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Empower Wealth Blog post by Empower Wealth

2015 Australian Property Market Outlook | Part 2 – Melbourne and Regional VIC

For the second part of our 2015 Property Market Outlook, we focus on the Property Market in Melbourne and Regional Victoria. What are the current building approval rates, how is it affecting the property values and the future of residential real estate in Melbourne? Will the current inflow of migration be able to support the demand for property in the city area or property investment potentials are better found elsewhere?

Ben and Bryce will also be talking about investing in Regional Victoria such as Ballarat, Bendigo and Geelong. As our clients would know, Empower Wealth had been buying in Ballarat a couple of years ago but is it still the market to go? Are there better investment opportunities in other regional areas? Watch this video to find out.

The 2015 Australian Property Market Outlook is broken into six short parts.

Part 1: Property Market in Sydney and Regional NSW
Part 2: Property Market in Melbourne and Regional VIC
Part 3: Property Market in Brisbane and Regional QLD
Part 4: Property Market in West Australia, South Australia and Tasmania
Part 5: Property Market in Northern Territory and Australian Capital Territory
Part 6: Summary of Australian Property Market in 2015


2015 Australian Property Market | Melbourne and Regional VIC [Transcript]


Ben: So let’s look at Victoria now. Let’s start with Melbourne. It has had a great run. Melbourne has been stunning for pretty much the last decade.

There obviously have been a couple of periods of soft growth but overall, spectacular, really driven by the immigration story and the lifestyle story that is Melbourne.

Multicultural, lots of activity, lots of cultural events and people networking with each other. It’s just a great place to live and obviously we’re fortunate enough to live here in Melbourne and it has been a terrific run but again, I think it’s the pace of growth story and it’s going to be a story around really specific buying in the Melbourne property market. Isn’t it Bryce?

Bryce: Yeah, that’s what we’re finding on the ground. So I mean the fact that Melbourne can still attract the people who are looking for good-sized incomes even from interstate, and that’s some of the challenges that interstate has.

Ben: Yeah, definitely.

Bryce: Still makes Melbourne a good market to consider. But you really do need to run the ruler over the areas that you’re looking at and just because they worked last year and the year before – in fact, we’re looking a little bit outside the square in terms of our team on the ground to make sure that what we’re buying is again not sort of just buying because we bought it last year but being really specific.

I think largely around a bit of a yield play and I think that’s a bit of a story that we will have across the country in terms of where you buy.

Ben: True, because the Melbourne market has grown so strongly and had boosts on each of the cycles that the yield is playing catch-up. So when it is playing that type of catch-up, we obviously see that it’s a challenging market to try and get that balance right.

So again, we’re probably on a percentage basis doing more buying outside of Melbourne that we’ve done in the last three years. So that’s an interesting story. The story of Regional Victoria, let’s sort of do around the ground and the real major centres that we’re looking at, Ballarat, Bendigo, Geelong, those axis send us back to the city locations.

It’s no secret that we bought a lot of properties in the Ballarat market in the last sort of 18 months to two years in excess of 50 properties we bought in those particular markets. That was a nice yield play with that sort of growth story coming in behind it. But we’ve enjoyed double digit growth in those areas and now it’s not time. We’ve had the run and that’s what happens in those regional pockets. They run and then they stagnate. So it’s really a timing story, isn’t it?

Bryce: Yeah, it’s a nice story for our clients too to actually say that because it was a bit of a leap of faith when we were suggesting that they go into that Ballarat market and they were buying at the high 100s, early 200s. But for the similar types of properties now, they’re at that mid to high 200s. So it’s nice for them to actually see that they actually did put a bit of faith into that – I guess that location. It served them well. They’re getting good yields but you don’t really want to be – if you’re taking the – if you’re taking advice from the taxi driver about that, you’re a bit too late.

Ben: Yeah, yeah.

Bryce: And some of these regional locations are probably a bit too late, but there are opportunities like when we were in Ballarat two or three years ago that exist elsewhere, that might give you that nice sort of run, but potentially it’s worth a pause in those markets.

Ben: Yeah, it is. So again with Geelong, obviously the change of heavy industry and manufacturing, Ford, Alcoa, those types of things, so even though a great lifestyle drive is down the Surf Coast, from our point of view, we’re still sort of saying it’s a wait-and-see market and we’re probably – again, the pace of growth, it might get some flow on but – at our point, we don’t see the demand hitting that market heavily. So we’re out of that market as well at the moment.

Bryce: So another thing to think about in Melbourne is quite often when I’m talking to people from interstate, they often sort of give us the headline chat about, “Isn’t Melbourne a bit oversupplied right now?” So I think it’s an important thing to chat about because as a rule, we don’t buy brand new properties anyway. But I think the oversupply of properties that are coming for off the plan apartments or whether it’s house and land packages, more than ever, we need to be cautious of those because there is potentially oversupply in those selected markets.

But when you are talking about Melbourne and you are talking about oversupply, it’s important to sort of sort through what that statement means because the properties that we’re targeting are established properties in built-up areas that are investment-grade suburbs that are very specifically targeted and pinpointed.

Ben: You make a great point Bryce. I think if I can jump back into the Sydney property market and make that exact same point. We’ve actually just seen over – just slightly under 200,000 dwelling approvals which is a record number since – you know, records have been kept since – I think it’s about ’83. So we’re actually – usually we see around 130,000 to 150,000 new dwellings, approvals and builds.

We’re now at a stage where historically the first time ever, we saw more units built last year than we did houses and that’s the Sydney story as well. There are pockets of Sydney where as this confidence lifts, the bank lends money to the developers and all the stocks start coming online in an 18-month lag and all of a sudden, we’ve got this oversupply in areas like Parramatta and some of these sort of higher density types scenarios.

So we can be exposed and you’re thinking, well, I still bought that little existing home around the back or the apartment or townhouse. But there’s so much stock that the tenants are leaving to sort of try the new stuff for a while, so that’s the challenge you’ve got in that particular market as well.

Bryce: So the two big cities have had a good run but you do need to be really specific about what you buy in those particular markets now.

Ben: You do. So if we look at the other areas of the Victorian marketplace, I don’t think Albury or Wodonga at this stage. I’m still worried about the amount of development that’s going on up there and the land supply that’s available there and the job security. So from that point of view, they’re pretty much the big pockets that we’re talking about. If we got into Hastings, Sale and Tooronga that type of area, not seeing any sort of – the Port of Hastings, this gets built and that could be a bit of a game changer, but that’s sort of on the back burner at the moment.

So really that wraps up Victoria. Let’s move into Queensland, our third …

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