Investment property in Melbourne – What to acquire

Investment Property in Melbourne –Market overview

The Melbourne property market has undergone a surge for the past 10 years and values of residential properties in most areas have more than doubled. The median prices of properties in Melbourne have grown by an average of 9.1% per annum on average for the past 10 years. That is quite a remarkable growth. If you are looking at buying an investment property in Melbourne, you must be thinking if there are further upsides to the prices in the future or will there be a sharp correction? Let’s look some factors that may affect your decision to acquire an investment property in Melbourne.

Investment property in Melbourne - photo by Sandra Pang

Investment property in Melbourne – photo by Sandra Pang

Investment property in Melbourne – Demand situation

Population Growth– According to the Australian Bureau of Statistics, the state of Victoria grew at a rate of 1.4% from the previous year to Mar 2011 and added 81,600 to its already growing population. Melbourne is ranked number two in the world after London as world’s most sought-after city for education. Every year, hundreds of thousands of international students arrive in the most livable city in the world for their high school and college education.

Investment property In Melbourne – Supply situation

According to a report ‘Australia Housing to 2020’ released on 15 September 2011, Australia’s cumulative shortage of housing could swell to over 500,000 units with Victoria needing another additional 405,100 households by 2020 and that means Victoria needs to increase 45,000 per year through to 2020. HIA estimates that at June 2011, the cumulative shortage in Victoria was 26,900 homes.

If you are intending to acquire an investment property in Melbourne, it’s worth noting that although the state as whole requires more houses to be built to accommodate the growing population, not all areas are good for investment. The breakdown provides by the report in HIA outlines certain areas in Melbourne which may run into surpluses up to 2020. So always do your own research to ensure you get maximum leverage on your money. Alternatively, talk to an experienced consultant from PPG to find out more about the probable areas to invest in.

Investment property In Melbourne – Types of dwellings

There are some choices involved if you are looking at acquiring investment property in Melbourne. Generally different types of dwellings have different risk profiles and they ‘behave’ differently as well. It’s important to understand your own risk profile and your goals before you start your acquisition.

Student accommodation dwellings – These are units that range from 25sqm to 30sqm units located near or within colleges in Melbourne. These are termed as ‘specific securities’ by the banks and lending ratio is normally capped at about 50% LVR. These are cheap to acquire and high in rental yield (gross around 7%-8% p.a.). However if you are gunning for capital growth, these securities are not for you.

Residential apartments – In recent years, apartments have become very popular for buyers looking to acquire investment property in Melbourne. Most Asian investors live in apartments in their own countries and could relate to it very well. Banks generally finance apartments with a maximum loan of 80% LVR (purchase or valuation whichever is lower) based on the combined total space of 50sqm or more. However some banks do capped a certain level of lending based on the number of units in that development especially if it’s a high-rise development. They want to limit their exposure in a particular development to the minimum. Rental for this type of dwellings depends highly on location, demand and supply situation. Apartments in general do appreciate in capital values in the long term.

Houses/townhouses packages – Traditional dwellings like houses and townhouses form the bedrock of residential properties in Australia. Over 90% of the population lives in these types of dwellings and banks are more than happy to lend money on such collaterals. Houses/townhouses in general do appreciate in capital values. However the rental yield for such dwellings in very established suburbs(where capital values have run) is a little low hence investors have to research carefully before taking the leap.

Hotels/Serviced apartments – These are primarily for short term let and have good rental yield. Banks do lend at 50% LVR on the value of these dwellings after the 2008 global financial crisis. These are generally acquired by more experienced investors looking to balance their portfolio.

Conclusion – How to prepare yourself to buy investment properties in Melbourne

My advice to do lots of research and speak to an experienced consultant from PPG to help you understand your goals/objectives and map out a property plan for long term growth.

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