Melbourne Housing: The rise of the middle suburbs

Finance Sep 25, 2017
Melbourne Housing: The rise of the middle suburbs
Melbourne Housing: The rise of the middle suburbs
Property affordability in Australia, in particular Melbourne, continues to be a really hot topic of discussion. Supply is struggling to meet demand and houses are taking less than a month to sell1 in this speeding market. So, what does this mean for the average Aussie who wants to buy their first home or upgrade their current home to fit a growing family?

Initially, it means there’s a need for more houses. But with the fringe suburbs being snapped up by developers for high-volume apartments and property prices rising at a rate of over 12% per year2, people are starting to move away from the inner suburbs.

And I’m seeing the rise of the middle suburbs.

I recently had a client purchase a neat house3 in Reservoir for $990,000 which is a good buy in today’s market and the prices people are paying in this part of Reservoir.

However, it made me remember another couple who were looking in the same area just three years ago in 2014.  This couple were first home buyers and were chasing that magical purchase at $600,000 so they could claim the First Home Owners benefits.  Back then, before the July 1st changes4, for a $600,000 purchase they would save around $15,000 in stamp duty under the First Home Owners Grant.

Twice they stopped at $600,000 and an investor got the property from them as they wanted to get the government incentive. This one5 they missed out on by only $1,000 and is one street over from the house mentioned above that just sold for $990,000.  It’s a very similar style of house – the interiors aren’t as modern but it sits on larger land.

And this one6, which I really wanted them to get, they missed out on by $10,000.  The land size was 130 sqm and they were prepared to do a renovation.  If they had, this would easily be worth well over $1Mil.

What does all this mean?

If you are looking to grow your wealth through property, then you need to think outside the areas you know.  This isn’t always as easy as that though. I know people are buying to live in the property and some of these upcoming areas aren’t as desirable for young families right now due to lifestyle factors.

I know if I was investing and had around $700K – $900K to spend, I’d be looking at some of the middle suburbs, which are currently going through a gentrification period. These suburbs include areas like Footscray, Ringwood, Oak Park, Glenroy, Avondale Heights and Research.

Rental yield is another consideration if you are buying to invest, read more on this here.

Hindsight is a wonderful thing in property

I have hundreds of stories from clients who say “I wish I bought that”. Back in 2007 when I purchased my first investment property it was a 70’s apartment in Prahran for $355,000. I sold this in 2013 for $575,000 which was OK. But in my case if I purchased a house in Reservoir at that time for the same price, I know that it would be worth well over $1Mil now, whereas the apartment would be lucky to be worth $650K – $700K now.  This is what we call opportunity cost and it’s only something we can measure retrospectively when property has been bought and sold.

Below is an example of how much growth one particular property has seen in Reservoir in 10 years. 53 Northernhay St was purchased in August 2006 for $355,000. It sold September 2016 for $1,215,000 which represented a 13% annual growth each year for 10 years.

Other suburbs have been showing some amazing growth of late too and are knocking on the $1Mil average house price7.  You don’t always have to be within 15 km’s of the CBD like these suburbs are. If you go further east, you are seeing great growth in middle suburbs like Ringwood, Mitcham, Edithvale, Parkdale plus many more.  The infrastructure in these places are all in place with trains, shopping centres like Eastland and cafes/lifestyle close to the water.

So, what do you do if you want to purchase and take advantage of capital growth but don’t necessarily want to live in the area? We’ll share our thoughts on some different strategies you might consider like rentvesting and whether to look at houses or apartments.

This is just a little food for thought. If you want to speak more about this, give us a call on 03 9421 1651 and speak to a property expert who studies this day in and day out.

By Damien Roylance.

Photo: Domain

Entourage does not accept any liability for any investment or financial decisions made on the basis of the information contained within this article. This article does not constitute financial advice and should not be taken as such. Entourage urges you to obtain professional advice before proceeding with any investment.