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Empower Wealth Blog post by Empower Wealth

2016 Property Outlook (Part 2) | Melbourne & Regional VIC

Here are the other parts of the 2016 Property Outlook:

Part 1: Sydney & Regional NSW
Part 2: Melbourne & Regional VIC
Part 3: Queensland, Australian Capital Territory and South Australia
Part 4: Northern Territory, Western Australia and Tasmania


Transcript:

Bryce Holdaway: So probably moving on to the next biggest economy, which is Melbourne.

Ben Kingsley: Yeah.

Bryce Holdaway: An interesting sentiment in 2015 for Melbourne I thought because outside of the state a lot of people were I guess thinking don’t go there because we hear a lot of stuff about oversupply. But that’s kind of a generalised statement that we always try and avoid or unpack a bit further because of course we’re avoiding inner city apartments which there are a lot of them.

Ben Kingsley: Yeah.

Bryce Holdaway: And we’re avoiding green fields estates but there are certain – I think there are two parts of Melbourne. Leave the east that really started to hit full value and then just sort of inner west and in the northwest of Melbourne which still represents some good value.

Ben Kingsley: Well, you’ve been in the market. So tell us about what you saw this year.

Bryce Holdaway: Yeah. Well, you could still – if you went into – went in 2015, you could still buy a land position close to the CBD where people would go to the inner west. I’m talking Yarravilles and Seddons and Newports and where people were thinking the western suburbs used to be non-favoured. But I can now sort of look at the city and be 4K, 6K away and if I go the same distance on the other side of the city, it’s double plus 15, 20 percent.

Ben Kingsley: Yeah.

Bryce Holdaway: So young professionals, gentrifying the suburbs, are just going, “This is mad. Why don’t I buy the old weatherboard and do my own renovation at the back and my kids can grow up with other families doing the same thing?” I saw a lot of that. But I definitely think that the street parts of Melbourne are brand new, oversupply Melbourne. Leave the east of Melbourne which I think hit real value but I still saw opportunity in 2015 in the inner west and I still see a bit of that sort of moving forward into 2016.

Ben Kingsley: I think if you look from an economic point of view, probably two or so years ago, I actually thought that Melbourne was running out of steam. But for whatever reason we are – yeah, we’ve reinvented ourselves economically a couple of times. We’ve obviously had it early on. We had the change of government and that sort of said – there were some really good projects that we should have done in the east, west and it’s just a disaster.

But it will be built at some point in the future and that’s the type of infrastructure you really want to see in a big city where corporations around the world are looking at relocating to Australia and you make dumb decisions like that. That really annoys me. But coming back to the point around that economic activity, population growth is still strong.

It’s still very liveable as a city except for our congestion and probably poor transport infrastructure. But that will change over time because I think the climate is starting to be recognised even though we just don’t have the storms that Brisbane and Sydney and those sorts of places are having.

People will start to take those types of considerations in their buying interest as we go. So very talented group of people. I mean very smart, strong university basin and I think the story around the low Australian dollar is going to bring a lot more international students back in.

I mean if you look at the international student numbers, they draw it up when – you know, the dollar pegged against the green-backed, the US dollar. So I think once we see that coming back down, I think our universities will see the benefit of that and I think even areas like Adelaide, you know, we will jump there in a minute, but areas like that are also potentially going to benefit as they put more money into trying to attract that international student.

Bryce Holdaway: It seems to get more consistency as that major metropolis where it has got the breadth and the depth of industries so it doesn’t rely on anything more so than Sydney does because it seems to be a hell of a lot more cyclical in Sydney than Melbourne. It continues to be quite strong.

So yeah, no, I think what’s really important for our viewers here is a lot of the sentiment outside of the state is around investing in apartments but for us, it’s very specific about the apartments that we buy. They’re really re-changing the definition because we buy the old-fashioned flats in the old 1970s blocks that don’t have the pool. They don’t have a caretaker. They don’t have a lift. They got a beautiful Victorian next door and a beautiful Edwardian on the other neighbour and they’re going to drive the price around those lifestyle locations.

