Melbourne is among the most attractive urban centers in the world. The area sees a lot of migration from both overseas as well as other areas of Australia, making Melbourne among the nation’s strongest performers in terms of population growth. The trick to succeeding in the current market is to avoid the overcrowded city apartment buildings and focus instead on the suburbs surrounding the CBD. The middle ring suburbs are an especially attractive investment location.
The dwelling supply, and by extension the rental market, is expected to remain low in the suburbs immediately outside of the CBD relative to the housing demand in these locations. The inner ring of suburbs, defined as within eight kilometers of the CBD, already command premium prices that serve as a barrier of entry to investors while limiting the realistic return from flipping them. Therefore, investors should look to benefit from the ripple effect this area will have on the middle ring suburbs ranging from 10 to 15 kilometers from the CBD. Properties in the middle ring are still affordable and offer a significant amount of long term value as the area grows.
While certain areas within Melbourne, especially the inner city and the Docklands, have more dwellings than the market demands, the area as a whole continues to offer strong returns for property investors. The biggest reason for this is Melbourne’s explosive population growth. In fact, its population increased by 95,700 in 2016, the largest figure in Australia. This brings Melbourne’s total population to 4.4 million, the second only to Sydney. By rate, Melbourne’s population increased by two percent against the national average of 1.8. Perth and Brisbane were the only capital cities to perform better, and their populations are far lower than Melbourne’s. Sydney’s 4.8 million strong population remains the country’s most populous region, but Melbourne’s strong population growth could challenge for that title with time.
This growth is drawn primarily from emigration, as immigrants to Australia are consistently drawn to Victoria. Eventually the population growth will remove the surplus of housing even in the CBD, ensuring that property investments in the area remain safe. This helps the area fit both long and short term investment strategies.
Sydney remains the brand name of Australian real estate investments, but this does not necessarily make it a better option. Sydney does not have Melbourne’s growth, while properties in the area are very expensive. Melbourne offers much more value for your investment dollar, without presenting significantly more risk.
If you want to profit from this trend, stick to tried and true property investment practices. Do not worry about what the market is doing, as timing everything perfectly all of the time is impossible. Instead, look for quality assets that meet the criteria listed in our info pack. Good public transport, strong school systems, and attractive shops are all great things to look for in a prospective investment property. You should also look for low vacancy rates, as they reflect the market’s preference to buy or rent someplace else. Above all, stick to areas that consistently boast population growth. These are the areas that will always be in demand. The perfect property is far more important than the ideal timing.
Another thing you want to ignore is tax savings. Saving on your tax returns is not going to make you wealthy by itself, capital growth is. If you pick the right locations and consistently get strong returns, capital growth will take place regardless of taxes. The best way to compare Australia’s urban centers by capital growth is the Annual Return Index.
The Annual Return Index combines capital growth data with net rental income to provide investors with a comprehensive breakdown of Australia’s real estate market by city. The best way to compare capital cities is to look at 7-10 year averages, as individual years can contain more noise than signal. In other words, individual years may not be predictive of future ones.
In summary Melbourne remains attractive to prospective buyers and renters alike, especially the suburbs immediately surrounding the CBD. The middle ring suburbs remain affordable too, presenting an excellent opportunity to get into a hot market. As long as the region continues to experience significant population growth, property values should continue to rise.