The Smartline Report – November Edition

The month in review: Melbourne

By Herron Todd White
November 2015

Eastern Suburbs

Investors are very active in Melbourne’s eastern suburbs, in particular Glen Waverley. Typically, investors in the Glen Waverley residential investment market are from overseas.

Residential stock located within the Glen Waverley Secondary College zone and within walking distance of The Glen shopping centre and Glen Waverley metropolitan train station are particularly appealing to investors. This is typically due to Glen Waverley Secondary College’s academic reputation among the local and Chinese communities and the practicality of being near a major transport hub and shopping centre. The location map below pinpoints where these three major drawcards are located.

Looking at detached housing specifically, investors can be attracted to dated dwellings in original condition on at least circa 650 square metres which may be suitable for future subdivision or redevelopment. Under the Monash Planning Scheme, dwellings within close proximity of Glen Waverley Secondary College and The Glen shopping centre are typically located within a General Residential Zone Schedule 2 (GRZ2). The planning schedule to this zone outlines that there is no maximum building height requirement for a dwelling or residential building within the zone. This feature encourages higher density living and development in the area.

The entry price point for a typical original single level detached brick veneer dwelling on a 650 square metre site located within the Glen Waverley Secondary College zone is around $1.3 million. The entry price point for a typical circa 650 square metre original single level detached brick veneer dwelling located outside the Glen Waverley Secondary College zone is around $900,000.

Typical yields for newly completed two storey brick veneer detached dwellings with a double garage range from circa 2% to 3%. Typical yields for newly completed townhouses in Glen Waverley range from circa 3% to 4%. Typical yields for newly completed apartments range from circa 4% to 5%.

Speculative off the plan apartments have been of considerable interest to investors in the Glen Waverley area. Recent apartment developments within walking distance of The Glen shopping centre have almost sold out within hours of being put to the market for sale with strong interest from investors. Such apartment complexes include the Galleria tower that media reports have said sold 100 apartments in just 90 minutes in early October 2015. The Ikon apartment complex located directly adjacent to the Glen Waverley train station also experienced a similar rush in under 24 hours from overseas investors wanting to buy in the popular area when they were first offered to the market in 2012.

2015 has seen a strong increase in capital values in the area, however recent legislation changes to foreign investment regulations in conjunction with lenders tightening lending criteria to investors (both local and foreign) has led to signs of market conditions cooling in recent weeks. However premium properties or properties which offer a point of difference are still hotly contested and achieve strong results. Should a significant change in current market conditions occur whereby investor demand significantly dropped we would expect to see a decline in property values in the area, especially in those properties which have risen sharply over the past 24 month period.

Melbourne CBD

Melbourne city town planners have approved the construction of over 20,000 apartments within the next four years which shows that Melbourne’s inner city apartment market is still highly attractive compared to the approximate approval numbers of Sydney’s inner city of around 5,500 apartments to be built in the next four years.

The Melbourne unit market remains strong for investors and the residential investment market is predicted to become stronger and is only at the early stages of growth. The RBA has flagged this investor trend as a concern as recent reports indicate that the apartment market is beginning to soften with prices remaining steady and rental vacancies relatively high with a large uncertainty for popular international students who are attracted to these rental opportunities.

The risk of a downturn in the unit market is high with the potential problem of an oversupply of units within the city and inner city areas.

According to REIV the medium unit price for metro Melbourne (September 2015) is $ $532,000 with a 2.6% quarterly change. The outer city apartment market experienced a 3.9% quarterly change indicating growing market activity within the outer regions from investors. ( property-data/median-prices/median-unit-prices)

Melbourne 1

South Eastern Suburbs

Middle south east and bayside regions appear to be attractive for investors. Depending on the property investors choose, they may invest in detached housing to get the negative gearing investment for tax benefits for future capital growth or development opportunities or they can invest in apartments with slower capital growth, but with high and stable rental yields. Established areas provide a choice of different property types which can meet any investor’s goals. Currently investors in middle south east and bayside regions are fairly active and are purchasing detached houses, townhouses, units and apartments.

Outer south east regions appear to be mainly attractive to first home buyers and families with medium household income. Investors are not very active at this stage due to low capital growth and consistent competition from the construction and development industry, which continue to offer affordable brand new housing. Investors who purchase in outer south east regions are looking for investment diversity geographically and also to meet different investment targets such as finding long term tenants for stable rental yields.

Middle south east and bayside areas consist of local investors in established markets and mainly overseas investors for brand new strata townhouses and apartments. Bayside offers consistently strong capital growth with stable rental return of 4% to 4.5% for units. Rental yields for apartments and units experience a stronger rent in comparison to the housing market in general. The outer south east area is mainly dominated by local investors aiming to achieve long term stable cash flow in terms of rental income.

Investor goals can differ and therefore they will choose the market and area to meet their targets such as consistent cash flow, low vacancy rates and high rental yield. Investors in the outer south east area are looking for long term tenants who will stay in the property for two to five years. They are usually young families with children in primary school who are willing to rent a new detached house with private backyard and easy access to local parks, shopping and schools.

The medium housing price in the outer south east area can range from $380,000 to $450,000 for a single storey dwelling and $550,000 to $630,000 for double storey residence. However investors in this region typically do not spend more than $500,000, with current rental yields in the outer south east area generally ranging from 4.5% to 5%.

Townhouse and unit markets are emerging in outer south east areas and appear to be mostly an untested market. Some developers offer limited stock of townhouses called “cityliving” which engage people by offering close proximity to schools and parks and to reside in particular estates at a more affordable price, whereas townhouses and units appear attractive in the bayside region due to higher land prices and more expensive detached housing. Rental yields are also higher in the bayside area for townhouses and units compared to detached housing.

Investor activity within this area will not be as sustainable over the coming year as banks begin to lend less for investment properties. The hardest hit properties will be off the plan apartments. With the lack of confidence for investors combined with expected cash rate rises from the RBA on the horizon, it is unlikely that investment levels will grow in the medium term.

It has been suggested that not only would there be a decrease in house prices, but due to falling house values, home owners will cut back on spending as they will consider themselves to be worse off than before as their safest investment, bricks and mortar, has lost some of its market value.

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 – 2015. Australian Credit Licence Number 385325


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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.