Regional VIC

The Smartline Report – April Edition

The month in review: Regional VIC

By Herron Todd White
April 2016

Outer West
The western fringe suburbs of Melbourne have been increasing in popularity as more buyers make the decision to live or invest outside of the inner and middle metropolitan areas. There is an appeal for home owners buying bigger lots and building larger homes for their money. It isn’t just those getting in at the low end but buyers who take the opportunity to have a bigger home often with higher end finishes and fittings in comparison to what they could buy with the same amount of money in the inner and middle metro suburbs. We are seeing steady and in some cases increasing demand for suburbs such as Tarneit and Wyndham Vale in the outer south-west along with Plumpton, Rockbank and Melton in the outer north-west. With the Melbourne population projected to almost double from its current 4.4 million to eight million by 2051, the development of fringe suburbs will need to continue in order to provide sufficient housing for Melbourne residents.

A number of factors are at play for buyers choosing to enter the market in fringe suburbs, the biggest being affordability. Based on Real Estate Institute of Victoria (REIV) statistics, the metro Melbourne December 2015 quarter median house price was $718,000 and the median unit price was $537,500. In comparison, for the same period Tarneit median house price was $415,000, Wyndham Vale was $365,000 and Melton was $257,000. With median house prices in the outer suburbs being less than the median unit price in metro Melbourne, it is not surprising that so many are purchasing in fringe suburbs. As both owner-occupiers and investors are hunting for affordable options and better capital growth opportunities, looking further away from the city is becoming a common trend. Overall the outer suburb median house price for the December 2015 quarter increased 2.9% to $559,000 and the median unit price rose to $425,000.

These outer fringe suburbs are self-sufficient with amenities, schools and transport. While services and infrastructure has been lagging in outer suburbs compared to inner and middle metro areas, the Government has made this a priority due to the increased volumes of people moving to these areas and committed to updating the planning blueprint and allocating funds for community facilities in late 2015 with a focus on co-ordinating the economic and social infrastructure required.

Those looking to invest are looking to the fringe suburbs in the hopes of finding a bargain that can return strong rental yields. advises the median rental return for Melton is $270 a week which equates to a 5.5% yield. Plumpton has a median rental yield of 6.7% and a median weekly rent of $385. Tarneit provides a lower rental yield with a median of $340 per week and 4.4%.

Although there is demand for existing dwellings in some of the more established suburbs such as Wyndham Vale, Tarneit and Melton there is also strong demand for the new estates throughout the western fringe. With the large volume of englobo land in the west, it is a trend that can continue as long as there is demand. A large majority of these new estates is being planned and developed with various facilities or conveniences to enhance the lifestyle of residents including shops, cafes, schools, day care and sports and recreation amenities. The appeal of the strict design guidelines and presentation of the estates is considered attractive as it helps to create a pleasing and cohesive aesthetic. While some buyers may see it as a detraction to live in a uniform estate, others see it as a positive and prefer the consistency. The appeal of building a new home is continuing to be popular and in part driven by the restrictions on overseas buyers to invest in new dwellings.

Ballarat continues to see the $200,000 to $400,000 housing market the most commonly traded. This market reflects the affordability for first home buyers and young families. Within this market suburbs that are performing strongly include Ballarat East, Lucas and Delacombe. Ballarat East provides period, older style housing with a central location in comparison to the more modern suburbs of Lucas and Delacombe.

Lucas and Delacombe provide a trade-off of location with modern housing conveniences. These fringe suburbs are unlikely to show marked increases in value in the short term due to excessive supply with increasing numbers of subdivisions coming onto the market. Fringe suburbs on the eastern side of Ballarat such as Brown Hill provide more opportunity for growth with good demand due to the accessibility to the freeway for Melbourne commuters, however with a higher price point due to this factor.

While these fringe suburbs are unlikely to experience growth in value, they continue to provide a good quality, stable, long term investment opportunity with good rental returns of around 5%. Demand for rentals within this market remains strong.

