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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

Stable vacancy rates and higher rents

Rental vacancy rates have remained under the 3% mark since 2005 – the last time the market was in balance when vacancy rates sat at 3.3%.

The outer suburbs of Melbourne recorded the fewest vacancies where the rate was 1.4%, this compared to Melbourne’s inner suburbs where the vacancy rate sits at 1.9%.

It appears more difficult to secure a rental property in regional Victoria than in the metropolitan area with the vacancy at 1.3%.

Renters can expect to see higher rental amounts, due to shortage of housing and higher competition. More property is now being built, however the rental market is still suffering from the undersupply created between 2005 – 2009.


Where to invest. Inner or Outer?

After reading the median sales price data for 2010, I can understand when people ask why invest in the inner city, when most of the top performing suburbs last year were middle/outer suburbs?

It’s true and poses an interesting debate.

While the outer suburbs might look tempting. We think the fluctuations in any down period will be far more intense in these further out locations.

When the market is strong investment in these middle/outer suburbs can provide for a great investment, however when the market heads south Melbourne’s outer suburbs are always the first to suffer. Investing your money in these suburbs means you take great risk, sometimes for no reward.

Median data can also be a little deceiving for growth.  Many inner city areas for instance will have low turnover.  Low turnover with median sales data seems to skew the stats from reality.


Our Investment Philosophy

We have a pretty strict guide of ‘seven rules’ when it comes to buying an investment property on behalf of a client.

These are certainly not the only considerations.  However we find them to be a successful start and view them as ‘non negotiable’ in the buying process.

Here they are:

I.      SCARCITY OVER ABUNDANCE
II.     LIFESTYLE AND USABILITY OVER SIZE & DISTANCE
III.    GROWTH OVER YIELDS
IV.     QUALITY OVER AGE
V.      FUTURE PERFORMANCE OVER PAST SUCCESS
VI.     MINI MARKETS OVER ‘THE MARKET’
VII.    VALUE OVER PRICE


Capital growth vs Rental yield

When we talk property investment, two main factors generally fight for attention – capital growth and rental return. So which should be more important when seeking a property investment?

We would all like to buy property that have both great capital growth potential and high rental yield, however this is often not the way it works. Generally during any period of high capital growth during a property boom, rents yields will fall, as many are making the transition to buy and property prices outpace rental prices.

Strong capital growth is key to a successful long term property investment, however a rental return needs to be high enough to assist in costs of the property (loan repayments, fees, rates etc). Its important to find balance between the two, however capital growth should be viewed as a top priority when investing.


To rent or to buy?

The age old question of whether to rent or to buy a home is often bought up for debate and has much opinion surrounding it.

It seems the dream of owning your own home is no longer all that present in this day and age. Renting has always been seen as a short term solution and buying a home as the long term commitment, however it seems many will choose to rent over buying these days, this due to a few factors.

1. Renting a home will gives you the choice to mobile – you can pack up and change homes and locations every 6 – 12 months, providing you with a new lifestyle every so often.

2. There is no ‘burden’ of debt – owing a big mortgage to the bank.

3. You will generally have more disposable income – more many to spend on other important things!

It now seems as though renting is a real lifestyle choice and for some people, the best option.


Renting – the new lifestyle choice

For far too long the establishment of property owners have looked down their noses at people who rent.

Renting instead of buying provides many lifestyle opportunities for a tenant. Never having to worry about property maintenance or mortgage payments are certainly two deciding factors. As well as the opportunity to experience a new suburb every twelve months sounds very appealing.

As Australians we are ingrained with the notion of all being homeowners and that anyone who does not own their home is somehow inferior, whereas in many parts of the world to purchase a home is simply a far fetched dream.

Recently Melbourne was ranked as the least affordable city in the country, this will certainly add weight to the argument of renting to be the only option for many people. Renting should not be viewed as a negative or a failure, but as a new lifestyle opportunity.


The next big real estate opportunity – property on main roads?

