Townhouses an untested investor market in Melbourne's outer south east: HTW

Townhouses an untested investor market in Melbourne's outer south east: HTW
Townhouses an untested investor market in Melbourne's outer south east: HTW

Middle south east and bayside regions appear to be attractive for investors, according to Herron Todd White's latest month in review.

The HTW November report states that depending on the property investors choose, they may invest in detached housing to get the negative gearing investment for tax benefits for future capital growth or development opportunities or they can invest in apartments with slower capital growth, but with high and stable rental yields.

"Established areas provide a choice of different property types which can meet any investor’s goals.

"Currently investors in middle south east and bayside regions are fairly active and are purchasing detached houses, townhouses, units and apartments."

The report also notes that outer south east regions appear to be mainly attractive to first home buyers and families with medium household income.

"Investors are not very active at this stage due to low capital growth and consistent competition from the construction and development industry, which continue to offer affordable brand new housing.

"Investors who purchase in outer south east regions are looking for investment diversity geographically and also to meet different investment targets such as finding long term tenants for stable rental yields."

Middle south east and bayside areas consist of local investors in established markets and mainly overseas investors for brand new strata townhouses and apartments, says the HTW November review.

"Bayside offers consistently strong capital growth with stable rental return of 4% to 4.5% for units.

"Rental yields for apartments and units experience a stronger rent in comparison to the housing market in general."

The report goes on to suggest that outer south east area is mainly dominated by local investors aiming to achieve long term stable cash flow in terms of rental income.

"Investor goals can differ and therefore they will choose the market and area to meet their targets such as consistent cash flow, low vacancy rates and high rental yield.

"Investors in the outer south east area are looking for long term tenants who will stay in the property for two to five years.

"They are usually young families with children in primary school who are willing to rent a new detached house with private backyard and easy access to local parks, shopping and schools."

The HTW report shows that medium housing price in the outer south east area can range from $380,000 to $450,000 for a single storey dwelling and $550,000 to $630,000 for double storey residence.

However investors in this region typically do not spend more than $500,000, with current rental yields in the outer south east area generally ranging from 4.5% to 5%, says the review.

"Townhouse and unit markets are emerging in outer south east areas and appear to be mostly an untested market.

"Some developers offer limited stock of townhouses called “cityliving” which engage people by offering close proximity to schools and parks and to reside in particular estates at a more affordable price, whereas townhouses and units appear attractive in the bayside region due to higher land prices and more expensive detached housing."

Rental yields are also higher in the bayside area for townhouses and units compared to detached housing, says the report. 

It also adds that investor activity within this area will not be as sustainable over the coming year as banks begin to lend less for investment properties.

"The hardest hit properties will be off the plan apartments.

"With the lack of confidence for investors combined with expected cash rate rises from the RBA on the horizon, it is unlikely that investment levels will grow in the medium term.

"It has been suggested that not only would there be a decrease in house prices, but due to falling house values, home owners will cut back on spending as they will consider themselves to be worse off than before as their safest investment, bricks and mortar, has lost some of its market value."

Joel Robinson

Joel Robinson

Joel Robinson is a property journalist based in Sydney. Joel has been writing about the residential real estate market for the last five years, specializing in market trends and the economics and finance behind buying and selling real estate.

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Melbourne House Prices

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