VIC Buying in Melbourne CBD or Docklands

Hi everyone,

I have been given some advice (including through propertychat.com.au) that buying an apartment in Melbourne CBD or Docklands is a huge mistake.

I was wondering whether I can get anyone's views on this, especially considering the following context, which could potentially be my situation.

The plan was to buy an apartment, two bedrooms, two bathrooms, around the $600k. I am looking at a mortgage of around $500k and monthly repayments of about $6,000. One third of that money will be coming from renting out the second room to my current housemate with whom we have been leasing together for about 5 years. Assuming all goes well, in my inexperienced mind, this would result in the repayment of the mortgage in under 10 years view a view to raising equity soon enough in order to buy something else.

The advantage of buying in the CBD/Docklands is that the rent on individual rooms is very high and therefore equity could potentially be raised significantly fast; the disadvantages being high body corporate fees and next-to-none property growth.

I would appreciate any advice from people much more experienced in this.

 

wait, what? Why?

you need owner occupiers to drive up prices. Any property has great yield if you rent out by the room. What does that have to do with equity?

unlimited future supply, little redevelopment potential and buildings that age poorly make it a crap investment. You want to buy and rent it out by the room for yield? Fine. The cap rates dont work the same.

 

I bought into Docklands in 2007 and have lived here since 2008. My Docklands apartment, a dual-key (one bed apartment + studio, each self contained, on one indivisible title), cost me $620K new (completed, not OTP) and now, 13 years later would probably sell for $660K - i.e. allowing for buy-in and selling costs no CG over 13 years. The return though has grown and is not bad - $800pw and affordable OC levies thanks to a committee that lets nothing go. After living in one half of the dual key and renting the other half (not dissimilar to your plan) I moved out three years ago and now am a rentvestor - live in a very nice apartment that would sell for $900K and rents for $700.

With this experience I would not recommend anyone to buy into Docklands unless they're after a particular apartment for a PPOR (e.g. a penthouse), are cashed up and want the security of owning.

That said, I rate Docklands, Victoria Harbour in particular, a great place to live. Vic Harbour and Yarra's Edge both have the advantage of being north facing. Vic Harbour is brilliantly serviced with free trams to CBD, SX station a 10 minute walk, supermarket, PO, pharmacy, medical centre, library, eateries and the rest on the doorstep. The north side of Docklands has improved markedly with the opening of a Woolworths, Hoyts cinema and other facilities; the towers may have the guaranteed permanent view over the water but are south facing and Docklands is cold and windy in the winter (which is why I moved). If you live in Docklands (or the CBD) you probably don't need a car, which will save you $$$$ - for occasional car use join Flexicar or GoGet.

If you want to live here, try and make the numbers work for renting here and buying an IP elsewhere in an area that should grow.

 

May we ask which area yours is in?

Also i did heaps of research in docklands about 7 yrs ago, have the crappy areas changed much?

I noticed when i went there late last year the number of vacant retail was more than half at a glance

 

If buying into a highrise be very selective as the risks are real. Investment wise it would need to be a complete yield play that is built and run well with unique unblockable views/layout if possible. Must read owners corp minutes to see how many residents attend and what the comittee looks like i.e. is it controlled by residents or bodycorp/developer. Have a look at what type of people frequent the building. Sometimes there are even facebook groups for certain buildings.

Unfortunately highrises in melb are currently dominated by investors. The bull case being that apartment living uptake may rival that of Sydney at a future point in time but at the same time it could never happen due to type of immigrants melbourne is attracting and the ability of melbourne to keep expanding in the outer suburbs. Another point is that apartments attract alot of foreign buyers as they can only buy new, so likely initial purchase price is overinflated/distorted to begin with and is not a reflection of local owner occupier demand/prices.

I agree the lifestyle docklands offers is top notch and it is in uni high school zone but may change in future when that fishermens bend high school goes up.

Alot of new things popping up near costco. New primary school, cinemas etc. Was also talks of disneyland at one stage (pipedream). A bonus are the ferry services that are popping up that take you to go to wineries, scienceworks, beaches etc.

