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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

Investment property and picking cereal – the similarities

‘Off the shelf’ investment options are in abundance. The reason is that they are so easy to offload to investors.

It just takes a year like 2008 to shake the tree and find out the good investment options to the bad ones. In bull markets pretty much everything goes up and only as a wise man once said ‘when the tide goes out – you know who’s been swimming naked’

So you have the cereal approach to investment. You just reach out and take down the box. No rush and certainly no need to think, many hundreds exist and you try and fit the investment rather than the investment fit  you.

The opposite to the cereal approach is the tailored approach. Now this requires more effort and maybe some upfront expense on your part.

You move from buying something in abundance to buying something with scarcity. This requires more time and skills, yet often pays off in the long run.

If a product being offered to you is ‘Australia’s most exciting golf resort with over 1000 apartments to choose from!” then to me that’s a prime example of buying abundance. Seek out scarcity and avoid the cereal choice, it’ll work better for you in the long run.


Rental vacancy rates for August

Rental vacancy rates for August was released by the REIV.

It shows a vacancy in Victoria of 1.7% which is very consistent to the same time last year.

What’s interesting is the outer suburbs of Melbourne vacancy rate. This is 0.8% at the moment, which is extremely low.

Looking at yields in the outer suburbs, they’ve never really interested me that much. The yields are generally too poor.

Yet, if we see the same vacancy rates hold steady – I think then we should see a push up in rents and improvement in yields. At the current vacancy levels, something has to give….


Melbourne’s new road network : 2040

An article yesterday in the Age produced some drawings on a supposedly leaked map from VicRoads.

It shows a new road network and how Melbourne’s roads will look in 2040 to cope with a projected population of 7 million by 2049.

I’ve taken a zoom in here on inner Melbourne. Hoddle Street and Punt Road would turn into a 6 lane road in both directions. Anyone who knows the traffic frustration of getting from the inner north to the inner east will be happy with this result.

Also the freeway from Clifton Hill to the inner west would relieve the bottleneck of traffic that forms in the inner city.

New roads and big changes will mean winners and losers for some property owners. Understanding where these roads could be placed is important to note when considering investing on indeed buying a home.


Many markets within the property market

What I see is that many different markets exist within a market. You have the period home market, the city apartment market as well as the vacant land market plus many many more.

We often talk about the entire market within one breath, sometimes this can be a little misleading to the many different classes of property.

With some of the places we are going for at the moment I can tell you it’s still outright competitive. If you read the papers though you might presume a severe easing.

It would be great if we had some figures on smaller market types. This would be a really good research tool.


Contrarian Investing

According to wikipedia a ‘contrarian’ is one who attempts to profit by investing in a manner that differs from the conventional wisdom, even when the consensus opinion appears to be wrong.

We see signs of this in the property market all the time. It wasn’t too long ago that many people refused to invest or purchase period homes. Buying in the inner city was also un popular yet some of the greatest fortunes in Melbourne have been built by acquiring inner city property when no one else would.


Capital growth and making bets : The similarities

Predicting future capital growth is similar to making a bet on something – it’s by no means a certainty to pay off.

Yes it’s safer than a bet on a horse race or a sporting event, yet I think people generally make too many dud investments because they’ve read a certain magazine that mentioned to expect ‘20% growth at least’ in a particular suburb.

If people could keep score – I’m sure we’d see more people taking notice. By taking score, I mean that most people buy something and then forget rather than analyse.

As property doesn’t have a ‘share price’ that continually fluctuates up and down like a visible index, it’s hard to know whether your decision was the right one. Property is worth what someone else is prepared to pay for it which is only truly realised once you’ve sold that asset. You do however get a pretty good feel as to what something should be worth with some good knowledge of the market.

By using data, likely trends and applying what might be scarce in the years to come, we can start to make some good bets as to how it’ll all play out. But past success is no guide to future gains, be careful of making bets relying solely on past history and performance – it can change in a moment.


Return hungry? Tables like these make tempting investing options

Above is a table prepared by a client of mine who now resides in New Zealand.

He’s kindly sent me some figures on some recent acquisitions he’s made in New Zealand. While I won’t go into address and pricing info,  I can say that the returns are staggering.

He’s currently averaging 10% across the board on his portfolio. This is almost impossible in Melbourne unless you looked into some of the student accommodation market or potentially some furnished options. In relation to the student accommodation market, these are often poor investments and we’ve never advised a client to purchase one.

In Melbourne and most parts of Australia, we bank on capital growth. Anything that is generating a too highly geared return often does poorly when it comes to capital growth because often to be able to offer those returns, that asset needs to exclude the owner occupier market.

New Zealand is a place still battling a depressed market. While I can’t comment on the growth prospects of the above statistics, my client here has an extremely balanced portfolio with plenty of places with high growth predicted. He’s spent months and months on slowly acquiring ones that fitted his return requirements.

It would be nice if this was possible in Melbourne with the opportunity to achieve capital growth. Unfortunately on residential property, it’s almost impossible.


Investing in office space

The real estate office sector is such a volatile investment market.

I’ve never really liked the office market. It’s always unpredictable and believe me, I’ve seen so many people burnt by investing into this section.

The lure of strong returns tends to be the defining factor as to why people invest in the first place. An 8% yield is hard to resist for investors.

The two main problems are this:

1. When the office market is oversupplied, it’s oversupplied. To have a vacancy period of 6 months is not unusual.
2. Reselling on just the return.  When buying, you need to always think about selling. The problem is that by selling on return, you need to have an attractive return to sell (unless to an owner occupier) and to have an attractive return – the price needs to be lowered as a result. Emotion which so often comes into play on the residential market, is simply not there. The scarcity factor is also limited.

Office space also has different grades. A, B and C grade are the normal classifications. ‘A’ class office space will improve the situation for the investor.

Articles like this point to the strength and potential. My thoughts are to still stay away in most cases.

One defining point is that society and work are becoming much more mobile. Companies are finding in easier (thanks to technology) to outsource many jobs overseas, keep staff working from smaller spaces and workers can be mobile out and about with clients.  Also many new companies are electing to start a business remotely to cut overheads and leverage technology.

I’m not sure whether much of the planned office space to come has been clearly thought through.


Some further thoughts on real estate fees and taxation

Often I’m asked about real estate fees and the tax implications involved.

So here’s some info aimed at investors that might be of benefit.

Selling agent fees or buyer agents fees are not a tax deduction. You can’t present these to your accountant and expect these fees to be used as a general deduction.

However you can use the fee to offset your capital gain/ loss when selling your property in the future.

For example, lets say you paid a $10,000 fee to the agent to find and negotiate the property transaction for you. You sold the property within 6 months and made a gain of $60,000. That $10,000 can be offset against that gain bringing it down to $50,000 and then subtracting all further costs.

Always check with your accountant to match with your personal circumstances.


Getting the ‘first one’ right

Having a conversation with a gentleman today, he mentioned that he and his partner thought that if they could get their first property purchase right, then that would put them into an ideal position to launch onto the second one from there.

That’s really smart thinking. The ‘first one’ is so important to get right. It helps to propel future purchasers.

If more people thought this way, I think they would be in a much stronger position moving onto their second or third purchase.