Newsletter - Inner Circle August 2017
Inner Circle
Welcome to the latest news from the Property Mavens team.
It’s official - Melbourne is a more popular place to live than Sydney
Melbourne has been crowned the most liveable city in the world by the Economist Intelligence Unit for six years in a row now, and perhaps as a testament to its liveability – or as a result - over this time more and more people have been moving to our city.
In fact, recently-released data from the 2016 Census found more people are now moving to Melbourne than Sydney, with each city adding more than 1800 people and around 1600 people respectively each week between 2011 and 2016.
Sydney’s population grew by 9.8% over the five years, while Melbourne grew by 12%, and is now expected to overtake Sydney as the most populous city in Australia by 2050. Sydney currently has a population of 4.8 million, while Melbourne has just 400,000 less.
According to the Australian Bureau of Statistics, the City of Melbourne’s population increased by 45%, making it the third-fastest growing region in Australia. Wyndham, in Melbourne’s outer southwest, also grew significantly, with a rise of 34%.
Population growth means only one thing for property, and that is greater demand, which will see price growth continue in Melbourne, but only in selected areas and for the right types of properties.
We expect demand in the $600,000 to $750,000 price bracket to particularly strengthen with the abolition of stamp duty for first homebuyers on homes up to $600,000 and concessions for those priced between $600,000 and $750,000, which came into effect on July 1.
Lending restrictions are tightening due to the APRA crackdown, with banks moving to de-risk their portfolios.
Not only are lenders increasing interest rates for borrowers with interest-only (IO) loans, but IO loans in general are fast disappearing. Many lenders are refusing to extend the IO period for a loan beyond the first five years, and it’s getting harder to take out an IO loan.
This means investors are increasingly going to be forced to switch to principal and interest (P&I) repayments. Those that are highly geared will feel the effects the most and may be forced to sell, especially if they haven’t balanced out their portfolio (for every negatively geared property you should have two positively geared properties). At the very least it will make people think twice about growing their portfolio.
If you are looking to extend your IO period or buy with an IO loan it’s best to act sooner rather than later, and shop around lenders if you need to as the window seems to be limited. If the availability of an IO loan determines whether you buy or not, you should act urgently.
For advice on how to balance your portfolio, contact us for an obligation-free discussion.
While the 2016 Census data revealed which areas in Melbourne have experienced strong growth, this doesn’t necessarily make these areas great places to invest.
It’s true that population growth is a key driver of housing demand and price growth, but it’s not the only factor investors must take into consideration. There is a range of other fundamentals that must also be taken into account, including proximity to infrastructure and employment, before then looking at the characteristics of the individual property.
This is where a buyers’ agent can help. We have the expertise to determine which areas have all the required fundamentals, as well as which areas will grow in the future – rather than just looking at past growth, which the Census measures.
For instance, while the City of Melbourne had strong population growth over the five years to 2016, much of this is due to increasing density, which doesn’t make for a great investment. While there are good opportunities in the inner city, it’s in select locations and for particular properties, and we, as buyers’ agents, have the expertise to identify these for our clients. Similarly we don’t see great opportunities in outer areas of Melbourne such as Wyndham, as some fundamentals are lacking.
It’s particularly useful to have a trusted expert on the ground with a strong understanding of the local market if you’re an interstate buyer, which our Sydney-based clients Paul and Elanor recently discovered.
This couple, wanting to capitalise on Melbourne’s future growth, sought our guidance on where and what to buy for their second investment property in the city.
On our advice, they bought a house in Reservoir prior to auction that we identified as having good capital growth potential, aligning with their strategy of generating equity over the long term.
Paul and Elanor made this renovated character home purchase in Reservoir before auction, following the successful purchase of a townhouse in Newport 10 months earlier, where they also utilised the services of Property Mavens.
This low-maintenance Newport towhouse has grown in value by 12% in less than a year; a brilliant outcome. It was purchased in just a few weeks and under budget for $785,000 in post-auction negotiations, and is now worth around $885,000.
While Paul and Elanor, along with many other investors, have benefited from the growth that’s already taken place in Melbourne, they’ll continue to benefit as time goes on, so we look forward to bringing you a growth update on this property in the future.
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