Is Now the Best Time to Invest in Property?
In Australia, Melbourne and Sydney outperformed expectations over the last 5 to 10 years. Melbourne is composed of over 300 suburbs. For January 2018, the combined value of houses in Melbourne (all 390 suburbs) in the last 20 years went up to 72.4%. But because of different factors, there’s some decline in sales. This property cycle finished in combination with things such as APRA putting pressure on banks regarding loaning, which affected how people get the same amount of lending 12 to 24 months before. Also, banks have set a minimum living expense criterion for people living in Australia. If you go below you need to show documents such as bank statement to prove that you are indeed living on a budget monthly.
Effects such as tightening credit policies and more disclosure of living expenses, people are borrowing less money and investors are reducing including the Chinese and other foreigners in the country -- all of these have caused a slow down in Melbourne and Sydney property market.
However, because the residential real estate is 7.5 Trillion while outstanding mortgage debt is only 1.73 trillion, this means the property market is the biggest thing in Australia and will certainly not crash. So yes, investing in property right now is a good time. Majority of Australians buy property to have a place they want to call home and they hold on to it not to make money off of it. In short, the industry is stable despite various factors.
There are different markets in Melbourne particularly, but what and where are the opportunities right now?
Melbourne is said to be oversaturated in apartments even in the best suburbs, and right now, the best thing to invest in are Townhouses with a good land component. It’s a vehicle to build wealth, especially for the next 3-5 years. An estimated 120,000 million people are moving to Melbourne yearly, including migration and immigration from overseas. Melbourne is becoming overpopulated and congested. Also, the market is very cyclical, and falling is going to happen eventually.
Fortunately, not all the values of properties in Australia have gone back, in fact, properties in the $550,000-850,000 mark are doing quite well or with 8 to 9% growth. However, those in the millions have reduced in value by about 10-11%. In Melbourne, over the three months until April 2018, the dwelling values fell to 0.7% but in the next few months, but will bounce back up. If you’re thinking of investing in apartments In the next 3-5 years, it will probably give 6-7% returns but now is not the right time for it according to studies conducted.
At the moment, Australia is currently in the lowest level of lending in terms of interest rates. The best time to buy property is after the auction and properties have been passed in. Houses in Melbourne have hit over $824,000 based on sales in the past 3 months. Rental is still very good in Melbourne.
Australian home prices fell by 0.3% over the past few months but only the top end or the expensive properties are hurting the most in Australia. The cheapest suburbs with the closest proximity to the city are doing very well, doing 11-12% growth right now. Suburbs in Melbourne like Frankston North, Glenroy, Sunshine West… you can get them for $500K-$700K.
The lower end of the market is doing very strong and the middle market is doing fine, and the top end is declining which drags the property market into negative territory. It is important for an investor to be very discerning and be able to dissect the market and break it down into things that will help you.
The opportunities right now in Melbourne? Depends on how much money you want to spend.
If you’re a budget investor, Frankston North is a good place as well as Sunshine and Glenroy even Coburg. You can also stick to middle range properties because you can’t go wrong with them. But it is best to invest in Townhouses right now, specifically in areas like Macleod and Kew East.