By Herron Todd White
With the global economy experiencing a tumultuous year due to the effects of the Coronavirus pandemic, many Australians have felt the impacts this has made on the property market.
While demand has remained fairly steady for properties in some areas, rental property markets have felt the pinch in the past few months. Latest statistics show that Melbourne housing values have dropped 1.1 per cent, the numbers of owneroccupiers had increased in demand by 0.5 percent and demand from investors has dropped by 0.3 per cent. (Corelogic, 2020)
High rise apartments in the city and fringe areas will suffer the largest price fall as a result of the Coronavirus. The past few months have also impacted the rental market as high rates of unemployment have led to many young people exiting the rental market and moving back in with parents, downsizing or sharing rentals to save money. This has greatly reduced housing demand, which has caused a spike in vacancy rates, leaving investors nervous about what’s to come. With immigration coming to a halt as well as a sharp decline in international students, investors will be feeling the pain over the next 12 to 24 months.
We are also seeing quite a number of nomination sales in the CBD market, as many investors are desperate to find a new purchaser to take over their property. Investors are doing this now as they had originally purchased these apartments 12 to 18 months ago and pre-committed to contracts, but with lending environments changing since then, they are unable to settle on their apartments, leaving some with no choice but to forfeit their deposits.
Outer South East
As many Australians are adapting to new ways of life during this pandemic, the property market has been uncertain for many, as there are concerns and uncertainty about job security. First home buyers with job security are leading the way as confidence is returning to the Victorian property market as individuals are motivated by affordability and the flexibility a house and build can bring them.
The newer suburbs within the City of Casey and Cardinia are mainly driven by first home buyers looking to take advantage of the current economic conditions to purchase properties with the help of government grants such as the First Home Owner’s Grant, where a $10,000 grant is available to those looking to buy or build their first home for less than $750,000. Despite the current local demand for housing in these areas, AMP economist, Diana Mousina, predicts that, “demand will fall by about 80,000 for new dwellings due to immigration coming to a standstill due to the COVID-19 pandemic over the next two years.”
The investor market is quiet in outer south-east regions as suburbs in this area are newer estates, which are more popular for purchasers looking to build and then move in themselves as owneroccupiers.
Investors looking to also take advantage in this climate are predominantly looking for wellpresented older properties in established areas, as they are closer to the CBD and within close proximity to public transport, shopping centres and schools. By purchasing an older property in an established suburb, investors can take advantage of renovation grants that provide a grant of $25,000 as long as they will spend a minimum of $150,000. Investors are eager to get started as their property will realise its capital gains.
Inner and Outer East
With changes in conventions for open house inspections, auctions, leasing and other facets of property management, we are adapting to the time we are now living in. There was a strengthening of confidence in the community with restrictions slowly easing, however as of 9 July, the state of Victoria has returned to Stage 3 lockdown protocols, which has not given the market enough time to correct or allowed us to analyse data surrounding this second wave of restrictions being imposed. There is no accurate data on what this second lockdown will do to the property market. More to come on that topic next month.
With restrictions being reimposed, it is difficult to say with certainty that property investors and developers are planning to carry on with big or small projects in the eastern suburbs of Melbourne. The doubt and uncertainty hanging over all investors’ heads at the moment is enough to deter most investors from purchasing property. That being said, there are many families in need of a quick cash boost due to the current financial situation they are facing. The investor market in the eastern suburbs is largely coming from existing owners investing in their own properties and undertaking partial or complete renovations of existing dwellings. We are seeing high levels of this in outer eastern suburbs such as Blackburn, Mooroolbark, Doncaster and Ashburton. The foreign investor market has been strong and steady in Mount Waverley and Glen Waverley for a number of years. The allure of purchasing rundown properties and redeveloping the site with brand new homes has been an attractive and profitable enterprise for local building businesses. This has not stopped due to the COVID-19 pandemic. In fact, the volume of to-be-erected valuations we are completing in these areas over the past four months has suggested that there has been a spike in these developments.
Inner and Outer North
We believe that at present, most demand is generated by owner-occupiers in these areas as many investors continue to be wary of purchasing in such economically uncertain times.
Investors who do decide to take a chance will often find themselves competing against first home buyers and at present we have observed that (while there is still ongoing activity) outer north suburbs have experienced some easing in demand. Inner north suburbs appear to be coping better in staving off the impacts of the economically tumultuous year so far, however given the number of recent Coronavirus outbreaks associated with these areas, we will continue to watch them closely for changes in the market, particularly in the short term.
Prior to the pandemic, investors had been drawn to the outer north by strong rental yields and affordable house and land packages, whereas inner north suburbs have traditionally experienced long-term capital growth but lower rental yields (with the exception of units). We have noted that in many cases, investors in the outer north suburbs appear to be more attracted to new house and land package, and in the inner north, to apartments and townhouses.
Typical outer north suburbs such as Craigieburn, where the median house price is around $540,000, will likely achieve rental yields of around 3.9 per cent. By contrast, in Preston in the inner north, the median house price is $1.01 million and rental yields are around the 2.6 per cent mark. This is a clear example of where investors have traded off on rental yield in the hopes of realising future capital growth.
We do not believe that now is an optimal time for investors to purchase, particularly those who are risk averse. While we believe the recent implementation of the $25,000 Home Builder grant has done much to mitigate a larger reduction in demand in the outer north (where new builds are more prevalent), 2020 is in many ways unprecedented and there may be further declines in the market in the short to medium term.
With the second wave of COVID-19 spreading throughout many Melbourne suburbs, including the west, it’s been a real dampener for many people and businesses who are struggling to stay afloat and trying to make ends meet. It’s been a deterrent for basically anyone thinking about investing in any way in the property market due to the uncertainty we are currently living in. No one truly knows how long this will last or how it will affect the property market. It truly could make or break you if you did decide to invest in a property during these times.
That being said, Melbourne’s western suburbs pre COVID-19 boasted some of the most affordable investment opportunities within Melbourne with high rental yields. To put things into perspective, the west’s rental yield average for houses sits 31 per cent above Melbourne’s gross rental yield of 2.7 per cent.
The highest median house price growth has been recorded in new suburbs over the past five years, led by Aintree, Weir Views and Fraser Rise, all located in the City of Melton. Their price growth ranged from 218 per cent in Aintree, where the median price is $617,000, to 136 per cent in Fraser Rise, where the median is $598,000 (realestate. com.au data).
Investors in Melbourne’s west vary in many fashions. It’s an attractive region for both first home buyers and those seeking an investment property with an aim of rental returns. Being the highest developing region in Australia, with new estates scattered across the region, the most common type of property for those investing is residential dwellings. With affordability being the driving force within the area, most opt for a large-scale builder such as Metricon or Porter Davis to build their home due to the much lower construction prices than that of smaller, private building companies.
Melbourne’s south-west has a completely different investment property market as it steers away from affordability and into quality and prime location. With the residential dwelling market being much higher within this region, many investors look to the unit and apartment sector due to its affordability.
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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.