I would really like to highlight an attractive property investment market which currently looks very favourable, offering full ownership for foreign investors as well as being the number one ranked ‘most livable city’ on the planet for the last three years. Where am I taking about?
Melbourne, Australia of course.
Melbourne is the business, educational, cultural and recreational hub of Australia, renowned for its world-class educational institutions, lush green parks, excellent transport links as well as being a vibrant city. Melbourne is also home to five of Australia’s top 25 universities and has the largest overseas student population among major cities — a statistic that I thoroughly believe will remain the status quo for some time.
Last year, Melbourne had over 75,000 students in educational programmes with almost 20 per cent of these classified as ‘overseas students’. In strong university cities, there is always a huge demand for quality housing, and quality developments within the catchment area of these universities are starting to see steady price increases and huge demand from tenants.
When looking at a strong property market, people need to look at the track record of that market to see how it has performed over the last 10 years or so. A sign of a strong, stable market is the market moving positively at a steady pace.
What we don’t like is markets moving 20 per cent in a year as that just sets people up for a bigger downside and shows signs of an infant market place. Melbourne has displayed steady growth in the apartment sector returning 5 per cent per annum over the last decade, a trend which is expected to continue.
Another key indicator is the demand for housing in relation to supply. Currently in Melbourne, population growth is outpacing the supply of new residential properties coming into the market. This is a very strong driver indeed when making a decision whether to invest into a market or not.
If demand is strong with a measured approach of new residential inventory coming into the market, the future will be bright for investors. Like any market, there are pockets which will outperform others in terms of return on investment.
In Melbourne I really like the look of Caulfield as it’s less than 10 kilometres from the central business district (CBD) but offers fantastic value for property as prices are a lot lower than in the city centre. Like a lot of property markets, as prime locations within cities become more expensive, tenants and home buyers start to look elsewhere for value, in locations just on the outskirts of the main hubs. We have seen this in London and New York over the last few years.
Most of the new projects currently being sold in Melbourne are all off-plan with build times of around one to two years until completion. What I really like about this is the fact that developers legally can only take 10 per cent of the property value from clients at the reservation stage and the remaining when they hand you the keys on your finished property.
So basically, when you buy, you pay 10 per cent of the property value, sit back for one or two years, watch the property go up in value, then pay the final balance when the property is complete. With 70 per cent finance available for foreign nationals in Melbourne, the landscape is set to start investing into this market.
When investing into property, the above are all key indicators that you should be paying attention to. You should also pay attention to how easy it will be to find a tenant for your property and who your tenant will be.
In Melbourne, you really want to be near the major universities as well as the CBD. In Caulfield, vacancy rates are currently around 2 per cent with the average property being on the market for less than two weeks before it is tenanted.
As an investor I always make sure that I have the balance of having the property tenanted as well as looking at the appreciation potential for the property. If you don’t have the property tenanted, then it will cost you money.
A strong tenant market is a key factor you should consider when investing into property, not just the capital upside potential. With a fantastic clear legal system in place and a favourable outlook on the Aussie dollar, I believe now is a great time to enter this very strong and transparent property market.
— The writer is the director and head of Middle East at IP Global.