Hotspot: Investors tap into Carlton student rental market

Prices for apartments in the inner-Melbourne suburb of Carlton are starting to rise following a decade of subdued activity.

Carlton, directly north of Melbourne’s CBD, comprises 14,000 residents.

It includes a high proportion of students, given its close proximity to the University of Melbourne and RMIT.

For the 10 years prior to November 2009, Carlton apartment prices increased by 2.9%, according to RP Data.

In the 10 months from November 2009 to November 2010, growth has more than tripled to 9.7% to a median unit price of $255,000

The current median stands at $275,000, an increase of 17% over the past year, but still highly affordable when compared to the Melbourne unit market, where the median unit price stands at $440,000 and is declining (down 3.8% on the year to May 2011).

In Carlton, unit prices are trading at a 2.1% discount while the 44 days they are on the market, on average, suggests there is some room for investors to negotiate on price.

Estate agents Dingle Partners list one-bedroom investment apartments in Carlton for sale between $200,000 and $220,000 and two-bedroom apartments under $500,000.

In a promotional video for the suburb, Dingle Partners lists Carlton’s close proximity to the city, its cafes and restaurants on Lygon Street, its “immaculately retained Victorian architecture”, European-styled squares and beautifully maintained public gardens as some of the attractions of the suburb.

Mario Lambiase from Ray White in Brunswick is currently marketing a one-bedroom student unit at 131 Pelham Street to investors. The unit has an annual net rental return just under $13,000.

The price is not disclosed, however another one-bedroom apartment in the same complex being sold by Moss Estate Agents is listed at $195,000 with tenants currently paying $1,325 per month.

Lambiase says the Carlton unit market has come back 5% to 10% in the last quarter.

“Buyers’ confidence is returning and they are starting to purchase,” he tells Property Observer.

According to Lambiase, there is strong investor interest in the market both locally and interstate, particurlarly given the large student community that rents in Carlton.

He lists the close proximity of Melbourne University, good transport connections, shopping and the cosmopolitan feel of Carlton as reasons to invest in the area.

Ben Williams from Hocking Stuart Carlton says investors have returned to the market, sensing there is good value in Carlton.

He says the 70%-30% split in favour of owner-occupiers over investors is now evening out.

“Rents in Carlton are very strong. They are holding up better than sales,” Williams says.

“If you are looking for an investment near to the city, this is a pretty safe place to park your money.”

Property valuer WBP says positive growth expectations for Carlton North (the residential zone north of Rathdowne Street) market remain strong in the medium and long term.

WBP attributes demand for Carlton primarily due to its proximity to the Melbourne CBD together with local facilities including parks, restaurants, bars and cafes, and universities.

WBP describes Carlton North as a “gentrified suburb with hospitality and lifestyle facilities en masse” including the cafes and restaurants on Lygon Street and green spaces of nearby Princes Park and Royal Park.

“Other local factors that support interest and underpin value include Melbourne University and local hospitals including the Royal Children's, Royal Melbourne, Royal Women's and the soon-to-be-completed Peter MacCallum,” the valuation group says.

Like Lambiase and Dingle Partners, WBP highlights nearby green spaces of Princes Park and Royal Park at Parkville, as well as the café culture and restaurants, as attractive prospects for buyers and renters.

“Carlton North is a highly-sought residential area with high value and strong growth potential.  Popular streets include Canning, Rathdowne and Station Street.

“Neighbouring suburb Prince Hill is also a popular residential location, which offers many of the same benefits as Carlton North,” the firm reports.

Carlton is also attracting developer activity, with Australand currently selling units off-the-plan for its 148-unit Lume project.

A 40-square-metre, one-bedroom ground floor apartment in the Allure tower is being marketed for $430,000.

Lume will include three towers ranging in height from four to six levels around the block bound by Cemetery Road East, Cardigan, Keppell and Swanston streets. 

More than a third of the Lume apartments have been allocated as public housing.

The Carlton residential market is dominated by units, which account for 76.4% of all dwellings.

Being a student accommodation hub, 85.7% of units are rented – significantly higher than the 65.6% rental proportion recorded on average throughout the city.

As highlighted by Dingle Partners, Carlton is a well-established suburb with many preserved Victorian-era, heritage-listed buildings.

As a result, the majority of units are situated within old buildings, maintaining the architecture of their time.

According to the St George National Hotspots report, some such old buildings have received significant external renovations, while some newer buildings have taken their place, offering modern conveniences such as gyms and pools.

“As is the case for older suburbs of Melbourne, small cottage and terrace-style dwellings are still quite prominent and are likely to afford significant internal renovation potential,” the St George report says.

Median rents for Carlton units are recorded at $380 per week, and this figure coupled with the median unit price results in an indicative gross rental yield of 7.7%.

The suburb is well serviced by trams providing easy access to the suburb and the CBD.