I love Australia and I love Melbourne so I just cannot help but find an excuse to get out of Singapore (and the office) to head to Melbourne whenever I can. This trip, I am pleased to announce, was for accepting my offer for the Australian PR and to assist a client with one of his acquisitions in Melbourne. I’ve also managed to snivel a few more days of working leave to do some scouting and surveys of interesting areas in Melbourne.
My main objective was to check out some hot spots for property investing. We’ve all spent many hours on research here in RunningStream. Now, I will be heading to the suburbs to see if the situation on the ground reflects the numbers and our expectations. I spent about 4 days driving around to visit different sites and around different suburbs to see how each of them are developing and growing.
In my previous article, I have mentioned about the oversupply in the CBD area as a result of about 30,000 units of supply due to settle from 2014 to end 2017 in the City of Melbourne. Hence,we have been advising investors to stay away from the CBD and its immediate surrounding suburbs. Instead, our current preference would be the outer suburbs which have been relatively neglected in terms of new developments and thus rental demand remains strong. These suburbs are also not subjected to the oversupply situation in the CBD as they have their own activity and job centres.
Being an Aussie PR now - happily I may add - I also looked at the resale market that is open to Citizens and PRs, comparing their prices with new developments.
Fundamental growth reasons like proximity to job centres, accessibility and liveability are important to me when advising clients.
Instead of just giving you a bird’s eye view of the suburbs, what I will do in this article is to provide some analysis of 4 suburbs which I have picked to help you better understand how we analyse them and you can do the same for yourself.
So here are the 4 suburbs:
Brunswick East, a once dodgy and grungy area to the North that is now rejuvenated with streets teeming with many great eateries and cafes.
Carnegie, a strategically located suburb with great accessibility near Monash University
Cheltenham, a beautiful suburb located to the Southeast in the midst of the famous Golfing Sandbelt of Melbourne.
Williamstown, a seaside suburb to the west that provides a great view of the Melbourne CBD.
Brunswick East used to be a somewhat hip and grungy area. Located a mere 6km North of the CBD, it’s once industrial factories and warehouses have either since been torn down or converted into creative and lifestyle residential apartments. Brunswick has been heavily marketed in Asia and projects such as Ettaro have seen significant numbers of foreign buyers.
I was not expecting too much from Brunswick East as I was rather disappointed by my earlier survey of the neighbouring Northcote suburb, which turned out to be run down and rather dodgy-looking. But, to my surprise, I found Brunswick East very nicely rejuvenated with cleaner streets lined with walls sporting remnants of artsy graffiti. Many cafes with great Italian styled coffee now occupy sections of Nicholson Street which follows through to the renowned Lygon Street with its fancy Italian restaurants and gelato bars. I checked out one of the completed projects, Tip Top with their Seeds,Stables apartments and Malt Townhouses. The standout for me was the Silo apartments which was converted from an old factory. A very nicely done project just off Nicholson Street.
However, from an investment point of view, I am not as excited about Brunswick East because of it’s already high prices ($600,000 for a 2 bed 2 bath apartment) and its close proximity to the soon-to-be very oversupplied CBD area. Valuations might be a problem especially with banks, who are now very cautious about lending to many projects within the CBD. Valuers would likely take a very conservative stance and may result in valuations not measuring up to sale price. That said, it is also my view that the oversupply situation would be temporary. With Melbourne still experiencing robust population growth as the most liveable city in the world, investors will still likely profit over the longer term. However, they would need to ensure they have good holding power for the inevitable oversupply situation.
Carnegie was one of the suburbs that I used to visit quite a lot back in my days in Monash University. I would drive down from where I stayed in South Melbourne to Koornang Street and eat at a famous Japanese Restaurant called Shyun. Their Chirashi Don was (and still is) amazing!
The first thing that anyone will figure out about Carnegie is great accessibility and lifestyle. The Melbourne CBD is a mere 30 minutes train ride away from Carnegie station and 15 minutes drive on the Princes Highway. Monash University (Caulfield campus) is only 1 train stop and 3 mins walk away, and down the road 7 minutes away is the largest shopping centre in Victoria - Chadstone. The lifestyle street of the suburb us along Koornang Street, where a long stretch of cafes/restaurants and shops ranging from supermarket to clothing's and furniture thrive.
