Brisbane vs Outer Melbourne Suburbs?

Evening ladies and gents,

Another step in our journey has just closed with us buying our second property. Now we officially own (well, when it settles) a little tiny piece of Melbourne (530sqm) bought for just under 500k, 18km from CBD.

Now the next step. We have a bit more serviceability and a deposit to make another purchase. It's a tough choice for me: Melbourne outer suburbs Vs Brisbane. Some of the outer Melbourne suburbs I'd consider are Mernda, Craigieburn, Cranbourne etc. In Brisbane we would consider northern suburbs along the train line, such as Zilmere, Petrie, Kippa Ring etc.

Now the main catch is that we need minimum 4% yield, potentially higher. I know in Brisbane we can get 5% yield in some of those suburbs, but I'm unsure about Melbourne. What do you guys think, which one is a better option? Our budget is 500k.

Thanks a lot!

P.S. Thanks heaps to all of you guys for all your advice so far, I'd be lost otherwise. I'll officially send some candies and postcards to you for all the pain you had to go through

 

500k I'd still.a.lot of.momey in Brisbane.
You can easily do a.more desirable area than what you have mentioned in Brisbane with 500k and get more than 4-5% yield and and will have higher potential cg than the alternative you are thinking about in the outer Melbourne suburbs.
This is an easy decision. You have already bought in Melbourne anyway. Seek diversification as the cycle in bn is different than that in Mel. Brisbane's best days are ahead of it in this cycle at least...whereas I'd say Melbourne's best days have passed in this cycle.

 

Thank you mate!

May I ask what do you base your opinion on that the Melbourne's best days are over and Brisbane's best days are ahead?

What about markets within markets (mostly referring to Melbourne here)?

By the way we own one IP in Melbourne now and one in Brisbane.

 

Look at where each is in the cycle eg the property clocks from htw.
Whilst outer Mel may have more yo move cg wise than inner east Mel, the entire Mel is closer yo a cyclical downturn than Brisbane is. Once Melbourne enters into the cyclical downturn, even the fringe areas of Mel you mentioned will be affected - maybe even more so than the more desirable stuff in Melbourne. See @highlighter recent post on fringe suburb investment.

 

But what attracts people to Brisbane? Where are the jobs?

Where is the highest pop growth and highest migration in the country?

I hear what you are saying. Basically when Sidney and Melbourne are too pricey investors will start looking into cheaper options. But with tougher APRA regulations there will be less investors. And it's FHB's that drive the markets anyway.

 

The jobs and economic position is probably the main factor (demand side) that contributes to prices ( the other main one being supply), why is Brisbane cheap? Not because it's backward in its cycle, rather because it's demand isn't as strong and supply is reasonably high.
Why is Sydney so exp? The exact opposite to why Brisbane is cheap as above. Yes cycles do impact the price significantly, but not as much as the above supply and demand.
Eg even at the bottom of Sydney's cycle, it will on average still be more expensive than Brisbane even if Brisbane is at the top of its cycle. The gap won't be as large as it now..but there will still be a gap.
This position ( most expensive, second most expensive, third etc..) can only change if underlying supply and demand of respective securities/areas change...positioning could also change with cyclical activity, but that is unlikely and/or short lived as for that yo happen both would have to have a close median to start with and very likely they will have same cyclical pattern Eg Sydney and Melbourne in one corner, Brisbane and Perth on the other..

 

That Herron clock is crap and broken. It's adjusted manually and also goes backwards to indicate they also have no idea what cycles are doing. I wouldn't say Melbourne is closer to a downturn as no one knows how long a cycle will last, but I would definitely like to place my borrowed cash into a city that has the best capital growth and decent employment rate. I would also like to own in Sydney, but at those prices and returns I cannot afford to hold so Melbourne certainly wins my vote.

 

I don't know anyone -htw or otherwise- that will say Brisbane is ahead of Melbourne in its cyclical activity.

 

It might not be ahead but it's not a clock that should be used is all I mean. You can't represent a whole city and say it all will rise. I'm sure people that know Brisbane market well, can outperform certain Melbourne areas.

April htw, check out we're Melbourne and Brisbane is...
Rising market for Melbourne and Brisbane is start of recovery.

Month prior Melbourne was approaching peak of market, and Brisbane in the same spot, startbof recovery.

