The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.

Category Archives For: Property Investment

The Secret Agent Report – True Capital Growth

We have just released our latest Secret Agent report!

Averages are frequently relied upon to determine key indicators such as capital growth. While an average may be a quick and easy metric to measure a data set, it can also produce very misleading results. This is especially true when looking at the capital growth of a suburb. Changes in average property prices and actual capital growth are not the same thing. There are many factors that determine the price of a house and the average growth in property values. Using more reliable methods, Secret Agent uncovers the true capital growth of suburbs across inner Melbourne.

Start reading this report by clicking on the link below:

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Deflation and Commercial Property

For the first time since December 2008 in Australia, consumer prices have fallen. According to the ABS, the March 2016 quarter saw the consumer price index fall by 0.2%. This is big news.

Whether the deflation numbers are noise or signal, it’s hard to say just yet. However, it poses an interesting question: what would be the impact on the Australian property market if deflation were to creep further into our economy? Secret Agent intends to cover this a little further over the coming month, but for today, let’s look at the impact on commercial property.

Commercial property is a much desired asset for investors. The allure of a lease that guarantees the investor a return over a period of time is highly attractive, especially in a world of low returns. Rent increases every year are a common component of leases and either a fixed percentage increase or CPI measure is used. This begs the question; what happens if we continue to move into deflationary conditions?

While most new leases use a fixed percentage increase, some leases are still using CPI as the rate of increase. Also, many older leases that are still current operate on a CPI basis. We may start to see leases that produce rent decreases for tenants annually and erode the value of some buildings, especially where long leases and terms have been secured by tenants.

The current reality is that negative bond yields are being acquired globally. A world with deflation could mean future tenants secure a fixed rate of decrease over the term of the lease, or negotiate hard for CPI-only leases.

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Bond Yield Update: April

Yields down since last month and almost back to levels in April 2015

As part of our continued series on interest rates, Secret Agent has been tracking movements in the bond yield curve since late last year. If you don’t know why bond yields are so important for property investors, download our yield curve report.

So far this month, short, medium and long term treasury bond yields are down by between 0.06% for 90 day bills and 0.16% for 10 year bonds. This is shown below.


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Why You Can’t Trust Averages

Changes in average prices are frequently used by commentators to draw conclusions about the property market. Our recent post on Fitzroy’s true capital growth gave some insight into why statistics like averages and medians are not sufficient to make judgements on property value in a given suburb.

To find true growth in value, many factors including property size, location and renovation levels need to be accounted for. This can be done by observing resales of the same property over time, given no structural changes have occurred between sales. When we compare the annual average price changes (reported) and our own index based on resales only, we start to see that capital gains are mostly exaggerated using averages alone.

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The Secret Agent Report – The Yield Curve

We have just released our latest Secret Agent report!

When deciding to invest in the property market, most of us will first obtain approval for a loan, find a suitable property to buy and then pay off the mortgage accordingly, dealing with any rate rises as they come. It can be that simple. A more clever way to invest would be to consider how mortgage rates are likely to change in the near future, prior to making the decision to purchase. This is where the yield curve plays an important part in making general predictions about future mortgage rates.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Yield Curve report now!

The Yield Curve Report

Predicting Mortgage Rates

Historically, treasury bonds have been considered one of the most secure investments that can be made – especially in a country with a stable government such as Australia. The bond holder is almost guaranteed to receive half-yearly coupon payments plus all their principal once the maturity date is reached. Treasury bonds can therefore be considered a risk-free asset and the yield received is the risk-free rate for investment. For a bank giving out a home loan, the interest rate charged usually depends on the risk-free rate plus the risk premium, determined by the likelihood of the borrower to repay his loan.

We’d expect the average mortgage rate and treasury bond yield to behave similarly – that is, when bond yields increase, so should the mortgage rate, and vice versa. When we looked at the average variable mortgage rate and 10 year treasury bond yields in Australia, both move up and down in the same direction, although not always at the same time.

However, when you compare current variable mortgage rates with 10-year treasury bond yields from 8 months ago, we see that a strong relationship exists (see Fig.1). What this means is that we can now estimate the mortgage rate 8 months from now (September 2016).


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The Secret Agent Report – Rent

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”
– Winston Churchill 

In this latest report we look at the state of rents. This is a key issue for investors within the market. The changing cost of money has changed expectations around yield, while newly built supply has created greater choice for tenants. This is an important read for anyone looking to undertake an investment decision, or a potential home buyer looking to establish whether they should buy or rent.

We look forward to March’s report and getting the early indicators of 2015 to you in The Secret Agent Report. It’s one of the most interesting times in the property market in years.
Register to receive our report monthly and access this latest release – Sign up on our Thinking page.

The Rent Report


At Secret Agent we speak a lot about buying property, what to look for and how much value a certain characteristic might add. In light of a fresh new year, The Secret Agent Report considers property from a rental perspective. With more investors in the buying sphere than ever before, there has been an influx of available rental properties in the market, especially in the inner city and CBD itself. This has been compounded by the growing number of new apartment completions from 2012 to 2014 and continuing into 2015.

