Why Melbourne units are the next growth play
Investor confidence has waned across the nation’s residential market, with buyers rethinking their property plans as they pivot from chasing growth to chasing yields.
According to LEVR founder Josh Crealy, despite the market slowing down, investors who were aggressive in their asset management strategies could still rapidly grow their portfolios.
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Crealy said that, in the wake of all the property taxation changes, units were the biggest opportunity for investors to find value.
But he warned that not all units were the same and that buyers had to be very specific about the types of properties they were purchasing.
“I have been buying a lot of units in Melbourne. But I don’t just buy any type of unit; I buy all the pre-2000 smaller walk-ups in good, low-density areas. That’s where the value is,” Crealy said.
For investors chasing the best-value asset to add to their portfolios, Crealy said Melbourne offered the strongest growth potential.
“To me, it presents the best affordability versus local wages. Supply levels are low, rental growth has been huge.”
“I think Melbourne presents the best value across the board, and then it comes down to your individual goals and strategy.”
Additionally, Crealy said it was essential that investors perform their due diligence before buying an asset, particularly regarding the body corporate, and ensure they have a recent building and pest inspection.
Crealy said owners should have a trusted property manager conduct a final inspection to ensure compliance with the state’s rental laws.
Taking advantage of the fractured Melbourne market
He said that investors were often scared away by the doom-and-gloom news surrounding the Melbourne property market, but failed to understand that it operated in segments.
While the overwhelming sentiment was that the property market was softening, Crealy said that activity in the “sub markets” had continued to defy the slowdown.
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“In the affordable end, the sub $500,000 or $600,000 markets, it is absolutely roaring.”
“There is so much competition, and the prices are still moving up, whereas above the million-dollar mark in Melbourne, it’s dead; it’s going backwards.”
Crealy said that even though a unit’s value could remain stagnant for an extended period, it would eventually experience significant growth.
“It just got to a period where supply was so constrained, and the affordability was there.”
“If you study the market cycles, you can make a lot of money in a short period of time if you are quite active. You just need to know what to look for.”
The supply problem
For property prices to fall, supply would need to surge, with Crealy stating that construction costs for new projects had stifled production.
He said that for developers to be willing to build units that would increase housing supply, it needed to make financial sense for them to undertake the project.
Crealy said a clear example of the affordability pressures had emerged, creating a two-speed market and a supply disparity between the eastern suburbs and Western Sydney.
In Eastern Sydney, Crealy said the only supply constraints would be caused by a lack of space, with sale prices more than covering the cost of construction.
“In those markets, I think supply will continue, and there will be an influx of new developments in those areas.”
“But then you go look at the western parts of Sydney, because you’re selling units at a lower price, it doesn’t cover the construction costs, which is why the delivery of units in those areas is just not happening.”
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