A developing outer-western region has outshone more fancied postcodes to be Melbourne’s biggest money-making market of the past decade.
The median house price in Rockbank-Mt Cottrell has gained an average 7.9 per cent each year since 2010 to hit $598,268, according to research by CoreLogic and Property Investment Professionals of Australia.
This puts it well above metropolitan Melbourne’s average annual growth rate of 4.9 per cent.
Doncaster East was the next most consistently strong market of the decade, with a typical house in the “south” part of the suburb notching yearly 7.8 per cent price gains to reach a $1.26 million median and those in the “north” part rising 7.5 per cent to $1.3 million.
Abbotsford, Doncaster, Templestowe Lower and Bulleen also joined the million-dollar club off the back of stellar annual rises since 2010.
Elwood’s median kicked above $2 million, thanks to 7.2 per cent yearly rises, while Mickleham-Yuroke added 7.1 per cent annually to crack half a million dollars.
PIPA chairman Peter Koulizos said the latter had developed from being “fairly rural 10 years ago” to a residential area.
“Ten years ago, there were only eight sales there. Last year, there were 269,” he said.
“New homes are generally sold at a premium, resulting in high capital growth.”
Mr Koulizos tipped the growth spots of the next decade to be those undergoing gentrification, like Footscray, West Footscray, Maidstone and Braybrook, given this had been the case for several stars of the last decade, namely Abbotsford, St Kilda East and Elwood.
“If you go back in history, places (like these) were not sought after,” he said.
“Now they’re at the top end of the market.”
Project director of major Rockbank housing development, Woodlea, Matthew Dean said the suburb was “a small township of about 1200 people” surrounded by “rocks and thistles” a decade ago.
Since being rezoned for residential purposes in 2012, it had become home to 6500 residents — 5000 of those in Woodlea — as well as a modern train station, schools and childcare centres, a sporting precinct, cafe, medical centre and parks.
“Rockbank will have about 35,000 residents in 10-15 years,” Mr Dean said.
“We’re only half an hour from the CBD on the train. And we’re creating quality amenities and well-maintained streetscapes (so) you’d expect to see more great price growth to come.”
Ryan and Kacey White bought into Woodlea about five years ago, built a four-bedroom house, and moved in with daughters Emma, now 9, and Chloe, 7, three years ago.
“We felt it was a growing area and the price was right to get a large block and a large house,” Mr White said.
“We figured … the kids could grow up with schools, parks, space and a good community feel.”
CoreLogic head of research Tim Lawless said Melbourne and Sydney had outperformed most markets over the past 10 years, thanks to “strong economic conditions and high rates of migration, which has fuelled housing demand”.
“However, such high rates of capital gain have eroded housing affordability and compressed rental yields,” he said.
MONEY-MAKING MARKETS OF THE DECADE
1. Rockbank-Mt Cottrell: 7.9% average annual median house price rise, from $279,684 in 2010 to $598,268 in 2020
2. Doncaster East (South): 7.8%, $593,736 to $1,263,792
3. Doncaster East (North): 7.5%, $636,597 to $1,306,834
4. Abbotsford: 7.4%, $604,463 to $1,238,627
5. Doncaster: 7.3%, $673,307 to $1,366,596
6. Elwood: 7.2%, $1,040,808 to $2,094,366
7. Templestowe Lower: 7.2%, $616,004 to $1,230,223
8. Mickleham-Yuroke: 7.1%, $283,824 to $566,064
9. St Kilda East: 7.1%, $723,131 to $1,441,491
10. Bulleen: 6.9%, $656,440 to $1,274,829
Metropolitan Melbourne average: 4.9%
Source: Property Investment Professionals of Australia (PIPA) and CoreLogic
Gold Coast Bulletin, 29 February 2020
The Mercury, 29 February 2020
Cairns Post, 29 February 2020
Geelong Advertiser, 29 February 2020
Townsville Bulletin, 29 February 2020
Daily Telegraph Australia, 29 February 2020
Northern Territory News, 29 February 2020
The state government of the Northern Territory has ruled in favour of the amendments to the Residential Tenancies Act despite the negative feedback from the Legislation Scrutiny Committee.
The amendments seek to give rights to tenants to own a pet. Under the proposed changes, tenants who wish to have a pet must submit a written notice to their landlords. The burden will fall on landlords to make objections to the Northern Territory Civil Administrative Tribunal within 14 days of the receipt of the written notice. If no objections are made on the part of the property owner, the tenants will get to keep their pet.
These amendments were not supported by the Legislation Scrutiny Committee, which said that these could “pose an unreasonable burden to the landlord and will only benefit a small proportion of tenants in private rental housing.”
