Buying in Melbourne now, it is really that silly?

I suppose this question is about marketing timing. I'm sure we've all heard 'time in the market' vs 'timing the market'.

From a pure timing perspective, one would think Brisbane or Perth would be the better markets to invest in.

However, I've had two property professionals I respect say that Melbourne and Sydney are really the only two markets the average investor needs to be in (well, at least up to 5 properties, before land tax starts to really bite).

Their view is that:

• The other markets are just too small
• Both Melb and Syd are so fragmented right now they really are many markets within markets that you can play the cycles in (i.e. in Melb blue chip has peaked, outer is booming still)
• There isn't enough money in other markets - i.e. you don't have 30 and 40 million dollar properties in the other capitals, nor do you have the corporate HQ (with their $M salaried CEO's and upper management) in these cities in the same way
• Melb and Syd are 'international' cities now, with plenty of international money flowing into them, much more so than others. This is why properties prices will depart from the local's income ratios.
• Inner / Blue chip Melb and Syd don't really 'decline' that much, it just trends sideways/stagnates (not talking about the very top of the market, talking about the $600 - $1.2M range).
• Flat/declining/quiet Melb and Syd markets is actually a good time to buy - more choice, better deals.
• You never know what the market will do - i.e. Melb has boomed for the last 5 years, nobody picked that, everybody thought it would be flat.
• If you take a 30-40 year buy and hold view, these are better markets.
• These two cities are still getting the lions share of jobs and population growth by far.

Thoughts?

This makes a lot of sense but I'm pretty shy about buying in Melb now and having the next 5 years flat.

 

Depends where. Is it a gentrifying area with amazing infrastructure and sitting on the cusp of affordable/unaffordable for fhbs? Is it for a ppor?
If so, then my 2cents would be to put the boots on the ground and start looking - look at 100 - because there will eventually come a property that is being sold for less than it could be, given lending conditions.
Set some firm but fair parameters for yourself and stay within them no matter how much it hurts. Go against the grain and look for fugly with good bones.

 

If you had 5 properties in inner-suburbs of Sydney, you'd would be paying $50K pa in Land Tax. If that's not a bite, what is?

This is a typical block in Strathfield. Avg Land Value - approx $1.8M, Land Tax would be around $18k after the threshold was taken.




This one's cheaper but still over $1M land value

 

I share the same view, I personally think that the fundamentals are almost borderline negligible in a very tight credit environment. My opinion is there is not enough people with enough money on hand to keep driving prices up during these times despite the fundamentals.
In saying that, I think that we have still yet to see the mother of all booms, my personal opinion is that the credit squeeze and fear of oversupply will slow things right down, however, in the shadows, demand is still very much there and our population is still increasing both organically and with help.
When the brakes come off lending and we go from super tight to throwing money at everyone again we will be playing catch up and those in a good position will be greatly rewarded.
Again just my 2cents but I think the next uptrend (boom) will be the one that could be nicknamed the great divide. It will be the last time in many of our lifetimes where you can 'make it', it will be where the middle class gets split and when the rich get richer and poor get poorer.
Sorry for the rant/off topic slightly, to answer your question, I think keep your powder dry, whilst lending is tight, prices aren't going to far too fast!

 

A bargain today will be the market price tomorrow in a falling market!

If only we knew exactly the bottom is

 

I would say more 1.2M is just the starting point for inner/blue chip houses,

Not silly at all to buy a good PPOR here around inner east. Good PPOR houses in great locations are selling well with good competition due to the lack of good quality stock over last few years. Investors have left for many reasons but there are always people that need to buy a family home at any given time and these PPOR have never been for investors any way (who has ever bought a good family home for 2m plus and held as investment anyway).

So lifestyle factors such as school zone, distance to train etc. is even more important now than when the market was hot

 

I agree... although that may be my wishful thinking.

i.e. the next 2 years may be flat due to a combination of credit and affordability, which could present some good buying opportunities and demand will continue to build and build...

Yes, this is what some have said as well. Home ownership rates are already dropping, and will continue to do so. Eventually we may end up like a Germany where the middle class rent their whole lives and never own.

 

Yes, I haven't done the maths myself, but I'm guessing if you had 2x 800k IPs in both Melb & Syd you'd be up for some land tax.

Paper napkin...

800k property (e.g. blue chip townhouse) = $400k of land value
Total = $800k of land value
= $1,975 for Victoria

Sydney is less from memory. Maybe by using a trust as well you can get it to zero.

 

This concept would imply good things for investors that have accommodation to rent out...

 

but CGs goes for a toss in absence of ppor buyers, look at what happend to CGs in germany.

 

...

Brisbane and Perth are probably large enough, especially brisbane, and both are expected to put on weight in terms of pop growth. This ic currently happening ( cant speak for perth, but can for brisbane) and both expected to put on weight in the long term.

So are brisbane and perth and even adelaide. I would argue these second tiers are more fragmented than the tier 1's; presentng more opportunity for getting a bargainthan in the tier 1s.

Mostly true, well not to the same extent as the tier 1s anyway...Regarding the second point, this is also true, however, there are very many average salaried workers in the tier1s that keep the average salaries in check. The CEO's are mostly going for the prestige, which is not what the 'average investor' as you refer on the street will go for.

