VIC CBD ..........

Discussion in 'Where to Buy' started by The Y-man, 23rd Mar, 2017.

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  1. The Y-man

    The Y-man Moderator Staff Member

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    Ok, so we regularly trash the idea of a CBD apartment here..... What has come to my notice however over the past year is:

    - rent in the free tram zone (compared to say southbank) is expensive ~ like we are talking the same rent for a 2BR in the CBD compared to a 5 BR Mcmansion in say Doncaster

    - hard to find anything bigger than 2BR

    So as a bit of a curiosity thing I did a search on RE com and found a few like this:

    1404/270 King Street, Melbourne, Vic 3000 - Property Details

    2002/280 SPENCER STREET Melbourne Vic 3000 - Apartment for Sale #123734930 - realestate.com.au

    1607/8 McCrae Street Docklands Vic 3008 - Apartment for Sale #124238014 - realestate.com.au

    Now let's face it - I agree CG won't be fantastic - or even possible -ve for a while

    BUT

    "True" 3BR are pretty rare from what I can figure (especially a 2 level plan)

    Is it really any worse for say people who come up to me and ask if student accommodation is any good? Or a 1BR in an inner suburb?

    The 7%+ pa gross rent will pay a lot of OC costs before making this an unviable investment

    I don't see a lot of these vacant.....

    The bit about the car park is true too - the cheapest "on demand" parking is at Docklands costco fr $10 per day


    What have I missed? (Other than my broker will slowly back away before turning and running)

    The Y-man
     
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  2. ATANG

    ATANG Well-Known Member

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    I own a few cbd ones, so i monitor pretty closely. Over these few years:

    - Rents have spiked up, proper one bedder without car park is around $430. With car park, you looking at high $400. Two bedrooms with two bathrooms are over $600+.

    - Growth mostly happen in aged, spacious character apartments. Doesn't matter if its one or two or three bedders, so long if it's got character, special, or larger than the other ones, people are paying big money for it.

    - Three bedders are extremely rare. Even the new built, if they are over 100sqm, they are close to a million, or over. Three years ago, they were bought around 700k range. (But this depends on individual buildings though, some buildings are just not growing due to whatever reasons).

    I have never had issue with bank saying anything about the postcode. They look at individual property and the price you paying more. At least that was my case.
     
    Last edited: 24th Mar, 2017
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  3. Omnidragon

    Omnidragon Well-Known Member

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    You've missed nothing.

    Cap growth is where you make money. My cousin bought Upper West Side for $500k, resold for $460k.

    If you were just after yield, buy Telstra at 8% fully franked.
     
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  4. jaybean

    jaybean Well-Known Member

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    I have a one bedder in a beautiful old building on Collins, I bought it for $360k a few years back. I assumed it had gone down in value due to all the negative CBD apartment talk but to my surprise my neighbour who has an identical sized / layout apartment just sold for $480k. The agent said there's still healthy demand for anything that isn't a "modern day" dog box. It's not crazy growth by any stretch of the imagination but it's a lot better than I thought it would be!
     
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  5. Chabs

    Chabs Well-Known Member

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    So you don't see the potential for capital gains growth to catch up and get ahead within about 10-15 years? I'd pay for 7% net yield on resi if it was something that was getting rarer, not more common. In this case its a reasonable sized 3BR place, most new ones are small.
     
  6. ATANG

    ATANG Well-Known Member

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    Was at auction for this one, 25/377 Little Collins Street, Melbourne VIC 3000 - Apartment For Sale - 2013421692, sold for $585k even though bid passed in at auction.
     
  7. JL1

    JL1 Well-Known Member

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    I was talking with a friend about exact thing on the weekend. She lives in Fitzroy where 2 bed apartments are clearing 750k now, so the divide between it and the CBD is really opening up. I had two thoughts on it:
    • Say you're taking a leveraged position for capital gains somewhere north like Reservoir/Thomastown - a house for 700k or so and you can rent it for 350/wk. How much do people really expect houses will be going up to make the holding costs worth it?
    • The new CBD planning laws mean that small, cheap developments are going to be harder to get through, both for planning approval and cost benefit with the public space requirements. Developers need to start squeezing more $/sqm returns, and going premium seems the only way to do that. Future waves of CBD apartments in Melbourne are likely to be much higher quality products starting at much higher prices (thinking of the likes of Queens Place, 35 Spring St, and Ritz Carlton), so this is most definitely the end of the sub-400k OTP CBD apartment era, and given Collingwood/Fitzroy are clearing 500k for a single bed, maybe even sub 500k sooner than we think.
    I can see scope for CBD apartments to really make a come back in the next property cycle, so if an investor were to believe that CG across the city may be non-existent for a few years, why not take the high yield option?

