Low-end Sydney and Melbourne properties offer great buying opportunity: RiskWise's Doron Peleg

EXPERT OBSERVER

There’s been plenty of media coverage on high-end properties bouncing back in Sydney and Melbourne following the downturn, but the low-end should certainly not be overlooked.

RiskWise projected strong price increases across a large number of areas in Sydney and Melbourne in the short term, but particularly the long term, thanks to a good (while somewhat deteriorating) employment market and strong population growth, particularly in Melbourne.

The RBA’s interest rate cuts (the most recent one in October 2019 with the possibility of a further one in the first half of 2020), some loosening of credit restrictions, significant improvement in buyer confidence and increased auction clearance rates provide very strong indications regarding these markets.

Buyer sentiment in relation to housing measures has noticeably improved and the Westpac-Melbourne Institute’s House Price Expectations and Time to Buy a Dwelling Indices show a consistent trend. Auction clearance rates have also recovered and are largely above 70 per cent in Sydney and Melbourne.

As we predicted immediately after the election and in our previous Risks & Opportunities Reports, the market has materially improved with affordable areas that have shown resilience recovering well. Other areas, including lucrative ones that experienced strong price reductions, are now leading the way to this recovery.

However high-end properties, while bouncing back well from the property downturn, were far more sensitive to credit restrictions and investor activity than low-end ones.

That's why high-end properties were impacted dramatically during the downturn but also bounced back dramatically when reversing the negative factors, as we are seeing in prestige areas of Sydney and Melbourne.

Lower-end properties are less subject to credit restrictions and investor activity which actually make them a great buying opportunity. In fact, in some cases areas, such as Geelong, even benefited from the lending restrictions as buyers looked for more affordable options.

Taking a long-term outlook, many of these lower-end areas had a good forecast for strong price increases.

He said many were earmarked for gentrification and that RiskWise research in February 2018 showed a large number of these low-end, high-crime areas outperformed the market.

Our nationwide research actually found gentrifying suburbs with high crime typically deliver strong price growth and outperform the local benchmark.

We found affordable high-crime areas with significant gentrification are likely to produce strong price growth, particularly when dwelling prices in the inner and middle rings are severely unaffordable.

For example, even in high danger areas of New York City and London, etc, provided there is strong population growth and severe unaffordability throughout these cities, these crime areas still increase in popularity and therefore experience price increases.

He said many areas in the western suburbs of both Sydney and Melbourne had provided strong price increases for houses, although this did not apply to units.

In fact, over the long term many low-end areas outperform the top end.

DORON PELEG is the CEO at RiskWise