Currently demand for these outer fringe suburbs remains steady with a growing population resulting in expansion of the city boundaries. Lucas and Delacombe both include plans for increased infrastructure such as shopping centres, schools and parks. While planning for these facilities is in place, there remains a lack of transport infrastructure servicing these areas with road access to the CBD becoming increasingly busy with the fringe expansion.

From an investment point of view, both owner-occupiers and investors face a trade-off between inner city, older suburbs with older housing and good potential growth versus the option of low maintenance, modern housing with lower capital growth on the fringes.

Mildura is the centre of a large irrigated horticultural district and within 30 kilometres there are a number of smaller towns and communities which either pre-date Mildura or were developed to support the surrounding farming communities. These small communities include Nichols Point, Irymple, Red Cliffs, Cardross, Koorlong, Merbein and the NSW towns of Buronga, Gol Gol, Dareton and Wentworth. All of these communities have primary schools and the larger towns have the usual shopping and recreational facilities.

Those communities within 10 kilometres of the centre of Mildura generally have real estate values which closely track those of Mildura, while the more remote towns are more affordable and generally have less capital growth. Examples of towns more than 10 kilometres from Mildura include Wentworth, Merbein and Red Cliffs. Purchasing a home in these towns is an option for buyers not able to afford a similar standard dwelling in Mildura, particularly those seeking larger lot sizes.

Typical values for a 3-bedroom, 1-bathroom older residence in Merbein are in the range of $120,000 to $160,000 and show rental levels of $200 to $250 per week giving a gross yield of around 8%. Yields are similar in Wentworth but a little lower in Red Cliffs. Red Cliffs has enjoyed relatively strong population growth in the past ten years, with several new subdivisions completed to capitalise on demand from people happy to live in a small town and often employed by businesses in the Iraak and Nangiloc irrigation districts further to the south. The recent decision by Treasury Estate Wines to close its bottling facility at Iraak has affected approximately 100 employees, many of whom lived in Red Cliffs. Demand for rental accommodation in Red Cliffs has consequently declined.

Our advice to investors is that buying a home in the fringe towns will often result in a higher yield, however history has shown that capital gain has been low compared to Mildura or the towns closer in.

The fringe suburbs of Warrnambool consist of North Warrnambool, Dennington and the Gateway Road subdivisions. These locations provide an affordable housing option for low to middle income earners as well as good entry level investments. The majority of these suburbs consists of recently built, brick veneer dwellings with house and land packages starting from $320,000 and established dwellings averaging approximately $370,000.

These suburbs are providing good rent returns for investors, with rents ranging from $350 to $450 per week based on the size and age of the dwelling. Agents advise that tenants are preferring these suburbs, which provide newly constructed properties with at least 3-bedrooms and 2-bathrooms, to those closer to the CBD with older dwellings with a single bathroom.

North Warrnambool appears to be the suburb performing best which can be attributed to the recently completed infrastructure and access routes to the CBD. Long term you would expect a higher capital growth closer to the CBD but these suburbs appear to be able to maintain good rental levels and relatively good affordability.

Horsham’s residential real estate market continues to provide a stable investment for both owner-occupiers and investors. The urbanisation of today’s population is bringing senior members of the community to central service hubs such as Horsham and generally increasing the larger centre’s ability to attract and retain the younger generation and continuing its population growth. In turn this brings about expanding outer built up fringe areas and increased prices for inner city property located in close proximity to shops and services.

As real estate in inner city Horsham continues to appreciate, more and more buyers are looking for cheaper alternatives. In larger centres such as Ballarat or Melbourne, this would see buyers moving further out of town into the suburbs and becoming more reliant on the local neighbourhood shopping centre. In Horsham, this phenomenon is generally different and sees families moving to smaller nearby town such as Murtoa and Dimboola that are located within a 30 minute drive of Horsham but maintain schools and local shops. House prices in these smaller towns are significantly lower than Horsham. As an example, Horsham’s current median house price sits at $290,000 while Dimboola’s median house price is a far more affordable $120,000. When weighing up size and affordability, regional towns are definitely an option.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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