Melbourne Property Investment
Melbourne's property investment has had an exceptional year for price growth, recording increases of 11 per cent in the year to October 2014, according to RP Data. The Melbourne property market is second only to Sydney in terms of property investing capital gains over the past 12 months.
The REIV reports auction levels are at a record high, up by 30 per cent on June last year. In certain suburbs, nearly every auction results in a sale. Both the top-end and lower-end of the market are benefiting from the current growth wave.
However, the rental market in Melbourne is weak compared to other capital cities such as Brisbane and Sydney, with generally low returns and limited growth. The Melbourne property market has the lowest investment property rental yields of any capital city - just 3.3 per cent for houses and 4.2 per cent for units according to RP Data. Rental growth is also subdued, with house rents in the last quarter falling by 1.3 per cent and units up by just 1.4 per cent. Across metropolitan Melbourne, the vacancy rate is a healthy 2.7 per cent, according to SQM research. However, in Docklands and the CBD, availability is around 5.6 per cent. By contrast, the vacancy rate in popular middle-ring suburbs is as low as 1.9 per cent on average.
Overall, Victoria continues to deliver strong returns for property investors, despite concerns about the future stability of the Melbourne property market due to oversupply in some areas. A key factor is Melbourne's continuing strong population growth.
Important to note that a number of property market factors are at play here and this is explained more broadly in the free information pack.
Factors influencing Melbourne's investment property market in 2015:
The Melbourne investment property market has performed very well in recent years. Melbourne continues to experience strong population growth from overseas. Victoria's population has significantly increased above the national average and it is expected to continue doing so in 2014 and beyond. This, along with the gradual rebalance of the marginal oversupply of property for investment, ensures that pressure remains on residential investment property prices in the long term.
Stick to property investing fundamentals and ignore opinions as to where the market is going, whether good or bad. Buying strong investment properties is more about asset selection rather than timing. Timing is impossible to consistently get right. Don't wait for the right time to buy. Wait for the right property to buy.
Like any real estate investment, locating and purchasing the right investment property in the right suburb requires careful consideration and research. Buyers should look for suburbs that have strong positive attributes (more details in our info pack). For example overall appeal, good public transport, good schools, shops, close to arterials and above all, invest in areas that are consistently showing a growth in population.
Affordability. Melbourne residential and investment property sector is performing well and many analysts predict it to continue doing so. Melbourne also continues to show value when considered with the price levels in Sydney.
Pent up demand. Caution required in the short term, many leading economic forecasters believe there is an oversupply of new housing in Victoria especially in the inner city areas of Docklands and the CBD.
High consumer confidence motivates people to make more long term decisions such as purchasing a new home.
Improved immigration numbers. Melbourne's population is now increasing at a faster rate than most other capital cities, with the exception of Perth and Brisbane, which will ultimately leading to an increase in the demand for housing and investment. Population growth is around 2% - well above the national average of 1.8%.
Returns on Investment Properties
Real estate investors in Melbourne should be aware that the prime reason for investing in property is capital growth, and capital growth is driven by the scarcity of an asset. When selecting a property for capital growth there should always be a consistently greater level of demand than supply.
Remember, that when you select a unit as an investment, succumbing to the lure of tax savings is a fundamental mistake for investors. You do not attain financial independence through saving tax - you gain financial independence through the ongoing capital growth of your assets. So, get the location right and the returns as well as the capital growth should follow.
The Annual Return Index measures the capital growth of an investment property together with net rental income, to give an accurate comparison between Australia's cities. Melbourne's residential property will make another steady start in 2014 and continue to do so in the long term. Property investors should be very selective in terms of suburbs they consider for investment property. As always, look at the level of infrastructure and population growth of any property location and market in Melbourne including vacancy rates. Comparisons between the Capital cities are best considered over 7 to 10 year periods with Melbourne, Sydney and Brisbane continuing to be good options for property investment in the future.
Contact us for more information on recommended suburbs and locations in these cities.