Not a Bargain. Buying an Apartment in Melbourne

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  nomoneynoproblems on 13/08/2016 - 23:37

  Lol buying an apt in Melbourne, especially Docklands is stupid AF. Probably a (foreign) investor.

  • 

    [Deactivated] on 25/08/2016 - 15:09

    Sydney is full of chinese buyers using black money from their homeland, they happily pay above market price which is why the prices get pushed higher and higher.
    Melbourne wouldn't be too different ???
    As long as they can 'clean' their incoming funds they don't mind taking a loss on 'free' money.

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  solar on 14/08/2016 - 00:35

  +3

  Welcome to Australia … where real estate never falls in value, and negative gearing protects us as we wait for the absolute certainty of (50% taxed) capital gains. If you don't buy now, you will miss out forever….

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  [Deactivated] on 14/08/2016 - 00:35

  +3

  Even rented out for 52 weeks a year, it's still negative 6% yield

  How do you get that? 165/week loss is -1.1% yield and that's only if you've borrowed 80%. People with 720k cash could still net a 2.8% yield, with the numbers you presented above.

  Are they crazy or am I missing something?

  Negative interest rates might only be around the corner, so you don't want to be the one left holding cash …

  So who is buying these properties and why?

  • Owner Occupiers
  • Investors who think property prices will go up
  • Investors who think low/negative interest rates are bad for holding cash, eg retirees

  If you don't fit into one of those categories, then buying probably isn't for you. Take a look at some bank shares - much better yield, if that's what your chasing.

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  [Deactivated] on 14/08/2016 - 02:38

  +1

  I am struggling to figure out how this is a good investment.

  Yes, it is not a good investment and everyone in Victoria knows that. Rent yield for such properties is very poor.
  However, you should note this - people who buy those apartments aren't locals.
  They are mostly foreigners who have a load of cash and just want to buy a nice property in the heart of Melbourne.

  I have been looking for a small unit to invest

  I reckon only suburbs you can achieve a decent return in Melbourne is either Hawthorn(near Swinburne University) or some remote suburbs where the properties are still cheap.

  • 

    CyberMurning on 14/08/2016 - 10:09

    i think mount waverly also still good buy. near good schools and amenities

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  Ash-Say on 14/08/2016 - 07:06

  Slightly offtopic, how is craigieburn for investment where the 3 bedroom house is available for less $350k?

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    Banana on 14/08/2016 - 11:05

    I know a lot of my friends don't want to be tied down by a house, they want to move around, travel freely when they want to and the most important reason of all, is that they have zero saving. Hope that answers your question :)

    • 

      Steptoe on 20/08/2016 - 19:42

      I know a lot of my friends …have zero saving… <because> they want to move around, travel freely when they want.

      And when they want to buy they'll be blaming the rich Baby Boomers Gen Xers who are the cause of the unaffordable property prices.

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  chumlee on 14/08/2016 - 08:06

  I reckon they are crazy but it doesn't seem to be slowing down.

  If you think body corp fees are high just wait 15-20 years when these dog boxes start falling apart and owners have to pay for all the building repairs.

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  kingmw on 14/08/2016 - 08:45

  I think there is a massive oversupply of tiny apartments near the centre of Melbourne which greatly limits capital growth.

  Much better to put your money elsewhere.

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  CyberMurning on 14/08/2016 - 10:08

  +2

  because all the stupid property agents will tell stupid investors that NEGATIVE gearing is GOOD, this is what you want, LOOSE as much as POSSIBLE so you can get alot of TAX REFUND. thats all they say.

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  Mad Max on 14/08/2016 - 10:13

  You did not factor in a 7% agent's fee (unless you manage the tenant yourself) and any required repairs (may be not really much when the unit is new).

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  scrone on 14/08/2016 - 11:45

  Asset prices (especially property prices) are inflated thanks to central bank monetary policy both nationally and internationally - and it looks to get worse. But yes as a potential buyer myself I look at the numbers and they just do not add up. The negative yield on the property will be significantly worse when we move back to average interest rates.

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  c0balt on 14/08/2016 - 12:57

  LOL at the doom and gloomers in this thread spouting the same negativity that has plagued Melbourne property publications the last ~10 years.

  I was foolish enough to listen to them until early 2014. I would have taken on an uncomfortable level of risk had I bought a unit in a high rise in Melbourne prior to 2014, but I would have saved a lot of money in hindsight.

  Property within high demand areas in Australia (Docklands is one of those) is one of the lower risk (dollar per dollar) and high yielding investments someone can make - provided decent research, management and tenants. I live in mine, but I know I could get close to 5% yield/year if I did decide to rent it out (it's on the cards in the future).

  Don't lose out if you have the chance to break in because of the exact same arguments from the doom and gloomers that they have been saying for the last decade.

  Speak to people that are in the market, not those on the outside looking in with a warped view.

  • 

    [Deactivated] on 14/08/2016 - 13:12

    +2

    I don't think the Docklands is a high demand area at all. Unlike most other suburbs in Melbourne, property prices their have decreased in the last few years and occupancy rates are very low (I think I read that something like 30% of all properties there are untenanted).