“This is only the first tranche of changes to the Residential Tenancies Act and it signals that this government is willing to take away all rights of landlords and owners by ignoring all evidence presented to it by stakeholders and its Legislative Scrutiny Committee,” said Quentin Kilian, CEO of the Real Estate Institute of Northern Territory, in a statement.
These changes are similar to the ones implemented in the Australian Capital Territory and Victoria.
“With the territory’s economy already on its knees and the property market having wiped 10 years of capital growth off the books due to decisions of this government, they now seek to drive away investors from a property market that is just starting to show signs of recovery,” Kilian said.
Peter Koulizos, the chairperson of the Property Investment Professionals of Australia, said these changes could be “the straw that breaks the camel’s back” for many investors.
“They will consider selling as they don’t want more hassles. However, with the Northern Territory, property prices are currently significantly below where they were a few years ago. Most investors would be crystallising a capital loss if they sold now or in the near future,” he told Your Investment Property.
The median price in Darwin, Northern Territory’s capital, fell by 8.1% in January on an annual basis to $390,143, according to CoreLogic’s Home Value Index.
If enough investors sell their properties, a lower supply of rental housing could ensue, Koulizos said. A tight supply of rental homes could, in turn, increase rents.
“A good starting point would have been to consult with stakeholders such as the tenants’ association, property investors, and public housing providers, and seriously take into consideration each party’s perspective and try and come to a consensus before introducing any legislation into parliament,” Koulizos said. “It seems to be too late to do this now, but this process should be undertaken when this legislation is due for a review.”
The question is often asked of me why residential investors shouldn’t simply focus on very high yielding assets to bolster their cash flow.
And I understand the fascination. You’ll have seen the catchphrase, “Cash flow is king!” hundreds of times in online stories.
In fact, my last blog described just how beneficial commercial holdings can be in the right portfolio because they create a strong cash flow position.
It seems to make sense on the face of it because a high income from residential rental relieves the pressure of the ongoing monthly costs created by property investment ownership.
But what if I said there are times when too much cash flow is not a good thing?
Well there are – and it’s a red flag to smart investors.
Skin-deep appeal
I was prompted to write about this topic because of a property I inspected just a few days ago.
The holding was generating in excess of $200 a week above local market rental – and that sounded warning bells to me.
The home looked similar to its neighbours with pretty much identical construction and position.
Even more interestingly, the online listing details were limited and included just an outside photo.
That said, the agent let everyone know of its extraordinary return with a list price to match.
So, I decided to take a look.
It turned out to be a Queenslander style highset home which was built in downstairs with separate areas leased to different people, thus boosting the total return.
In addition, the owner was self-managing the investment and was trying to push a ‘net income’ result to potential buyers that excluded the normal cost of a professional property manager.
Worst of all – the property wasn’t approved for multi tenancy and I’m fairly certain the downstairs area didn’t comply with building codes for habitation.
Now, if you were an out-of-town investor who was simply taken in by the advertised numbers, this property would have looked like a diamond asset… but it was, in fact, fool’s gold.
If you didn’t take the time to inspect the property and quiz the agent, it would have been very difficult to discover how it was achieving this exceptional income and realise it was a highly risky prospect.
There have been other great examples where high yield is a red flag, such as regional mining towns during the boom in the 2000/2010s.
There are so many tales of woe about metropolitan investors who bought mind-blowingly-high income streams at seemingly reasonable prices during the boom in places like Moranbah.
While the 10+ per cent gross income looked tasty, even at a $1 million purchase price, it didn’t take long for the good times to crash.
Many owners saw their property values plummet closer to $300,000… and you couldn’t get a tenant no matter how cheap the rent was.
Fundamentals of cash flow vs capital gains
While it might be argued excellent value-growth investment options with good cash flow exist, it’s important to understand there can sometimes be a trade-off between cash flow and capital gains potential.
It’s exemplified in the commercial space.
When assessing the value of a commercial property, high quality assets with growth potential are purchased at a lower yield. Why? Because savvy investors will trade off cash flow for the capital gain potential of that holding.
Tips for staying safe
So how do you avoid the sting of a bad investment with a brilliant cash flow profile?
First up – don’t be greedy.
If you focus entirely on income it may cause you to ignore prudent due diligence.
Also, some of these investments are a breach of by-laws and planning codes, like the property I inspected. In this instance, it wasn’t approved for multiple tenancies, and one phone call to the authorities from an unhappy neighbour could easily result in costly fines and/or expensive rectification works.
In the worst instance, a property may not comply with fire regulations or other mandatory safety guidelines. If a tenant living there illegally was seriously injured (or worse) you could be dealing with criminal charges along with a lifetime of guilt.
It’s simply not worth it.