Go back to November 2016 and Melbourne is rising market, Brisbane still stuck at start of recovery.

You will make more money at the start/rising market than waiting at a start of recovery which hasn't moved yet.

 

I agree you do make more money at the rising market then at the start of recovery but what if you missed the start of the rising market.

I would rather be at 0% and see it to 100% then go back to 80% then to start at 40% then be at 100% and back to 80%. If that meant I had to hold it for a couple more months I am more than okay. Ideally you want to be at 0.01% and either sell at 100% however if you know this every single time it happened you wouldn't be on the forum and be presenting (some might call it spruiking) at shows for $10,000 per ticket.

I went with Brisbane, I see more upside than Melbourne and I have an equally vested interest in both in fact technically I would have more interest in Melbourne increasing more due to the capital I have here compared to Melbourne.

Brisbane with my vote.

 

I compared parts of Brisbane to outer Melb in 2015 when I was looking to invest.
At the time I remember the general consensus was Melb was hot, possibly nearing peak, and Brissie was being touted as the next place to boom.
After looking at both economies, demand vs supply and, most importantly price point. It was an easy decision.
Going around Melb I was seeing demand building, yet many markets were still 'affordable'.

Today outer Melb is booming, there's still some good opportunities out there, mainly in the west and north west but they are limited. Prices are rising weekly.
The ship is definitely sailing though..

Brisbanes time will come... While I don't expect a Sydney or even Melbourne type boom.. Prices will rise steadily.

 

depends on the time horizon as well, and the growth potential in the cycle.
Brisbane, especially innner and mid, has already risen, matching or in some cases more than outer melbourne; showing that it has what it takes to rise. Its just not as uniform and widespread in brisbane. Have a look at RP Data stats for the majority of inner and mid Brisbane ( n, w , s, e doesnt matter) and compare it to outer melbourne. If the entry price point is similar , this is an easy decision, especially for long term holds which is suited to property.
Regardin property clocks, yes its tougher to make it uniform, especially in brisbane where there is a fairly large variance for even nearby areas ( unlike sydney and a large part of melbourne). However, if there is a general downturn in any city, all property will ( in that cycle) be affected ( to differeing amounts)...i dont know a single bear market in property where a subset (of that bear market) has actually risen!
Its probably more sentiment that drives this than underlying fundamentals.

 

Hey @JDP1 could you name some of those more desirable areas within 450-500k budget and 5% or higher yield?

Thanks a lot

 

A house in Runcorn or Keperra will be on the top of my list

 

The first two questions are spot on, the third point not so much.

Investors do not follow prices, they follow returns and run from risk.

An owner occupier being "priced out" means the asking $$ is too much. An investor being "priced out" means the returns do not outweigh the $$. Subtle difference, but it is important to understand that investors are not priced out because of high asking $$. Compare Brisbane to Morewell, where you can easy pick up a house for under $200k (some as low as $100k), but there is a good reason investors are preferring one city house to 5 Morewell houses.

Statements such as "<insert city name> will have its day" are pointless, because every major city in Australia will have its day at some point. Its like the John Maynard Keynes Quote.. "in the long run, we are all dead".

I think its time the conversation shifted away from trying to identify what is the hot market because most would agree that nothing is going to be pulling consecutive years of 10% any time soon. Its time to address the genuine downside risks in each region. Some examples:

• What state is most exposed to rising interest rates?
• What demographic is most exposed to job cuts?
• how is population growth likely to change in coming years?
• How is economic sentiment likely to affect property?
• What government policy/spending changes are going to impact property?

 

Now that you are considering Brisbane more...could you up the budget to say a cool Mil..
We need some money up here

 

Haha I'm barely scraping 500k

 

Nice thoughts man. Could you help us answer some of those questions?

My personal thoughts would be the answer to all of them would be the same - Melbourne. It's just that bloody yields are so low.

Like you said, in the long run (and let's call that long run 20 years) every major capital city will perform well. Do all those questions matter then if we diversify our portfolios over major capitals (for me it's only Melbourne, Brisbane and Perth)?

 

I would target either a house or townhouse within 12 km of cbd.. Ex oversupplied eg apartments and ex flood prone. Any direction from cbd should be ok. 500k should be enough to get most.. Might be stretch with a decent quality house though.