So it’s important to get your definitions right because flats and units, the old school definition versus apartments which it’s – it kind of conjures up that brand new image. That stuff we’re avoiding but the older stuff in the quieter, leafy stretch, they’re still in demand.

Ben Kingsley: They are and we only need to then sort of say, OK, with scarcity, population growth, the villas, the townhouses – you know, if the footprint of three bedroom or four-bedroom duplexes, townhouses, and even the 2.5-bedroom flats, those types of places I think have got a real opportunity for buying opportunities in those markets.

Again, we’ve got to be very selective because we have seen some really strong growth in the Melbourne market and that – you know, from a point you’re still looking at your numbers and you’re analysing and you’re thinking, “Are we done?”

So for me, generally speaking, Melbourne is probably a watch as opposed to a buy but we will still cherry-pick what – 40, 50 properties this year in Melbourne at some point. So that’s the type of opportunity, getting this type of market where you’re assessing across the market usually 500 or 1000 properties a year. You’re getting down to that granular and we know the streets with the highest incomes. We know this sort of stuff. We’ve got our alerts and that’s what allows us to do that. But generally speaking, I think Melbourne will be a softer market in 2016.

Bryce Holdaway: I think it’s a good point you said, “generally speaking”. It’s going to be more of a watch but in specific pockets and markets within markets, there are still really good opportunity but I think – for example, when you talked about the four-bedroom house earlier.

Ben Kingsley: Yeah.

Bryce Holdaway: We bought a four-bedroom house in Newport which is inner 10 kilometre race, about 7km from the Melbourne CBD. That stuff is going to get scarcer and scarcer and scarcer. So again being selective as you mentioned but Melbourne en masse probably really need – you need to know what you’re looking for in Melbourne.

Ben Kingsley: Yeah.

Bryce Holdaway: But there’s some opportunity.

Ben Kingsley: Rural Victoria.

Bryce Holdaway: Yeah. Well, I mean you like the – I guess the regional areas close to the border. But I think it’s a little bit away from being in there en masse. So …

Ben Kingsley: Yeah. It’s definitely very selective. We’re talking Wodonga. You will look – geez, maybe one a year or two a year that just scream at us as a strong buy. In terms of our commute from town, we bought a lot of properties in Ballarat, in that area. I ran that sort of 2010, 2012 mark but for me, it’s just – there’s not enough signs of strong growth. Melbourne is still the employment hub that people want.

There might be some opportunities along the peninsula, the sort of Geelong areas and those types of things but especially with that direct train, that will sort of see us putting some rules over on some of the – again the scarcer type assets, the fewer type assets down in those marketplaces because it is a city within its own right. Small city at that on global terms but a city with its own right.

So again, if the opportunity presents itself, but I’m not sort of everything on black for Geelong or everything on black for Ballarat or those types of areas. You might get the odd opportunity but I would be more hesitant than confident.

Bryce Holdaway: I think in 2016, based on the sentiment and where we’re at, I think the safety of a capital city job market isn’t a bad thing moving forward. So for me, I’m not looking at anything in regional …

Ben Kingsley: We’re sure to acknowledge that those areas has had good growth.

Bryce Holdaway: Yeah.

Ben Kingsley: So the reason why we’re not so bullish on these is because the clients that we bought for did terrific but it has plateaued and that’s the point we’re sort of making. So we’re watching the availability because there was a lot of new construction being built there. So vacancy rates arising and really for regional market unit type vacancy rates for growth. It’s as simple as that. So if you don’t have those – so we got in nice. We got some really smart yields. Value has been higher. Our clients high-fived and we moved on and that’s what you need to do to be able to just invest in.

Bryce Holdaway: We got a lot of self-managed super fund clients who want to pick Melbourne specifically because they’re putting in large cash deposits. They’re not accessing it for 20 years and they see that the population in Melbourne is tipped to be more popular than Sydney over time. So again, tailoring the advice for the individual circumstances but as a general sentiment, it would be fair to say be cautious. Yeah?

Ben Kingsley: Yeah.

Bryce Holdaway: Yeah.

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