Have you decided that now is the time to get into the Melbourne property market? The time is always right to invest in the world’s most liveable city, projected to soon become Australia’s largest city.
When investing in real estate in Melbourne’s current market, you’re typically making a choice between houses, townhouses and apartments. Each of these have different advantages and disadvantages as we covered in our article House, Townhouse or Apartment?
As an investor and not an owner-occupier, you will have different needs from the property you purchase. Each type of property will have different rates of returns, depreciation and appreciation depending on a variety of factors.
Despite all the discussion of negative gearing with relation to property investors, positively geared properties can be highly effective in establishing and building a property portfolio. Positive gearing is when your investment income is higher than your interest and other expenses, so you are earning returns from the property which in turn increases your income.
An increased income can be great for property investors because it will allow you to access more preferential loans and increase your lending capacity from banks and credit unions to build your property portfolio. In addition, you will be able to leverage each property to fund further purchases.
Apartments typically have the highest rental return as we covered in our blog comparing House, Townhouse or Apartment.
Location is a key consideration in any property purchase, it is especially so when it comes to rental investment. Overall, the suburban Melbourne apartment market is showing positive rental yields and steady annual growth.
While it may be cheaper in outer suburbs of Melbourne to purchase, as a rental investment this is a risky decision - outer suburbs are more exposed to market fluctuations than inner suburbs that present reliable demand and higher occupancy rates.
Location within a suburb is important as well; proximity to transport links, public amenities, educational institutions and business precincts can lead to higher occupancy rates and better returns.
Fundamentally it comes down to supply and demand. If there is an oversupply of apartments e.g. high density areas with apartment towers, then the apartment prices may remain stagnant, If you invest in an area where there is limited capacity for apartment releases e.g. boutique low rise apartment areas, these areas are likely to have demand greater than supply allowing for rental and capital growth.
1, 2 and 3 bed from $449,000
It is perfectly positioned for all your shopping and dining adventures.
When envisioning an apartment purchase, oftentimes people will automatically think about high rise apartment towers in high density areas, it’s important to remember that this is not the only option and it’s probably not the best one!
Boutique apartment developments in low and medium density areas can be a great option: they can deliver better returns and higher capital growth in comparison with high density developments. The amenities delivered by a high-rise building often include pools, gyms and concierges. While this may initially appear like a great selling point on the rental market, these come at a cost in high ongoing body corporate fees and unforeseen large sink funds to update the facilities periodically.
Another factor to consider is the amount of competition in high-density developments, when you are renting the property out or selling it, there will be a number of other apartments competing with yours for renters and for resale.
For these reasons we are seeing a trend for more sophisticated investors to begin shying away from the high density apartment developments and favouring boutique developments instead.
Ultimately, the best investment will depend on your personal circumstances and your objectives with your portfolio.
The golden rule is to:
1. Do your research on the market and steer towards medium scale and boutique developments. In the long run you will never go wrong if you find a location close to educational and business precincts (walking distance is always great) and with proximity to public and private transport links as well as amenities.
2. Don't forget it comes down to supply and demand. Ask yourself which areas have a lot of demand for housing? and which areas have too much supply of housing and apartments?
3. Research who the developer is and only purchase from an experienced developer.
Disclaimer: The information published on this website are of a general nature only and does not consider your personal objectives, financial situation or particular needs and should be constituted as financial or legal advice. We make no warranty as to the accuracy, completeness or reliability of the information, nor do we accept any liability or responsibility arising in any way from omissions or errors contained in the content. We strongly recommend that you obtain independent advice before you act on the content.