price growth for detached houses.
Detached house prices growth over the past year has been strong in spite some softening over recent weeks due to the extension of lockdown restrictions.
However, there are still pockets of affordable houses that are considerably lower than the median price for the capital city.
With mortgage rates still close to the lowest on record there are opportunities for those with a reasonable buffer and a level of employment security.
Focus shifts to affordability
With first homebuyers still active and now competing with investors for a low level of stock on the market, we expect the more affordable suburbs in Australian property to be sharply in focus.
Prices have increased over the past year but there are still areas where bargains can be had, and if you have a long-term strategy you can expect solid capital growth over the next few years.
There are opportunities for buyers looking for houses with high land value as a proportion of the property, and a strong component of scarcity, especially if they intended to hold on to the property for several years or longer.
In addition, the current ultra-low interest rates have created a unique environment where buying a house in many areas has been cheaper than paying rent on one.
Both the outer western and south-eastern Melbourne offer relatively more affordable properties with relatively good access to the CBD and this is a key driver for homebuyers.
Many homebuyers are seeking space and lifestyle and as more people can work remotely not all homebuyers are tied quite so closely to employment hubs.
Some of the more affordable Melbourne suburbs which are well worthy of consideration include:
• Frankston south
These suburbs represent the more affordable part of the price spectrum, with good scope for capital growth.
Weakness in inner-city units
On the other side of the coin, the inner-city unit market in Melbourne has been a different story entirely in 2021.
The rental market in Melbourne has been weaker than other parts of the country, with some the most impacted locations as measured by the uplift to the existing apartment stock including Footscray, Box Hill, South Melbourne, and Coburg.
Unit asking rents dropped sharply for units in the Melbourne CBD and on the city fringe, although the rental market is now finally stabilising. Rental prices have also declined across a range of suburbs in the inner east of Melbourne.
There are signs that the worst has passed for the city’s rental market, even now elevated vacancy rates persist in parts of inner Melbourne, suggesting that some weakness in the rental market will continue into 2022.
Some inner-city apartments represent very good value at the moment, as with international student numbers decimated the lower rents are forcing some landlords to sell up.
With unit building permits now in decline, the new supply of apartments will also slow over the coming years, helping to bring supply and demand in the market back into balance when immigration resumes.
Any investor or downsizer seeking a nice apartment in the ‘Paris end’ of the CBD (i.e. from Flinders St to Parliament House) would be wise to start looking now, as such opportunities to ‘buy low’ rarely last for too long.
We expect to see capital growth rebounding in these apartments once the lockdowns end and international borders start to open up.
The outlook for 2022
The dichotomy seems likely to continue for the remainder of calendar year 2021, as the Victorian economy suffers ongoing travel and lockdown restrictions while the vaccine rollout is ongoing.
The international border is presently expected to reopen in the first half of calendar year 2022, at which time the return of international students, tourists, and permanent migrants to Australia, is likely to see rental vacancy rates tighten in the inner-city.
Counter-cyclical investors tempted to look at buying units in Melbourne would be well advised where possible to seek out the more boutique unit blocks with a higher land value-to-asset ratio, reasonable strata fees, and where possible a point of scarcity (such as a third bedroom, or protected views, for example).
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