Why inner city Melbourne tops Terry Ryder's 2018 No Go Zones report

Melbourne's inner-city unit market has been pinpointed in Terry Ryder's latest Hotspotting’s No Go Zones 2018 report.

Ryder warns investors to steer clear of apartments in the CBD, Southbank and Docklands in particular, citing concerns around oversupply and high rental vacancy rates.

Ryder said the impact of oversupply was frequently underestimated.

“Over-supply causes rents to fall and that drags down property values,’’ he warned.

It was the first time for several years that no regional, resource town in Queensland had been on the list.

Hotspotting founder Terry Ryder said in the report that the “single biggest danger” for investors this year was “buying apartments in some of our major cities”.

“Given that Melbourne, Brisbane, Perth and Darwin already have, or are heading towards major surpluses of inner-city apartments, and Sydney, Adelaide and the Gold Coast are trending in that direction, a good strategy for property investors is to simply avoid high-rise unit markets altogether,” he wrote.

Ryder warned while “the optimists” had suggested Melbourne’s population growth was strong enough to absorb its substantial unit development, many of the apartments being built were unlikely to appeal to local renters.

“This lessens the appeal of the apartments and reduces the size of the target market, thus causing downward pressure on rents and prices.”

The report advised that 4.2 per cent of properties available for rent in Southbank were vacant in November 2017, along with 3.4 per cent in Docklands and 2.8 per cent in the CBD.

While down from November 2016, they sat well above greater Melbourne’s November 2017 vacancy rate of 1.8 per cent, according to SQM Research.

Ryder’s report said State Government figures showed 20,000 residential properties across inner and middle Melbourne sat vacant.

Some 93,000 units were in the pipeline for construction across the city over the next two years — although it was unlikely they would all be built.

An 18th level, two bedroom apartment in Southbank's The Guilfoyle complex (top and above), sold has just sold for $475,000, having last traded for $530,000 in 2010. 

Ryder’s “no go” zones also included three Queensland markets — inner-city and northside Brisbane, and high-rise Gold Coast — along with the WA localities, Kalgoorlie-Boulder, Perth inner-city, and Port Hedland and Karratha.

SA’s Whyalla and units in Parramatta, NSW, rounded out the 10. 

The No Go Zones report said the Olympic Park area, which includes Homebush, Breakfast Point and the suburb of Olympic Park itself, was becoming “prominent for all the wrong reasons”.

Sharp increases in the number of homes available have coincided with a decline in sales, while the number of rental properties currently vacant recently climbed to 4 per cent — double the Sydney average.

Other nearby suburbs such as Wentworth Point and Rhodes also “entered the danger zone”, according to the report.

Ryder urged investors to examine a market’s vacancy rates and building approvals to gauge potential oversupply before taking the purchase.

He also advised speaking to local “real estate professionals”, namely valuers and buyer’s agents.

In Hotspotting’s Top 5 Melbourne Hotspots 2018, Mr Ryder named the Hume, Wyndham, Melton, Epping and Casey precincts as the city’s best bets for buyers this year, each offering affordability, solid infrastructure and closeness to major employment networks.