Yep agreed. These tier 1s are the only international ones we have ( dont believe the 'new world city' slogan hype by BCC- it will take another 10 years or more for brisbane to get to that point. Much longer for perth. Interesting to note that foreign investment ( non individual- im talking corporate investment) is large from places like brisbane ( ranked very highly in foreign direct investment tables recently- google it, im sure it there)...so whilst a lot is going to tier1s in terms of both foreign individiiual and corporate dollars, certainly not all- especialy the corporate foreign investment is also in tier2s. However, the tier2s do not have the individual foreign investment, thats the biggest gap between then and thr tier1s- presumable unsophisticated investors cashed up foreign only want to **** with the tier 1s of this world. I cant blame them, I probably would too for average joe unsophisticated investors...

I disagree with this... all markets and sub markets go up and down...from the bluest of all blue chips to the crappiest of all struggle streets and everything in between. All have their own cycles.

Yes, but the question is how much further to fall or nstagnant and for how long. No none knows...it can be presumed/inferred from historic values and other current data points ( e.g. demand to supply, pop growth numbers and projections, incomes to house value rations, and comparissions to other alternatives as well as historical analysis of those...) that given the stenght of of the rise , its duration, compared to how recently its slowed and the trajectory of the fall/stagnationb, that there is still more to go. Therefore, it may not be a good time to get intoit the tier 1s.

True, but same goes for almost all the country.

Not nsure about bthat...you may be right, and it would seem so, and i think you are right as location will kick arse in the long term, but i think i remember someone posting the growth percentage over say 25 years in all major markets and the others especially tier 2s were competitive with tier 1s. It would also depend on type of stock. Not all would have performed the same.

Yep they are. Although the tier 2s are picking up speed, especially brisbane. Jobs and pop growth are point in time snapshots. Does not mean the rate of growth will be the same in the future, but makes sense to say that it can be assumed that from a numbers/volume perspective, the tier 1s will hog the jobs in particular in the future. However, this may not be from a percentage perspective as the others are starting from a lower base and it just takes a small uptiuck to move the needle for them.
The other thing to consider is that the two factors you mentioned are major contributors to the current price...why the tier 1s are currejntly relatively expensive and the others are not.

 

In the main - Hogwash

If business' are buying predominately in a particular market then just maybe its sales pitch

Lets look at the facts.
We have seen many boom cycles in Australia since 2013
Perth
Melb
Syd
Tassie
Newcastle

Perhaps others I have missed?

For those who purchased in Sydney in 2004 I think that was peak, they had to wait till 2013 for the boom cycle. With yields in Melb/Syd currently around 3% gross, how can this make sense? What are you missing out on?? Growth? it already happened.
Next cycle? when? Wait and watch, after boom comes bust.

Its all about cycles, but why buy property at peak? You still have to pay bank interest, service debt.
Why buy property prior to it rising? buy when it starts

Why do investors feel the need to buy when market conditions are not favourable? Easiest way to lose money

Nuff of my rant

 

@Orion - Wrong part of Sydney - $800k doesn't come close to the mortgage on 1 property (it's a cheap city). It definitely doesn't buy you a town house in these parts either.

Trusts in NSW don't get a threshold.

 

No one ever fully knows what the markets will do however it was easy to pick that Melbourne was going to boom after Sydney boomed. When who knew but sooner rather than later... Same with Brisbane right now it is going to boom - if you want to bet $100 I am happy to bet $100 that in the next five years it will boom - do you agree?

Yes Sydney & Melbourne are the two biggest cities, however our COO lives in Brisbane... well technically Sunshine Coast but the office is in Brisbane and the business is a ~25M a year and that is just for Australia (not including NZ, Pacific Islands or SEA).

Also the top paid CEO for ASX200 lives in Brisbane
https://www.afr.com/leadership/domi...-ceo-taking-home-37m-in-dough-20180716-h12qg8

So I don't think Brisbane is as small some us Mexicans think...

 

It's still only a regional town though.

(Only 1 CEO from 25,000,000 people)

 

There isn't 25M people in Brisbane or 25M CEOs in Australia.

Here is a list of another 49...

2017 BRISBANE TOP COMPANIES: HIGHEST PAID CEOS

I am not saying that Brisbane beats Sydney or Melbourne however I wouldn't call it a regional town.. Toowoomba I would classify as a regional city or at worst a regional town.

 

Correction...there are no good taco's or enchiladas in brisbane. The conclusion and my utmost recommendation solely because of that would be to agree with you mexicans and stick to only sydney or melbourne.

 

How do you know we're rising and not just a false uptrend/bounce?
What needs to happen in your eyes to hop back into a market?

 

No one could possibly time market perfectly, but its all about volume tightening, and you will get leads from re agents, PC, media, auction clearances etc

Its a matter of watching and waiting, boom cycles go for at least 2 years, you have 1 year at least to jump in and make $

I guess most investors just buy as they have a different take on it?? They look at time in the market, not timing. I much prefer timing market where possible.

 

Pretty much the difference between speculators and investors. Hold on tight for a bumpy ride in those regionals.