As uncovered by Secret Agent’s last report, sale prices of apartments have remained stagnant in many inner city suburbs over the past year. This, coupled with record low interest rates make attractive conditions for buyers to strike. However, investor sentiment of late seems to reflect concern about rental yields.

The number of people choosing to rent has increased over the past few years. With property expensive to buy, many first home buyers are being forced to continue renting for longer periods than they would have in previous generations. People are relocating for work more than ever and may prefer the flexibility of renting. Furthermore, there is a continuous influx of foreign students coming to Melbourne to study each year, as well as increased immigration levels. There are plenty of people wanting to rent. The question is: can demand still keep up with newly built supply?

A few years ago there would be crowds lining up for an open for inspection, most people holding their applications in hand already prepared to submit on the spot. Competition was tough.

Now tenants have a lot more choice and with choice they can be more selective. Open houses are less frequently attended and applications come in days later.

There are of course exceptions for properties in well located areas, especially quality houses. The reduced competition seems to have put rental prices on hold. If owners choose to increase the rent, they risk having their property vacant for long periods. This has resulted in many tenants not experiencing a major increase in their weekly rent over the past 12 months.

This report will take an analytical look at the rental situation in Melbourne’s inner city suburbs. In particular we look at the annual growth in rents, the turnover of apartments leased out and annual rental yields within each inner city region. All one and two bedroom apartments were included in the calculation of median prices if their weekly or monthly rents were advertised. Fully furnished apartments for short term leases were excluded from the study. To adjust for seasonality in the rental market, the report focuses on sales in the fourth quarter (October, November and December) of 2012, 2013 and 2014. It should be noted that the results listed are gross yields due to the variable nature of outgoings for each property. To obtain a net figure, one can extract 20% from the median rents. Also stamp duty is not taken into account in this analysis.

Due to the large numbers of student accommodation apartments in suburbs such as Carlton, Brunswick East and Collingwood, the results may be skewed in these areas.

Self Managed Super Funds and Property; What To Look Out For

Self Managed Super Fund purchases are still quite a new frontier in the realm of property buying. The shyness for many investors on entering financial markets has helped create this trend.

However, it has a few more challenges than conventional property buying, these include the level of deposit required, as well as the type of property allowed to be acquired.

We’ve found a list of unacceptable properties that will stop a bank or lending institution providing credit for a Self Managed Super Fund Property purchase:

  • Units or apartments with less than 45 square metres of living area
  • Converted Hotels or motels
  • Churches or places of worship (Converted or otherwise)
  • Residential property with a commercial content or used for a commercial purpose
  • Commercial or industrial property
  • Relocatable homes
  • Leasehold other than Crown Leasehold
  • Any property in excess of 50% per borrower in any one completed development that has a maximum of 8 properties in the development (duplexes are acceptable), or any property in excess of 4 per borrower in any one completed development where there are more than 8 properties in the development.
  • Boarding houses or hostels
  • Brothels
  • Specialised student accommodation
  • Any property subject to a rental guarantee (display homes and State and Federal government properties are acceptable however)
  • Any property that is subject to a ‘two tier’ market
  • Home units attached to management rights of the complex
  • Any property located in a flood zone greater than 1:100 year frequency
  • Any property located on a contaminated site, or land holding greater than 40 hectares (100 acres)
  • Any property that is used for the purpose of farming
  • Specialised or unique dwellings
  • ‘Over 55’s’ dwellings
  • Property with a capital value less than $60,000 (land and improvements)
  • Any property that will require developments of more than two dwellings on it
  • Boundary of property located within 50 metre of high voltage transmission lines
  • Properties with partly finished construction work
  • Serviced apartments
  • Studio apartments or bedsitters
  • Any property located on a island that is not accessible by road
  • Any property with a ‘lease for life’ convenant on the title

Self Managed Super Fund purchasers should seek advice before committing to a property contract, as the rules are tight.

As always, do your homework!

Death in Brunswick: Affordability no more thanks to first million dollar apartment sale.

The end of affordability in Brunswick continues with the sale over the weekend of its first ever million dollar apartment sale. 309/1-3 Dods Street might have gained high attention from its prominent use as a set for the television show “Offspring”, but it also captured the imagination of the buying public thanks to its nice interiors, expansive Brunswick views and natural light.

In recent times Brunswick has been the prized suburb for artists, creative types, drug addicts and all round strugglers. The emergence of the suburb and trendiness has caused many to look further out to areas such as Coburg and westwards towards Footscray.

Up and coming suburbs tend to move through price gradients that determine the residents of tomorrow. Brunswick has moved past the easily affordable price points and is now capturing the yuppie demographic that are enjoying the labour of those who came before them. Brunswick has been living off a reputation as an affordable suburb; however, sales like the above demonstrate the death of affordability in Brunswick.

There is only one way around high prices in growth areas: get down in the mud and do some work…


Big sales are always good indicators of current markets.

It doesn’t get too much bigger than the penthouse of the Eureka which is currently being put to sale by expression of interest.

The price expectation is around the $13 million mark.

It’s one of Australia’s great apartments and the result will be fascinating news to many.