    OP, you should make a wise decision on the suburb you invest in. I would stay away from new high rise development and aim for an older building in an established area. Preferably something with architectural and aesthetic appeal. This will likely yield a higher capital gain when you sell it on. I would suggest looking in area such as Toorak or Malvern, or even South Yarra ( but not the Chapel St end, the botanical garden end). These suburbs (especially Toorak and Malvern) have surprisingly low apartment prices (as people who buy there buy houses) and good rental returns. You are also shielded from an economic downturn (somewhere like the Docklands is definitely not).

    • 

      c0balt on 14/08/2016 - 13:16

      +1

      I was editing my post to change what I wrote about Docklands as you replied actually.

      I think the truth with Docklands is somewhere in the middle of what we both said. It's not the hot area of Melbourne, but I don't think it's cooled off to the point that it shouldn't be considered. Considering the same money there gets you a place on St Kilda Road or Carton/Fitzroy, the cash IMO is better spent elsewhere than Docklands.

      I still do have high hopes for Docklands eventually, but that and South Melbourne now are sort of middle of the road. The demand is there but the surrounding areas are better for the cash, Docklands money would be better spent elsewhere for the time being.

      I do think that in 10+ years from now, the Docklands could be a pretty awesome area though.

  • 

    scrone on 15/08/2016 - 09:37

    And yet the same arguments that were applied 10 years ago are even more relevant today. Instead of deriding those not in the market, why don't you address the numbers provided by the OP and tell us all why you think that it is a sensible investment?

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  Wheresmyspaceship on 14/08/2016 - 14:28

  +4

  The unfortunate reality in Australia at the moment is that we backed the mining boom so heavily through the late 90's to circa 2014 that we have shifted our economy far away from valued added / productive exports and capital.

  So now, basically what we're doing is 'exporting' property and citizenship to foreigners. They bring in financial capital at a premium, and it helps us kick that can down the road just a little longer. If something significant doesn't FINALLY happen to prices by mid-2017, it will truly be regarded as a tragedy of the millennials at a far later date.

  Also look into the lack of action on foreign buyers since Hockey handed investigations from the FIRB to the ATO; once it had been attenuated as a public concern, anecdotal evidence has suggested that the ATO investigation into compliance of foreign purchases has silently disappeared into a black hole.

  Only my two cents.

  https://en.wikipedia.org/wiki/Australian_property_bubble#/me…

  • 

    c0balt on 14/08/2016 - 15:08

    Well it would only make sense that housing affordability would do that over time as we became more of a metropolitan nation, a bigger economic player in the region and most importantly with population growth and increasing competition for a finite resource (land).

    Nowdays we are more in line with other major cities around the world, and even Melb-Syd are still a lot more affordable compared to other in demand cities when compared to median wage.

    • 

      Wheresmyspaceship on 14/08/2016 - 16:29

      +1

      You may be right to anticipate this outcome!

      … but I wouldn't necessarily consider the appreciation of property price multiples above median wage to be a reasonable expectation, particularly as it only benefits vendors/owners and those with pre-existing capital to take advantage of the situation. There are examples where the tax treatment property within economically prosperous cities has maintained affordable dwelling prices (Germany). All we've seen since the quantitative easing packages from the US and trends towards ZIRP is the capitalisation into non-productive assets and the stock market. In the case of the former, once the access to money tightens, as is happening via APRA's direction (finally), the housing market has three outcomes (failing govt intervention either via relaxation foreign investment policy or by some incentive fhbs); flatten, deflate slowly, or crash. This is not to say that you have made a poor decision to purchase, as that comes down to your your own personal financial circumstances and ability to absorb adverse economic changes as your whittle down those economic rents you are paying to you're bank over the next 30 years.
      But I do empathise with the OPs original sentiments; he/she is not crazy, in this instance.

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  Wheresmyspaceship on 14/08/2016 - 16:21

  Wrong place…

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  Vampyr on 15/08/2016 - 00:16

  +4

  Could be worse; you could be looking to buy in Sydney..

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  tonyjzx on 15/08/2016 - 14:56

  You said it yourself. You have a spreadsheet with the good and bad buys over the last cycle.

  You know which ones are good buys and which ones arent.

  You should know where to buy now.

  You've done more research that many other people have.

  I dont worry about how other people pay for their properties. I know people who have bought multi tens of millions of dollars commercial properties that wont make any positive growth for a decade. I cant make the sums work. They can. Good luck to them.

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  MrTweek on 15/08/2016 - 22:45

  So who is buying these properties and why? Are they crazy or am I missing something?

  A lot of people keep telling me that's it's a great idea to buy something like this, because prices keep going up and you can sell it for more in a couple of years.
  And I believe prices keep going up because enough people believe they will and keep investing.

  This is going to work very well until the day it crashes.

  But some people don't believe it will ever crash, so for them it's an amazing investment.

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  [Deactivated] on 16/08/2016 - 07:49

  The problem now is the financial environment that we are all living in. Long time property investors are finding themselves in the situation where rental price growth and low interest rates means previously negatively geared properties are now positively geared, leading to large income tax bills. One way to combat paying tax is to purchase (unreasonably priced) loss making additional properties. This of course puts even more pressure on the housing market.

  Unfortunately, I'm not smart enough to come up with a solution to the problems surrounding housing affordability.