Consistently ranked as one of the world’s most liveable cities for almost 10 years, Melbourne has positioned itself as Australia’s most sought-after city to call home, surpassing the world-renowned Sydney. Because of its consistent standing, buying an investment property in Melbourne could be a fantastic source of income. However, when it comes to buying and renting property in Melbourne, the competition is tight.
Due to the highly competitive nature of the housing market, there are a few things to consider before purchasing an investment property, such as location, desirability and price. In this article by Cohen Handler, we will deep dive into the Melbourne housing market, providing a guide for experienced venture capitalists all the way to beginner investors.
Analyse the Melbourne Housing Market
Understanding where the housing market stands is crucial when deciding the best time to buy. Over the last 20 years, Melbourne’s property market has seen ebbs and flows, with a rise and fall in property prices. Data by the City of Melbourne shows us the average housing price sat at $300k at 2000 and has since jumped to almost $900k. While in some years, the prices dropped, overall the housing market in Melbourne has multiplied exponentially.
Insights show that the current median sale price for a home in Melbourne’s metropolitan area sits at just under $900k and the median rent price is $460 (per week). Whereas an apartment in metropolitan Melbourne’s median price is $641k, with rent at $430 (per week). While the median price depends on a range of factors including size and location, this average is telling of the market’s current standing.
A high-level overview of long-term benefits to having an investment property can help make your decision easier. With that being said, is it a good time to buy now?
When to buy an investment property (and when not to)
In order to maximise your return on investment, choosing the right time to enter the property market is crucial. A good way to judge when to purchase an investment property is economic stability. Owning real estate when property prices are on the decline can be incredibly crushing. Buying when the market is flat or starting to rise is the best way to make money off your investment.
In Australia, the government changes frequently which has a massive effect on the economy at the drop of a hat. In 2008 there was a global economic crisis which disrupted the world’s economies and in Australia, property prices declined by almost 15%. It’s 2020 and the world is again experiencing another global economic crisis due to the coronavirus pandemic. While it’s hard to say if buying investment property now could see a massive loss in profitability, holding off on purchasing property until the market has completed its boom and bust cycle could help you avoid losing money in the future.
Finding the right investment property for you
The right investment property for you may differ drastically from the right investment property for your neighbour. It’s important to consider all the factors that not only go into buying an investment property, but what makes it profitable.
Consider your financial situation
There are a multitude of costs involved with owning a rental property. This includes, council and water rates, building and landlord insurance, body corporate fees, land tax, property management fees, and repair and maintenance costs, all of which are not included in the initial price tag of a home. While your budget may sit comfortably at $500k, consider incorporating a safety blanket for all the additional costs you may encounter along the way. Being prepared for the worst can ensure you still receive a return on your investment down the line.
Pick the right suburb
Be on the lookout for areas that are expanding their population and local infrastructure. The property value in these areas will most likely appreciate over time as the population continues to grow. It’s also important to get to know your potential investment location. Research the area from rental yield to vacancy rates. Understanding what you are getting yourself into by purchasing a property in a particular area can make all the difference in achieving capital growth from your investment.
Property type is important
Buying a house versus a unit can yield very different results. It will also change the type of tenant you will have renting out the property. You will also want to consider choosing low maintenance properties to avoid hidden costs. Properties that are ready for immediate rent out are ideal for investors hoping to start making income immediately. Also consider that large houses with swimming pools or expansive gardens require more money and time to care for than smaller homes with no yard.
Think about your renters
Considering who will rent your property is half the battle. Are you looking to get a growing family in? Or would you prefer 20-something, young professional renters? Consider what types of useful features they would be looking for in a rental. Whether it’s off-street parking or close proximity to public transport, look at what other units are providing tenants in the area.
You should also pick a property that appeals to the people who are actively renting in the area as well. If the local market is largely comprised of families, while a small unit may be more affordable than a home, these families likely won’t be interested in a little apartment.
The impact of COVID-19 on property investment in Melbourne
Melbourne property has been especially hard hit by COVID-19. As one of the country’s richest markets, Melbourne felt the pinch even more so than the rest of the country, shedding 1.1 per cent of dwelling values in June alone, and more than 2.3 per cent over Q2.
The return to lockdown at the end of June further weakened consumer confidence, slipping 4.5 points within the first week of July. While this is significantly higher than the nadir of the crisis in March, it’s a further blow to already weakened confidence in a year already marred by the bushfires.
This translates into substantially lower auction clearance rates, further hobbled by a reduced number of auctions due to the social distancing measures. Clearance rates for the beginning of Q3 Melbourne sat at 61.5 per cent, which is likely to improve as the crisis lessens and auctions pick up.
Bad news doesn’t necessarily mean poor fortunes for your portfolio. Capitalise on this dynamic situation with help from Cohen Handler and start building wealth for you and your family even today.
Myths about property investment in Melbourne
Melbourne is one of the city’s hottest markets and one of the most expensive cities in the world for property. Like any city that has reached such stratospheric highs, the Melbourne market has accrued its fair share of myths and legends. While sometimes these truisms and bits of received wisdom can contain a little nugget of truth about the market we play in, all too often they only serve to dissuade and mislead otherwise strong investors.
Take the big one for example – Melbourne is too expensive a market for anyone but the rich to invest in. While Melbourne’s median house price came into 2020 at a substantial $900,000, there is a lot to be had below this price. According to a survey conducted by LJ Hooker, more than 37 per cent of landlords in the city reported an annual household income below $100,000. A mum and dad on two very average wages could easily crack that figure, potentially making investing a much more achievable option for most people.
Hand in hand with this is the belief that all of the market is like this – that there are no more affordable homes in Melbourne, or that you have to travel so far out to find one that you might as well not be in Melbourne any more. Simply not true – not only is Melbourne full of affordable homes, some are within cycling distance from the CBD. Coburg North offers prices nearly $50,000 below Melbourne’s median price, while Maidstone can deliver a great period two or three bedroom property for $700,000 (Reference – https://www.realestate.com.au/news/melbournes-most-affordable-suburbs-within-10km-of-cbd)
Don’t fall prey to received wisdom. Get the real facts and make an informed decision for your financial future with help from Cohen Handler. Speak to our buyer’s agents to learn how we could help you start investing in one of Australia’s top markets.
Engage a professional team
Choosing the right investment property in Melbourne requires research and a cohesive understanding of the current housing market. Don’t take the plunge on your own. Cohen Handler is Australia’s leading buyer’s advocate in Melbourne. Representing buyers in the real estate process, our team is driven to give you the representation you deserve during the buying process, ensuring you receive the investment edge you need to achieve a return on your property. For more information on how our team can help you purchase the ideal investment property, call us on 1300 244 768 or email [email protected].