I’ve always been against property on main roads.  Main roads are a deterrent for many people. With a limited market to sell to down the track – main road buying has always been a big cross from a buying perspective.

Yet things change …

Let’s first start with the evolution of property being built on main roads.  Take a drive on many of Melbourne’s busier inner city roads and you’ll notice impressive period homes.  Many of these homes are generally grander than the homes on the quiet street tucked just behind.

So how did this happen on main roads?

Remember,  these homes were often built in the days of the horse and cart.  Transportation has always been important and it was more desirable to have a sturdy road to travel on with the horse and carriage.  Having a main road property meant easy access to home. Side streets were often dirty and hard to travel on.

The other side was ego.  To show ones home to the world was much more possible on places that could be easily seen.

Main roads living preferences changed thanks to the car and bus.  Loud noises and black choking smoke from these vehicles made these locations now much less preferred.  This happened the world over.  The exceptions here were development sites.

So what’s about to change?

I’m hearing a number of reports from countries such as France were respected investors are ‘making bets’ by acquiring property on main roads and intersections.  Basically investments are made in good suburbs where heavily discounted property on undesirable busy locations reside.

These ‘bets’ are being made based on the following assumptions :

1.  Main road property is currently ‘unfairly’ discounted when factoring in future trends of electronic cars.
2.  Pollution, exhaust fumes,  load noises – all things attributed to main road living will be nullified. General health concerns will also be removed.
3. Property on main road is very convenient once getting past the negative factors.  The proximity to shops,  freeway ramps , etc is generally strong.

The prediction is the massive swing to electronic battery operated cars and other transport vehicles.  Renault is leading the charge together with Better Place which has a setup in Australia.  The technology has evolved so quickly that Renault is about to launch a massive electric car offering and many of the other major car brands will follow shortly.

The electronic car has been developed up to the point of having the same cost,  performance and economy of a petrol car yet without any dirty emissions or noise.  This is on the verge of mass market adoption.

So asking yourself this question :  If over the next decade we made the rapid shift to electric cars and transport.  The absence of noise and fumes – would this make your thoughts about living on a main road a non issue?

For many property renters and buyers –  lifestyle focused property has always meant being close to bars, shops, restaurants and other amenities.

Absolutely no doubt exists that if these big changes were to happen – main road living would be seen in a different light.  We are not advocating splashing out on main road property just yet.

Risks are prevalent on a main road purchase.  The upside could be huge.  Yet the lack of adoption to these new technologies could mean a bad investment.


Routine Property Inspections

A routine property inspection can be a daunting exercise for both landlord, agent and tenant.

Often a tenant will feel uncomfortable knowing an inspection will take place, thinking ‘they think I’m doing something wrong’. Also this can be challenging for the agent and landlord, not knowing exactly what to expect.

Conducting routine inspections is beneficial to all parties for the following reasons:

*Landlords know how their property is being treated
*Tenants can point out any problems and anything that can be improved to make the property more enjoyable to stay in.

If there are any issues with the property, this is the time that they will be discovered and remedied- enforcing how important regular and thorough inspections are.

Insist your rental property be inspected every six months to ensure your tenants are properly looking after the premises as well as they are getting the best possible enjoyment out of the property.


Your investment property tax questions answered

Today I sat down with Frank Trotta. Frank is one of the best property tax experts in Melbourne and was happy to answer many common questions that property buyers want to know when buying an investment property.

The video of the conversation will be released on this site over the next few weeks.

Frank made the observation that he comes across many people who see the tax side of things as an afterthought rather than built in to the initial purchase considerations.

It’s really high calibre advice and we look forward to releasing it.


Furnished apartments – the way to change yields

Yields are tough for residential property investors. Especially those places that have the biggest potential for growth.

Furnished places on the other hand give you an option to capitalise on both. Risks do increase that more vacancy time is possible and a slow down in business arrivals interstate and overseas can hurt this style of accommodation.

However presently I’m seeing good opportunity and demand for this style of property. An opportunity to keep the growth, yet enhance the yields.