The temperature is cooling but the clearance rate remains the same. High 50% or early 60%. Whilst RP Data has come out with a 2.8% drop in the overall median price in May, there are house auctions exceeding reserves by greater margins than those of early 2010. With the dropping of the State Governments bonus payment to first home buyers, we can assume we will see substantial drops in the median house prices in the “new estate” suburbs where the builders will need to drop their prices for new homes in order to get business and therefore substantially affect the prices of established homes in the same areas. The sheer volume of turnover in these suburbs will affect the overall Melbourne median as well.

There is an abundance of apartments coming onto the market in the next five in some suburbs. This will affect rental returns in some areas. Whilst there will be a large amount of new apartments in Richmond, with a vacancy rate under 2% this suburb will handle the growth, but Docklands and Southbank will struggle. With vacancy rates closer to 4.5% and further stock due to be released, I can foresee Docklands and Southbank yields dropping rapidly.

What does this mean to people who are considering buying in Melbourne? You need to do your homework. Some suburbs will continue to drop in value and some are going to have properties that may be difficult to lease out. There are some areas that you will still need to pay a “premium” to get into and there will be some areas that you should negotiate very hard. There are going to be a raft of statistics that are basically useless and there will be some analysis that you must take into account.

I have never seen a greater amount of both information and disinformation floated to the public than what we can see right now. As an investor should I be looking for greater depreciation to assist cash flow, or should I try to purchase an older cheaper property. Should I look at the National Rental Affordability Scheme (NRAS) that was introduced by the government in 2008 in order to look at the tax free benefits the government are offering? Should we buy in a mining town to take advantage of all the investment our mining companies are making?

As an owner occupier, am I likely to find plenty of homes on the market being given away by vendors who, according to the “statistics” have lost tens of thousands of dollars from their purchase prices. Or am I going to be up against five or six bidders at an auction, and have to bid 10% past the reserve.

The answer to all the above questions is yes, or no depending entirely on individual circumstances and individual properties. Some people will need to increase their yield due to their circumstances. Some will want the rental return to supplement their retirement income. Some will want the capital growth over the next twenty years to fund their retirement. In this instance capital growth is more important. Some people can afford to lose the money they are investing and therefore the massive risk in purchasing in a regional mining town may be an acceptable risk to the potential high yield and high growth prospects if you manage to guess correctly. NRAS is a government subsidy scheme to assist people with certain skills to rent in areas they may not usually be able to afford; such as essential services personal living in high rent areas. Some people will look at the tax returns as great assistance, however, others who pay little tax already will not benefit from this scheme as much.

Owner occupiers wanting to live in “new estate” areas need to make sure they do not overpay in these areas. If they do, they may find themselves in a negative equity situation very quickly. There are plenty of homes that can be bought in these areas that are potentially better than buying new.

As you can see purchasing in Melbourne in the current climate needs careful consideration. You can pick up a paper, read one article and then rush headlong into a property deal. You need to do your homework. You need to look at everything that is going on in the market place not just snippets that make the papers or sound bites from a radio or television show. There is no single statistic that will give you all the answers when buying property. But gloom and doom articles do sell newspapers!

If you are considering purchasing a property in Melbourne, either to live in or lease out, why don’t you call for a free, no obligation chat. Purchasing property is one of the largest single investments most people make in their lives; get some help. Get an expert on your side. The vendor already has!!!

Ian James
Director
JPP Buyer Advocates.