Not all property assets are the same – It pays to know where to look
Much has been said about why Melbourne is such an attractive city in which to invest in property. International accolades like “World’s Most Liveable City” seven times in a row; Australia’s fastest growing city; domestic migration towards Melbourne as Sydney prices itself out of reach; and so on.
But these are high level, sweeping statements and not very helpful when it comes to exactly where to find the ideal investment property. Therefore, it is important to dig a little deeper and be prepared to differentiate between certain parts of the city and between different property types.
Adjusting to the Covid-19 economic shock
Melbourne, or any other large city, is not one homogenous sprawl of dwellings. Some areas are much better than others when it comes to investment potential. For example, during the initial post-COVID economic shock, there was the inevitable dip in median house price values as both sellers and buyers adjusted to the confusion and uncertainty of what lies ahead.
However, breaking down the statistics shows that houses in the upper quartile (that is, the most expensive sector) fell in value by a much larger percentage than those in the lowest quartile – the sector which comprises newer, outer suburban, entry-level houses occupied by new migrants, first home buyers and renters. This lower end of the market dipped only marginally after the initial COVID shock and was the first to recover. And in recovery, the median prices of houses in these areas quickly returned to their long-term trend of upward price growth.
Geographically, these lower cost houses are generally located in the outer growth corridors of Melbourne. These areas are vastly different in every respect to the established, high value, inner urban and ‘leafy, bayside’ suburbs where price deflation has been the greatest.
Sustained demand continues to support values
There’s a good reason for this. New housing estates, with free-standing houses, priced affordably, are the preferred housing choice for the largest and most mobile sector of the population. Even with international borders temporarily closed to new migrants, movement of new arrivals from within Australia keep increasing as Melbourne continues to be the destination of choice for thousands of new people every month.
Houses of choice
These new arrivals do not like living in apartments. They much prefer a house on a block – a preference that is accentuated now that more and more people are working from home. A recent survey showed 70% of people looking for new accommodation now prefer a house and garden to an apartment. This is seen in the dramatic increase in vacancy rates and falling prices for inner city apartments, as owners can find neither tenants nor buyers.
Initial minor price falls in outer metropolitan areas are already being reversed and will return to positive price growth as demand for housing remains high in these areas. This current pressure will be further fuelled by a huge pent-up demand over the next year or two as international borders re-open and international migration starts to return.
For the property investor with a long-term view, Melbourne’s ever-expanding outer fringe has always been, and will continue to be, the location of choice with its lifestyle-centred house and land packages. It’s an investment that will deliver both cashflow and capital gain now and long into the future.