 

I'm in Victoria Harbour, the LendLease precinct south of the dock basin. What do you define as the 'crappy area'? Yes, there's lots of vacant retail and I do wish we could have some interesting shops. Then I ask myself how much I would actually spend in such shops and all becomes clear

 

Being a Melbournian who has moved to Sydney, I can only look at envy at Melbourne (as a renter) in what you can afford to rent in and live so close to the Sydney. There is just so so much rental stock in and around the CBD, it's crazy.

Sydney seems to get crazy capital growth on apartments, but as said above, all supply and demand, so not surprising!

 

Never ever buy apartment in Melbourne. No capital growth at all. Apartments are not that cheap .too.

 

Huge opportunity right now. I'm leasing out my PPOR in an area where vacancy rates aren't too affected, to try out a bit more luxury somewhere like docklands. It's a strong position of leverage when the apartment complex you like has 15+ vacancies.

 

Reversing the analysis. What would make a cbd highrise unit more valuable in 20 years? Views, redevelopment value?

 

Totally agree with this.

Unfortunately most units/apartments in melbourne are 2 bedders and have historically not widely appealed to families nor built for those buyers in mind. This makes it hard for the price to push above the average borrowing capacity of a single person or investor.

Whereas houses & larger townhouses attract dual income couples who if both earning average cbd wages can push prices to $1mill+ mark quite easily and thus those products have experienced the highest capital growth.

However, before covid hit, i started seeing things changing due to the congestion and booming population/students/temp residents along with runaway prices in 'commutable' surburbs. Apartment rentals were booming and families having to pay $1m+ just for an average 3 bedder 1 hour commute (in cramped old slow trains/trams) to the cbd started buying a weekday apartment in the uni high school zone and house further out for weekends for the price of an average 3 bed home in the middle ring. A few colleagues have bought in docklands for that purpose.

Downsizers also started flocking to low rise brick apartments in north melb, carlton, port melbourne and surrounds driving prices up alot.

But it looks like covid has derailed the momentum for now, especially on the rental side of things and working from home changing the entire dynamic of lifestyle vs proximity to work.

 

We lived in docklands and loved it - but as mentioned you need to be super picky not just about which apartment tower but also which apartment in the tower. If I was going to buy there (I wouldn't though) it would have to be:
-North facing for sun in winter
-have a sheltered balcony with walls on both sides to stop the wind. That's huge, otherwise your balcony is pretty useless for large parts of the year. Don't underestimate the wind strength and noise, plus the sand and dirt that gets blown around.
-unblockable views
-good owners corp

For me the pick of the area is the pocket on Lorimer street on the south side of the yarra. We lived in 60 lorimer and loved it. Haven't been there for years though so DYOR.

But also - don't buy there. I'd happily rent there but never buy.

You'd get a nice townhouse somewhere like yarraville for much cheaper and it's only a short trip in to the city.

 

There are a lot of downsizers/empty nesters in my building (granted, it’s only a few storeys high with a lift). Few minutes’ stroll from Bourke Street mall.

As to what makes the cbd a good investment, well not many are, but in better times your rent yield can push past 5% and a lot of conventional residential investments (ie no granny flat business) cannot come near that. If your deposit is sizeable your cashflow may be neutral.

As for myself I am still not sold on the Docklands. I never ever go there, it’s drab and boring, and there is infinite supply potential. Look at Southbank (away from waterfront) for an indicator.

There is no doubt in my mind that eastwards/southwards towards Domain, St Kilda road, Richmond and even Fitzroy are better for quality of life and overall value. Now of course this type of property will never outperform a house on a good day. That said, 5% rent yield and 2-3% capital growth is very possible. It will also suit the DINK and yuppie lifestyle. As a yuppie myself, it’s an amazing experience.

 

Good points. But I found my colleagues/in laws chose docklands for its convenience, free tram zone, school zone and open spaces rather than character and charm.

Not needing to get into a car nor pay $8 a day just to ride on a train or tram for a few stops to get to work or grocers or school or entertainment or say a basketball court is a big deal for many.

I do agree docklands lacks the character of a more established surburb as it is quite new and is frequented by office workers. However the government is pumping alot of money into the area to make it even more liveable so change is abound. All the best central waterfront view locations are taken up already so those will end up being scarce.

Although living there is not for everyone. I personally prefer certain pockets of north melbourne.

 

Which pockets Robbo?