The Melbourne Property Investment Opportunity - PODCAST EPISODE 4
The Melbourne Opportunity Podcast
The Melbourne Opportunity Transcript
Introduction
Podcast: [00:00:00] Welcome to the Location Property Podcast. The podcast for property owners looking to grow their property portfolio. In this podcast, you’ll learn how to put your wealth creation on automatic so your assets are working for you 24/7 while you’re cruising the Mediterranean in your superyacht. To access previous episodes packed with property investment strategies that actually work, head over to www.locationpg.com[00:00:30].au/podcast.
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Why Melbourne?
Ajay Valanju: This is Ajay Valanju from Location Property Group. Thanks for tuning in to the Location Property Podcast. Today we’re going to talk about the Melbourne Property Investment Opportunity. Like Sydney, Melbourne is a large capital city. Melbourne currently has a population of 4.4 million residents, whereas Sydney’s [00:01:00] slightly larger with a population of 4.8 million residents.
I’d like to quote Peter Martin who recently wrote an article in The Sydney Morning Herald about Melbourne and Sydney’s population. “Melbourne has consolidated its position as Australia’s fastest-growing city, gaining an extra 95,600 residents in a year in which Sydney gained only [00:01:30] 84,200.” “Furthermore,” Peter mentioned in his article, “the bureau says Melbourne is on track to overtake Sydney as Australia’s biggest city by 2056, at present, housing 4.4 million Australians, while Melbourne will house between 7.3 and 9.1 million by 2056, whereas Sydney will be housing between 7.7 and 8.4 million people.”
Why is this important? Well, population size and more importantly the rate of population growth is a very strong determinant of capital growth in residential properties. From a growth perspective, from the demand side, and population side, Melbourne is a much more attractive proposition than Sydney. At Location Property Group [00:02:30] we are continually researching property markets to look for anomalies whereby our investors can gain an additional benefit to taking advantage of discrepancies in the market.
As of September 2016, if we look at the comparable median apartment prices of Melbourne and Sydney, we can find there’s a stark contrast when we look at the price of [00:03:00] brand new apartments in the middle ring five to fifteen kilometers from Melbourne CBD in comparison to the median house prices discrepancy.
To give you the numbers, the median apartment price in Melbourne is currently $545,000. The median apartment price in Sydney is currently around $655,000. According to these statistics, [00:03:30] the median price statistics, Melbourne apartment prices should be about 83% of the Sydney price. But what we’ve realized is that there are key strategic suburbs in Melbourne whereby we can secure brand new apartments off the plan for less than 50% of the price of their Sydney cousins. A median apartment price of Melbourne 83% [00:04:00] of that of Sydney. What we’re going to do is achieve purchasing at less than 50% percent of the price of Sydney in these key suburbs between five and fifteen kilometers from the CBD.
If that wasn’t enough, there is some more icing on the cake. The stamp duty savings are huge when we buy in Victoria off the plan. In Victoria, we pay stamp duty on the current [00:04:30] land value of the property divided by the number of apartments that are going to be going on that property. Whereas in New South Wales, we’ll be paying full stamp duty on the full purchase price in Victoria, we’ll only be paying stamp duty on a very small proportion of that based on how much of the building has actually been completed.
Minimise Stamp Duty
When Location Property Group become involved with projects in Melbourne that haven’t even commenced digging excavation of the site and what [00:05:00] this means is that it minimizes the amount of stamp duty that you’ll be paying. My wife and I recently secured a $383,000 apartment in Melbourne and we purchased it off the plan and it just settled in December last year. On that $383,000 purchase, the stamp duty was less than $2,500 for the purchase.
If we had bought a $383,000 apartment brand new off the plan [00:05:30] in New South Wales, in Sydney, first of all, we couldn’t buy a property with that price because then we would be buying double that or more to get the similar product of what we purchased, but the stamp duty that we’d pay on that transaction even if we didn’t get it for 383,000 would be around $12,500. We’ve saved $10,000 on our stamp duty which is a complete cash outflow which is a cash-out flow that can’t be financed. It is a very significant saving.
Lower Conveyancing Costs
In addition [00:06:00] to the stamp duty savings, the conveyancing costs are significantly less in Victoria. We currently have a solicitor that we use in Victoria and the total costs including disbursements for a transaction is less than $1,000.
When we do a similar transaction in Sydney, the disbursements themselves come up close to $1,000, not including the actual solicitor’s fee. There’s an amazing amount of savings [00:06:30] to be had in the transaction of properties when we look in Victoria. Furthermore, the developments that Location Property Group have selected in Victoria, strata levies in these developments are very low. Sometimes we’re looking at less than 50% of what we pay off an equivalent development in Sydney.
Overcoming Challenges
What are the common challenges that people face with considering investing in Melbourne? Well, firstly, [00:07:00] with a lot of prospective buyers that we meet, we’ve seen that there are frequent reports of oversupply in the Melbourne market. You can see it on the news at times or when you read the newspaper, and sometimes they’re also in online articles.
