Melbourne’s Lower-End Properties Showing Growth

Melbourne’s lower-end properties are showing strong capital growth presenting opportunities for savvy investors.

The Australian recently reported that Sydney’s luxury residential real estate is a better earner than mid-range and budget property but the reverse is the case in Melbourne.

According to new CoreLogic data, the top 25 percent of Sydney real estate recorded strong capital gains of more than 14 percent in the year to August, while middle and bottom-ranked property each earned 12.9 percent.

However, in Melbourne, the bottom 25 percent of properties were the best performers, jumping 15 percent in value in the past year, while the top 25 per cent rose by an average 12.5 per cent. The middle 50 percent saw gains of 14.6 percent.

In short, Melbourne’s cheaper properties were showing much better growth and more activity compared to Sydney.

CoreLogic’s Head of Research Tim Lawless was quoted as saying that: “Melbourne has a significant competitive advantage over Sydney in terms of being able to offer more affordable housing, and the data seems to suggest that lower-priced housing is a big driver which has led to a surge in values across the lower and also middle segments of the market”.

Mr Lawless also said the auction clearance rates were high in the city’s affordable outer-western market, while they had fallen below 70 percent in the more expensive inner-eastern suburbs such as Toorak and Brighton.

Cohen Handler’s Scott Hall agrees that there was great potential in Melbourne’s outer-western suburbs.

“Melbourne’s median house price is circa 70 percent that of Sydney’s so we agree that in part the growth at the lower end of the market has been driven by a lower base cost,” Scott said.

Other factors driving the lower end Melbourne market include:

  • Population growth – Census figures indicate Melbourne is experiencing strong population growth—circa 2,000 people per week—all of whom need somewhere to live. The migrant Chinese and Indian communities have been particularly dominant players when it comes to property purchases.
  • General confidence in the Melbourne market – Contributing factors include Melbourne being crowned the World’s Most Liveable City for the seventh year running, and a greater willingness by the Victorian State Government to invest in infrastructure projects.
  • Interstate investors – In particular, Sydney investors are seeing lower-priced Melbourne properties in the outer west as an attractive option. For example, a Melbourne house with a significant land component and yields 3 percent and above are more attractive than a Sydney house or townhouse that will be further away from the CBD that can be achieved in Melbourne.

 

Cohen Handler’s Brad Willmott, also from the Melbourne office, agreed that there were definitely some lower value properties showing excellent results with investors enjoying healthy capital growth.

For example, Cohen Handler purchased a property for a client in May for $450,000 in Flemington.

The two bedroom renovated apartment with one bathroom and one car space increased by $55,000 in just two months – based on the $505,000 sales price achieved for an identical apartment next door selling just two months later.

For property investors, it represents a great time to explore the Melbourne property market and capitalise on its general confidence, growth and potential.

Cohen Handler’s Melbourne team of expert buyer’s advocates are specialists in finding the right property for you at the right price. If you are interested in purchasing an investment property in the outer western suburbs of Melbourne or any area we can assist. Contact us now.

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