Investors will rediscover value in period-style Melbourne apartments: Paul Nugent

GUEST OBSERVER

Houses outshone units across Melbourne in 2016, but 2017 may well be the year of the apartment for the astute investor.

Period- or older-style apartment performance was sluggish in 2016 across Melbourne, with activity, rental and capital growth rates measured relative to houses. There was a dampening effect caused by an excessive boom in the high-rise or multi-unit sector over recent years.

But it is evident from ABS financing and building approval numbers that the much-needed correction in the multi-unit sector has begun, and prices and volumes of new supply in this category will continue to shrink over 2017.

Consequently, there is a strong case to be made that period style apartments are undervalued at the moment. Indeed, with investors looking for safer assets in 2017, we anticipate a rush-to-quality out of high rise and into older-style apartments and houses.

Growth continues in 2017. Around 5 to 10 percent in inner suburbs.

Although residential property has performed strongly in Melbourne over the last four years, don’t be surprised if 2017 sees further growth.

Underpinning this view is evidence of persistent buyer demand off the back of lower interest rates, and a shortage of stock on the market. This shortage of stock is essentially the result of four years of buoyant sales volumes exhausting the pool of discretionary vendors. Eventually, one would expect potential sellers to respond positively to the price growth signal out there, but it hasn’t happened yet, and it may not eventuate until sometime in mid-2017.

Furthermore, the broader fundamentals of the market remain benevolent:  a rising population, a relatively steady economy – with unemployment appearing to be stabilising around 6% – and, of course, low interest rates.

In-demand property types in the inner and middle ring suburbs should record solid capital growth of around 5 to 10 per cent in 2017. But lower-demand properties in the high rise CBD sector and outer suburban areas will see little growth.

Paul’s tips for those considering property in 2017.

Don’t procrastinate. The Melbourne auction market remained unusually active right up to the final weekend of the year. This augurs well for 2017, as our experience is that a late end-of-year run invariably heralds a good start to the following year. If you are a prospective buyer, don’t make the mistake of waiting to see what happens in February and March before jumping in. You may find that property prices are 5 per cent higher in April than they finished 2016.

Don’t place too much weight on overseas events. The commentariat spent much of November and December agonising over the implications of the coming Trump presidency. Just know that the Australian property market has been subject to numerous external shocks that were supposed to damage it  – the GFC, the tech wreck, wars and international terrorist events – and didn’t.

Focus on what you can control. Whilst you can’t control what happens to the world economy or who is in the White House, you can control the property assets that you invest in.  Make getting that right your priority. Focus on selecting high quality property with a track record and propensity for capital growth.

Paul Nugent is a director of Wakelin Property Advisory and can be contacted here.