However, to say Melbourne has an oversupply is actually a gross generalization. There are confined areas and some inner-city suburbs such as Docklands and South Bank [00:07:30] and the new suburb that’s currently being built called Fisherman’s Bend, where there is a significant supply of apartments. Also, on the outskirts of Melbourne where there are brand new housing estates, there is significant supply in those areas.
But when we look back into the middle ring suburbs, these vacancy rates are significantly lower and there is no oversupply issue. One of the suburbs that we currently [00:08:00] are selling the I Apartments Development in Ivanhoe, in that suburb the vacancy rate is less than 1.5%, which is very much on par with Sydney vacancy rates. We can’t make the gross generalization that Melbourne has an oversupply of property so we shouldn’t invest there. That’s not the case. We need to pinpoint the right places to invest and there’ll be a very low vacancy and no issue of oversupply.
The second challenge that [00:08:30] prospective buyers have of investing in Melbourne is to actually go and invest in the state. A common thing that now I’ve heard from a lot of perspectives buyers is, “I’d really like to be able to drive past, that is, physically drive past all of my properties in a day just so that I can have peace of mind and I can see all of my investments in a short drive.”
However, if we really think about this, we are restricting [00:09:00] ourselves significantly and we’re going to forego all of those benefits that Melbourne and Victoria currently have over Sydney, New South Wales. Those benefits are the demand, the population growth, exceeding Sydney, the very low price that we can acquire properties in the middle ring suburbs for less than 50% of the price of those equivalent properties in Sydney when really they should be 83% of that price.
[00:09:30] The stamp duty savings, the conveyancing cost savings and the lower strata levies. It doesn’t make sense to forego all of these fantastic opportunities for the sake of being able to drive past the investment property.
A far better solution to this is to appoint a property manager that you can really trust so that you are comfortable with them and you trust them and their judgment so you know that they’re going to really take good care of your property on your behalf.
[00:10:00] This is probably the best way to overcome that uncertainty of investing interstate.
The third real challenge in investing in Melbourne is that this discrepancy that we’ve identified is not going to be there for a long time to buy something for less than 50% of the Sydney price when it really should be 83% of the Sydney price. That opportunity is going to be snapped up quickly, so we basically have to act [00:10:30] on this information now. If we don’t, we’re going to miss the boat on it. There is an urgency attached to really taking full advantage of the opportunity.
To recap the key concepts that we’ve discussed, Melbourne is a large capital city in the same way that Sydney is and it’s actually growing at a faster rate than Sydney even though the median price of Melbourne is significantly less than Sydney. This in itself [00:11:00] proposes a fantastic opportunity to get better capital growth while having to invest proportionately less money.
When we look at Melbourne closer and in more detail, we find that the middle ring suburbs provide an even better opportunity. In these suburbs, there is currently very low vacancy rates and that is coupled with a price of the brand new stock being less than 50% of that we would [00:11:30] pay in other equivalent property in Sydney. Furthermore, the stamp duty savings, the conveyancing cost savings, and lower strata levies make it so attractive and it can’t be ignored that Melbourne currently is a very good place to invest.
I’ve also covered off some of the common challenges that people face when considering an investment in Melbourne and the best ways to overcome those challenges.
Action Steps
The two action steps that I [00:12:00] suggest to get involved with Melbourne investment is the first one is familiarized yourself and do some research on Melbourne to confirm all of the points that I’ve discussed in this podcast.
Another option is booked an appointment with myself or one of the Location Property Group team and they can take you through not only the research that I’ve discussed here but a host of further information that we have, that isn’t readily available on the internet, [00:12:30] to show you and demonstrate to you what a compelling investment Melbourne is at the moment.
We actually have area-specific reports prepared for each of the properties that we sell and invest in. I think one of the most compelling things about Location Property Group is you can rest assured that you’re buying in the right places because not only do we sell investment properties to our customers but we actually [00:13:00] personally buy into those properties ourselves.
Action step two is, once you confident on your research, that Melbourne is all that I’ve said it is in this podcast, then commenced buying properties, book an appointment with Location Property Group and we will show you the properties that we have.
We’re currently selling in Ivanhoe, and in Maribyrnong, and in Richmond, so three fantastic suburbs which are showing amazing opportunity for the future. [00:13:30] To make an appointment with one of our team, please log on to locationpg.com.au or you can give me a call on my mobile on 0413-338-853 and we can show you some opportunities that best suit your requirements and preferences.
This is Ajay Valanju from Location Property Group, signing off. Thanks for listening, and I’ll talk to you again in the next episode. [00:14:00]
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Closing
Podcast: Thank you for listening to the Location Property Podcast. The podcast which consistently delivers actionable strategies to property owners who want to automate their wealth. You can access all the information below this episode by the show notes at www.locationpg.com.au/podcast. You can also ask questions in the comment section which Ajay will answer in the upcoming episodes. How can [00:14:30] Ajay help you today?
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