Diligence is key
High cash flow can be an alarm that screams further due diligence is required.
And while there’s plenty you can research online, there’s no substitute for a physical inspection of the property. Have a look and work out the important stuff.
What’s the configuration? How is it generating this income? What are the lease terms?
Here’s another important tip – drill the agent for info.
Pepper them with plenty of questions around the excessive cash flow.
Ask them outright why the property is achieving substantially more income than its neighbours.
Also – talks to local council about planning guidelines and the properties classification while leaning on your own advisor’s knowledge – legal and building compliance – to find out if there might be potential breaches under the current configuration.
So, while cash flow might be king, the other saying, “if it sounds too good to be true, it probably is,” is also based on fact.
Backing an extraordinarily high cash flow investment without adequate research is simply a gamble – red or black, heads or tails.
Don’t be caught out – in fact, unless you are watching the market constantly, it’s easy to be tricked.
The safest move is to draw on the experience of your own independent advisor.
According to recent reports, house prices eased in 2019 but are on the upward slide in 2020 as markets rebound.
If you’re in the market to buy an investment property, you should make a move now. Here are ten reasons why you should pounce on an investment property right now.
1. Record low interest rates
The official RBA cash rate is at 0.75% and holding – a record low in Australian financial history. If you’re waiting for interest rates to fall, don’t hold your breath; there aren’t any clear signs they’re set to drop any lower.
2. Property investor experts say there’s no better time
Peak property investment body Property Investment Professionals of Australia (PIPA) in their Annual Investor Sentiment Survey, says that 82% of investors believe now is a good time to invest in residential property, up from 77% in the previous year.
3. No cap on investment loans
In July 2019, The Australian Prudential Regulation Authority which has a hand in regulating the lending industry removed the cap on the number of investment loans an individual can take out. If you’re looking to go for more than one property, now is a great time.
4. Waiting longer can cost you money
If you’re waiting for the perfect ‘time’ – don’t. It can actually cost you in the long run. PIPA research in September 2019 showed that investors who attempt to ‘time’ the market could lose an average of $140,000. So don’t wait, move!
5. A buyer’s market – while it lasts
Since house prices have fallen slightly over 2019 (but may climb back to the record peaks this year!) you should put on your negotiation cap and look for an absolute property bargain.
6. Lower outlay; higher returns
It also stands to reason that if house prices rise back to their peaks this year, you’ll reap a greater return on investment than if you waited. So, if you have the capital lined up, move now or regret it later.
7. More competition in investment loans
In the wake of the Royal Commission into the Banking Sector last year, Savvy CEO Bill Tsouvalas says non-bank lenders and brokers have driven more competition in the sector: ‘Applications with the Big Four banks could slide by as much as a third, which may indicate non-bank lenders are driving home more competitive rates. If you’re going to buy an investment property, it’s worth looking into.’
8. Negative gearing
Since the Coalition was returned at the last Federal Election, changes to negative gearing proposed by the Labor party will not come to fruition. That way you can still take advantage of tax breaks through negative gearing if you decide to buy an investment.
9. Secure your retirement
If your superannuation isn’t anything to write home about, an investment property now can help you secure a comfortable retirement. The extra cash flow or an eventual sale of an investment property could net you extra cash when you’re not working.
10. Supplement other investments
If you already have investments in shares or money markets, diversifying your portfolio with an investment property is one way to spread risk and create another stream of income. That way, you can pocket the rest or use it to fund further investment.
Almost half of investors plan to buy property interstate this year, according to research from the Property Investment Professionals of Australia (PIPA). Its latest survey also found 63% of investors would consider rentvesting – renting in one location and investing in another.
“More and more investors are recognising that there are myriad investment opportunities around the country, rather than being blindsided by what’s happening in their own backyards,” says PIPA chairman Peter Koulizos.
He says serious investors recognise that considering interstate locations for their next property purchase enables them to make the most of markets that are potentially about to rise.
“Savvy investors always consider the locations that offer the best market fundamentals as well as prospects for capital growth over the medium to long term,” says Koulizos. “They choose not to follow the masses, but to invest in locations before prices start to rise, such as in Sydney in 2012 and in Melbourne not long after.”
A case in point was growth that had occurred over recent years in locations such as Hobart, Adelaide and Canberra as well as parts of regional Victoria, Queensland, Tasmania and NSW while property prices were falling in Sydney and Melbourne.
However, be wary of investing in interstate property without professional financial advice.
“Going it alone when investing in any property, anywhere is always a risky move,” says Koulizos.
“These risks skyrocket when someone tries to do that in a location that they don’t understand, plus they often buy sight unseen because of the distances involved and wind up with a dud investment in an inferior location.”
