Exciting springtime market buzz hits Melbourne: Richard Wakelin

After a long Victorian winter, we’re on the cusp of spring. It’s an exciting season in Melbourne- especially for sports fans that look forward to the AFL Grand Final and Melbourne Cup. It’s also the busiest time of year for the property market and a time for aspiring investors to make a start.

Yet starting is often the hardest part of investing. It’s crucial to remember this spring that whilst you can’t control or even predict the market, much like the result of the Melbourne Cup or footy finals, you can control what property you purchase and where it is.

With property prices in Melbourne rising around 10% since last year, asset selection will be key to property purchase this coming spring if you’re not to back a loser. 

There are two main factors that influence an asset’s performance; the property itself and where the property is located. 

In a moment, I will identify the areas in Melbourne where we at Wakelin Property Advisory like to buy property and the prices they will typically cost this spring. 

I’ll be look at investment grade one bedroom apartments, two bedroom apartments and two bedroom houses.

But first.

Let me briefly recap some asset selection criteria for Wakelin Property Advisory, and how it ensures we only recommend investment grade property to our clients.

Firstly, a property really needs to be held for ten years and the ideal situation is one where you never sell.

Scarcity is the vital ingredient to property selection. If there is an ample supply of a property type relative to demand – and there is scope for more to be built – that property isn’t scarce and it won’t grow in value. An investment grade must exist in finite numbers.

So typically, period style properties perform best, as to put it simply, they aren’t being made anymore.

So houses we tend to recommend are pre 1950s such as Victorian, Federation, Edwardian or Art Deco architecture styles. 

Apartments we consider are older styled – up to the 1970s – one and two bedroom apartments.

Proximity to amenities, parks, shopping precincts, public transport and schools are also important in your selection.

A dedicated off-street car parking space is essential for inner city apartment purchases, and balconies or courtyards are also highly sought after.

Ultimately, you are seeking a property that has a proven record of capital growth over many years. One that has performed in the past will generally continue to perform.

Ok, so take a look at this map of Melbourne. 

We are particularly interested in the inner suburbs, as they have the best track record of growth and in our view have the best long term prospects. 

So let’s break it down further:

•Inner Eastern suburbs,

•The Bayside region,

•And, the inner north.

This includes areas like South Yarra, Armadale, Malvern, Toorak and Hawthorn.

Traditionally these areas represent the most expensive and sought after real estate in Melbourne, they have been the bluest of blue chips. So how much is one likely to pay to enter this market?

A good one bedroom apartment in South Yarra will start around $450 to 500,000. 

$650 to 750,000 in the inner eastern suburbs gets a reasonable two bedroom apartment in somewhere like Hawthorn.

$850-$950,000 is the entry level for a two bedroom house in the eastern suburbs, with around $1million ideally needed to get something that will really perform in suburbs like Prahran.

Turning to the inner Bayside. It used to be that Melbournians paid little attention to its waterfront. But no longer....

It’s full of highly regarded locations such as Albert Park, Middle Park, Elwood and St Kilda.

So, for a two edroom house in this area you’d need at least $1.2 million, with room to move up to around $1.4 million.

For apartments, suburbs like Elwood can prove a great investment as well as parts of St Kilda.

Typically, you’d be looking to spend at least $450,000 in somewhere like this for a one bedroom apartment, and up to around $550,000.

And for a two bedroom apartment in somewhere like St Kilda or St Kilda West, you’re looking to start around $600 to 650,000. Typically, at least $100,000 more than for a one bedroom in a similar area.

The north is a real mixture of property; full of warehouse conversions, cottages, shiny new apartments and old pre-war houses. However, it is still important to remember this concept of scarcity when examining your options in the North.  

Consider suburbs such as Carlton North, Brunswick, Kensington, Flemington and Ascot Vale.

For a one bedroom apartment in the inner north, you’re looking to start around $400,000 in somewhere like Brunswick and going up the closer to the city you get.

If you’re looking for a two bedroom apartment, be prepared to invest $650,000 or more in the inner north in somewhere like Carlton North.

Those looking for a two bedroom house will need around $800,000 in the inner north for a quality property in somewhere like Ascot Vale or Kensington, to in excess of $1 million for A1 property in Carlton North.

 We’ll quickly examine some factors that may affect the market this coming spring and what the effects of these factors may have on prices.

Momentum of the Melbourne market has gathered a lot of media interest as of late with plenty of commentary discussing whether there is or isn’t a bubble and it’s hard not to get caught up. 

But, if you keep in mind our concept of scarcity when purchasing property you shouldn’t have to worry.

Remember, they are the finite properties that will always build value if held for the long term. 

Interest rates obviously affect the initial buying power and how much can be borrowed.

Currently, we have historically low rates and this is driving strong demand.

However, in recent weeks, we’ve observed the banks tightening the rules on lending for investors. The results has been higher interest rates for these borrowers and restrictions on how much they can borrow relative to an asset’s value.

It is evidence that rates won’t always be low and that one needs to factor in rates increases of 2 to 3%, so it is important to ensure that you are borrowing within your means.

Backing a winner this spring might be a bit of a fluke in the Melbourne Cup, but choosing the right investment property doesn’t have to be such a gamble if you follow our investment criteria.

RICHARD WAKELIN is the director and founder of Wakelin Property Advisory.