The new breed of investor and the Melbourne suburbs they’re targeting
There’s a new breed of investor that is sweeping Melbourne and driving demand, according to property valuers Opteon Victoria.
It’s the cashed up self-managed superannuation fund investors that are part of what is driving Melbourne’s house prices, in concert with low interest rates and strong consumer sentiment, and Opteon Victoria managing director Chris Knight said that prices are expected to be more consistent than 2012 and 2013.
“Melbourne’s record median house prices in the March quarter were an encouraging sign of life and a return to more consistent prices across all sectors,” Knight explained.
“Top-end sales are in great shape and older homes on larger blocks are also selling well, which indicates those with money to spend are snapping up some good deals while interest rates remain low. This includes developers looking to subdivide.”
However, he said that there are three main buyer categories – upgraders, downsizers and investors. Overseas buyers are also looking at Melbourne.
“But a new breed of investor – the cashed-up self-managed super fund brigade – is starting to make its presence felt in both the residential and commercial property markets,” he said.
Where are they looking and what are they looking for?
Knight told Property Observer that these SMSF investors, that have been emerging over the months, are looking largely in the East and West growth corridors, and particularly the more affordable areas. This includes Point Cook, Tarneit, Cranbourne and Pakenham.
However, they’re also looking for a certain type of property to best suit SMSF requirements.
Those with self-sustaining yields, that are new enough to require few improvements and to offer substantial depreciation benefits, and that are at a lower investment-grade price point are the most sought after factors. This is for a number of reasons, including that the amount able to be poured into a super fund each year in extra contributions is capped, making renovations and sustaining a loss-making asset difficult for some SMSF investors. Similarly, improving an asset purchased in an SMSF can fall under a number of different rules from the ATO, which restricts renovating to the same extent as property purchased in other, more common, structures.
“Interest in self-managed super funds is growing substantially,” said Knight, noting that it is occurring broadly across Melbourne. "They're often ably assisted by their financial adviser," he said.
Investors looking outside of their SMSF, however, have some other ideas. Despite a general wave of negativity regarding inner city Melbourne and the discussion of oversupply and low yields, it appears that there is still strong interest. The west and north west areas in particular see interest, such as the outskirts of Essendon and Footscray, he said, noting it has also been a surprise to see investors heading into the CBD and inner city ring.
"It's all about the entry point, the yields, and the ability to secure the properties quickly," he explained.
New stock, a contentious topic in the past on Property Observer for states other than just Melbourne, will be an interesting sector to watch. Knight noted that it's the re-sale values that will be the proof the market needs, however warns those tracking the properties that often developers are those selling these properties again on second sale.
This is often due to the developer owning a right to the sale through the contract, particularly when they have other stages up for sale. He notes that it's worth waiting to see how they sell through a local real estate agent, as it's hard to quantify just how much the marketing costs may have been built in to the value.