With only one smaller weekend to go for auctions for 2014 we look back on what must be said to be a very productive year for property investors. Those buying their own homes and those buying to become landlords. With clearance rates averaging around low 70% we know when all the stats come in we will have seen quite a good jump in the median price of most suburbs in Melbourne.
Whenever the clearance rate and turnover numbers climb, so does price. It is only when these two identifiers stagnate that price tends to be very sluggish. And even though our current federal government is not having a wonderful time and that is set to get far worse with MYEFO (Mid-Year Economic Fiscal Outlook) being released today, many people in Australia are still far better off than they were last year.
With unemployment looking to rise, and the economy slowing down, I cannot see interest rates looking to go up any time soon. In fact as I said in June and September, when all the bank economists were telling us to lock in rates, (I wonder to whose benefit that was) the bias for the next interest rate movement must now be down.
Downward pressure on rates means the stock market usually stagnates, and people look to put their money into other safe havens. The Melbourne property market has always been one of these options. If rates stay low or get lower then I foresee another strong year ahead for price growth in property throughout Melbourne. The fact that the population of Melbourne is still growing faster than any other city in the country doesn’t hurt either. Demand will continue to outstrip supply for a very long time.
Two areas that will perform strongly will be the New Estate / First home buyers’ areas. The simple fact is with lower interest rates it will be as cheap to buy as it is to rent. This will strengthen suburbs like Pakenham, Craigieburn, and Sydenham. All of these areas have good train access to the CBD, reasonable freeway access and the Outer East of Melbourne has some of the best infrastructure in the metropolitan area. In these areas, the purchase price is relatively cheap and the rental returns are excellent. Most savvy investors who borrow the full amount for these properties will be close to revenue neutral from day one. Those who have cash will be looking at around 4.5% yield and about 7-8% growth. Try getting those returns from the bank or the stock market next year!!
The other strong performer will be the villa unit and townhouse market. With the changing demographics now, the quarter acre with the “Hills Hoist” in the backyard is not the great Australian Dream. Many people want the townhouse closer to the city but don’t like looking after the garden or mowing the lawn. The areas around the Inner North and South East Bayside suburbs will be in high demand and their growth rates will flourish. These areas have extremely low vacancy rates as they are in high demands with tenants.
One type of property I would be wary about over the next couple of years is the high rise apartment market. There will be huge numbers of new developments, many of which will be sold directly overseas to investors. This in itself is no real issue as many of these investors pay a premium and it will take many years to recoup their initial purchase price if they wish to sell, but the bigger issue is the drop in rental return in these areas. The abundance of supply means that a greater choice is available to would-be tenants and this makes it far more difficult to rent older style apartments in the same areas.
JPP Buyer Advocates has no preconceived ideas as to what you should purchase. We do not keep properties in our back pocket ready to sell to you. We will listen to what your needs are, then make suggestions as to what would fit that criteria. Only then, do we go out to the market place and source the properties.
So whether it is high growth or high yield, there will be options for both next year. If you are considering a property purchase please call us for a no obligation first meeting. We can explain the different types and styles of properties, what their attributes are and potentially find something that is right for you.
Ian James
Director
JPP Buyer Advocates