Carnegie’s close proximity to Monash University is a boon for rental demand in the area. It is a suburb with predominantly Caucasian population with increasing Asian influence in recent times which has had a positive impact in housing price trends.
When we first targeted Carnegie in March earlier this year, the median house prices in the area was just above $850,000. Today it stands above $900,000. Unit median price were at $460,000 in March compared to $490,000 today. Noting the large differential between unit and house prices, I surmise that Carnegie will soon be moving in the direction of Prahran where apartment living will start to trend and unit price growth rate will outdo that of houses soon.
Now, Cheltenham is a suburb that really got me excited when I first did research on it before my trip. Transport-wise, it has easy accessibility to the city by train and car via Nepean Highway. Of interest to avid golfers, it is also nicely located at the renowned golfing sandbelt region. Driving there via the Nepean Highway was slightly painful for me due to the heavy traffic at the time of my journey. It took about 40 minutes from the city. But when I finally parked off Charman Road near the train station, I felt a certain sense of relaxation that comes with being a suburb near the bayside. There was a smell of the sea and a relaxed atmosphere in the air. “Oh wow! I could totally live here.” was the thought on my mind the rest of the time I spent in Cheltenham.
Cheltenham is about 19km South East of Melbourne CBD under the Kingston city council. It has a population of about 21,000 and has is home to one of the larger shopping centres in Victoria - Southland. House prices here have not moved as much compared to similar residential areas like Bentleigh possibly because of its further distance from the CBD. However, we think this is about to change. Having spoke to some locals from the industry, I note that Cheltenham was mentioned a number of times as an undervalued suburb. I would mark the neighbouring suburbs of Heatherton and Mentone under this category as well. Median House and Unit prices have moved up 8.6% and 7.7% respectively year to date, well above the average in Victoria. With great accessibility, lifestyle and amenities. I foresee Cheltenham to be a great investment suburb in addition to being a wonderful place to live.
I was first made aware of the suburb of Williamstown only after working in RunningStream. This suburb had never registered in my mind during my Uni days in Melbourne. Possibly because the west side of Melbourne was considered undesirable for investment or even living in. Williamstown was known as an industrial location and Footscray, a druggie area. Despite the fact that prices in some western suburbs have gone up after some rejuvenation, the stigma still persists somewhat. The truth was that I was anything but excited about Williamstown.
Williamstown is situated 9km south west of Melbourne CBD across the West Gate bridge. It was formerly home to many industrial factories, which has long been cleared to become residential estates. There are still a few operational industrial buildings in the area. A noteworthy point is that it took less than 10 minutes for me to drive from the CBD to Williamstown via the West Gate Freeway. Upon arriving in Williamstown, it became clear that my preconception about Williamstown was way off the mark. Whipping out my mobile and logging on to realestate.com.au confirmed my analysis. Median House price is $985,000 while unit prices were $525,000. Houses at The Strand with a view facing the CBD across the bay are in excess of $1.3 million. 3 train stations in the Williamstown vicinity offer residents easy access to the CBD and elsewhere.
In my view, I think the upside that Williamstown offers investors for houses has been realised over the last few years. However, the apartment market is still young and the price differential between houses and units signals a potential upside for unit prices in the years to come. This scenario should play out over the medium term as the population growth increases in Melbourne where there is greater demand to live out of the CBD yet be in an area with great accessibility to go with a bayside lifestyle.
There are probably many more suburbs that we will continue to explore for our investors and which will offer investors good returns. But one thing is for sure, I came away from this trip with even more conviction that buying properties in the suburbs of Victoria instead of the CBD is the way to go. Not just for investment, but also a place to live or retire in the future.
“When you're an investor, you can look at the quantitative and qualitative elements of an investment, but there's a third aspect: What you feel in your gut.” - Kevin O’Leary
Senior Portfolio Manager
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