MELBOURNE LIKELY SET FOR LONGER TERM RESURGENCE
Falling vacancy rates are an indicator that Melbourne is set for long-term resurgence. Melbourne’s vacancy rates fell in the CBD to 8.0%. Melbourne as a whole went from 4% in April to 3.7% in May. It’s important to always question the underlying factors behind a significant statistical change.
First home or investment property: Which is better for buyers?
While rocketing prices are disastrous for first home buyers who increasingly find themselves priced out of the market in greater and greater numbers, for property investors, rising prices are having completely the opposite effect.
Australia Prepares for a Post-Pandemic Population Boom
Falling Vacancy Rates A Good Sign For Melbourne's Property Market
Lower vacancy but not higher rent
While there is a downward trend in Melbourne’s vacancy rate, asking prices for rent have also gone down across the year. This is bad news for investors who receive rental income from those properties.
Melbourne unit rents are down substantially by 11.0% while house rents have fallen 4.8% over the year in Melbourne. Melbourne is set to become the most affordable city in the country in which to rent a house and unit in 2021, if the current trends persist.
What’s behind vacancy rates and asking rents?
It’s important to always question the underlying factors behind a significant statistical change. This helps you determine if the benefits will still be there in the longer term. I spoke about this in my article on the impact of infrastructure. In that article, I discussed how projects, like mining, boost employment in the short-term. However, they don’t necessarily improve the overall quality of the area moving forward.
Similarly, the vacancy rate hit zero in many Australian coastal towns back in January 2021, as people flooded the regional locations. Now, the national vacancy rate is returning to pre-pandemic levels and we’re seeing metro vacancy rates trend downwards.
However, the forecast population growth is unlikely to come in the next 12 months. Knight Frank’s head of residential research Michelle Ciesielski said, “we’re not likely to get a boost in population over the next 12 months.” Instead, Ms. Ciesielski sees a return to international migration in about 3 years.
There is also a significant trend towards lower density properties, especially in the wake of the pandemic. CoreLogic’s research director Tim Lawless said, “With a preference shift towards lower density housing options, many of these areas will be experiencing less demand for apartments.”
So, for investors who are focused on long-term growth and positive cash flow, Melbourne properties could still prove a wise investment – just not high rise apartments. This is where taking a realistic and longer term approach can really pay off for investors.
Minimise investment risk
Of course, when building a property portfolio, you should seek to minimise risk. One of the best ways to do this is by diversifying. While clients come to AllianceCorp wanting to purchase the house down the road, we encourage investors to firstly focus on properties and locations that look set for growth and secondly, to have an array of properties across various locations – so they don’t have all their eggs in one basket, so to speak. A Melbourne property could very much be one of those eggs, if you target the right properties within the city and know what questions to ask.
If you would like to understand how you can capitalise on future growth, minimise your risk and build a sustainable property portfolio, request a 1 on 1 strategy session.
At AllianceCorp, we have Property Wealth Planners who can evaluate your current financial position to help you determine a realistic plan for achieving long-term wealth.