I recently commented on an online property forum about the state of the Melbourne market.
And Boy didn’t I stir the pot… not intentionally, I would never do that!!!
It’s a funny thing that when I talk about:
to the press, that local Buyers Agents, Property Companies or so called “professional investors” get their panties in a knot…
And it was no different here…
But this Blog post isn’t going to be a point and shoot game… I will simply point out some current facts that you all can see and check for yourselves… and also for those investors who were getting excited that I was homeworking Melbourne around 6 months ago, you will see why I pulled the pin and walked away.
In the original article I was not alone, BIS Schrapnel also agreed with my thoughts.
This time though we got a reply… by the way of reply story on the forum and then a half page article in the Financial Review and written by a Melbourne Buyers Agent.
Impressive… well sort of… well not really…
http://www.propertyobserver.com.au/victoria/melbourne-buyers-agents-slam-analysts/2013090364761
Now to get you all up to speed on the original article, I spoke about how Melbourne has major oversupply of properties on the market, well in excess of the increased population growth. This massive oversupply has seen yields decrease dramatically to as low as 3%-5%.
But for someone who is as well connected as this Melbourne Buyers Agent, to get to write articles for the Financial Review, I was surprised by their angle on the article.
It was nothing short of a public blasting… not on me but on BIS Schrapnel about how their research is inaccurate and often wrong. It also spoke about how they themselves attend property inspections and auctions and see a huge amount of buyers in the market.
What was funny was that they didn’t blast myself, they just purely quoted me…
wHy? – because my backyard is clean and they have nothing on me… coz there is nothing there to get…
Now in this public blasting there were no facts or figures used, just opinion…
So in defense of my comments I will supply facts and figures and let those who maybe looking to invest in Melbourne to research further and possible rethink their strategy.
The article and comments in the original piece were in the direction that if investors are buying property for yield then they shouldn’t really be investing. Investors should only be investing in real estate for capital growth.
Now this would have to be the most ridiculous comment I have heard in a long while…
If yield was not important, then why would we rent them out at all. Why go through the associated risks of having a tenant if we don’t need to???
Lets simply buy a large portfolio of properties and leave them completely vacant.
I’m sure you see my point…
Now on one point capital growth is where you can increase your wealth, but on the other hand when we retire what is it that we are actually after???
Cash Flow…
We all want an income stream sufficient enough to allow us to live our chosen lifestyle.
And rent received or yield is one of the main forms of cash flow available to mainstream investors.
Their other argument was that Melbourne is a great place to invest currently and that there is no oversupply of stock. So lets explore that…
Here’s an exercise for you all to do – jump onto relaestate.com and do the following:
Look up Buy properties and type in:
Docklands, leave surrounding suburbs ticked and search for units and apartments
How many properties are there for sale?
1,777 as of Monday
Do the same for properties for rent… and you will see that there are 2063 for lease.
Sorry what part of that is not a huge oversupply? And the scary part is that there are another 25,000 or so units approved waiting to be built in Melbourne city in the next 5 years… yes that’s 25,000…
Now do the same searches as above on the following areas but look up houses:
Is it just me, or is there literally thousands of houses???
And if you look at some adverts, they advertise many houses or units in the one ad… so the actually numbers are much higher…
Now they also mentioned that first homebuyers are hysterical that they cannot buy a property. These first home buyers must be very wealthy as the predominate First Home Buyers would be buying in the above locations where you can see there are literally thousand of properties to buy… throw a dart to land one, everyone’s a winner…
This massive oversupply is why the yields are so poor and capital growth will be non-existent for a long time.
And some of the above locations are the fastest growing shires in the entire country. In fact Whittlesea, Pakenham, Melton & Wyndham were all in the Top 6 highest population growth locations in Australia…
Yes they have 4 out of the 6 highest…
One question that pops into my mind though is that why doesn’t Mandurah, Kwinana and Armadale in WA all have the same issues?
Those three made it into the Top 10, yet their yields are well above 6% and capital growth is now soaring. Why? Simply because properties are in demand not visa versa… like in Melbourne.
And it’s the yield that becomes the cream on top that gets investors to buy and start a new upwards property cycle…
So it would seem that there is a direct correlation between yield and capital growth… absolutely there is…
The real question is why is Melbourne being so heavily targeted by developers? And who is in control of the town planning???
Now I am sure in some niche property types in a few quirky suburbs in Melbourne there would be opportunity to create wealth, but they are few and far between.
One thing is for sure; the Melbourne property market is not getting my investing dollars this year…