    It would probably be worth waiting a year and see what happens when competions peak/rates start to climb, but definitely worth starting to think about it now.
     
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  8. Omnidragon

    Omnidragon Well-Known Member

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    That's too hard to predict. Your capital is limited. Why buy something that may but equally may not catch up. It's all about IRR.

    I'd rather go to Barcelona, buy an apartment that's fallen in value by 40% and yields 6%.
     
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  9. MTR

    MTR Well-Known Member

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    Agreed, I would not touch this product regardless of the yield.
     
  10. ATANG

    ATANG Well-Known Member

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    A lot of people who bought into cbd had to take in other factors as well, not just purely CG and yield. Most people i know who bought into the area work in the cbd, or have a shop in the cbd, or have children going to uni/ schools in the city while themselves reside in countryside and come down to visit a few times every month. Spending 1 or 2 hours in commute (thanks to backward PT system in aus) a day = 500 hours a year = 20 days a year.

    Yes, CG might be limited but if you choose the right products, there is still room for growth plus all the high yields while you holding, and all the time and cost you saved from commuting in and out. Of course, if your situation allows you to not bother coming to the city, then that's another story.
     
  11. The Y-man

    The Y-man Moderator Staff Member

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  12. melbournian

    melbournian Well-Known Member

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    how long you been playing in this apartment market?
     
  13. JDP1

    JDP1 Well-Known Member

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    This is the issue with stats - yes Back in the day they were cheaper...as compared to now...but is that because of cg or because newer and better ones have come up and thus pushed the median price up (because they are selling more of the new expensive ones).
    I used to have one myself in Melbourne cbd a while back and sold it to buy in Brisbane instead (and not an apartment). the holding costs of Mel cbd apt are high, rent is decent but not great, and a lot there are negative geared and I don't see much organic cg happening. It would have organic cg only if supply additions had not killed it.
     
  14. Chabs

    Chabs Well-Known Member

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    You might change your mind if yield creeps up to 10% in the coming years, although that might be too good to be true (I'm already interested at 7%, happy to hold perpetually at 10%..)


    A good point, I know it looks more attractive to me because there's a chance to own a well located place in a major city that helps pay itself while you hold it - at leAst if the math works out - but omnidragon makes a good point as well
     
  15. MTR

    MTR Well-Known Member

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    Not even tempted
     
  16. Chabs

    Chabs Well-Known Member

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    @MTR why not? Most major cities around the world would have significantly lower yields and hypothetically if you buy in at 10% and it reaches 5% in future its doubled in value (assuming rent is consistent). Melbourne is also a highly desirable city with fast growing population

    I don't understand Melbourne as well as you guys so if there's something major I'm missing I'd love to know what it is.
     
  17. MTR

    MTR Well-Known Member

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    I don't like the product, look at historical growth and compare apples with apples.

    Melb has been booming, ask yourself why this product has not boomed

    I have better options i.e. USA for growth and yield

    I also develop property if I build 3 townhouses sell 2 hold 1, have equity and cash flow, or alternatively sell the lot, reduce debt increase income
     
  18. Omnidragon

    Omnidragon Well-Known Member

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    I have multiple CBD ones too, but I didn't acquire them conventionally on the market. I can understand the attraction, the demographics I rent to love the idea of living in the city. Ultimately though if I didn't get access to CBD abodes through the means I did, I wouldn't consider purchasing them on market though. In short we develop to rent on our own land - bit like a Quest model.

    There's a price for everything though so with more and more people selling at a haircut, it's a matter of time before developing to rent becomes a waste of time and you may as well buy for land + build cost with no mark up.

    I'm sure most developers are going to be massively under water soon. 361-365 Lt Lonsdale just sold for 1.8% yield with heritage overlay and no permits. I have no idea what's going on any more but I think a lot of foreign developers will be burnt massively soon. A few high profile ones already have been kicked out of the market as they defaulted these 6 months.
     
    Last edited: 29th Mar, 2017
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  19. ATANG

    ATANG Well-Known Member

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    I don't touch OTP products, or anything built within the last 15 years. When i said the older ones have shot up, i was refering to the price they were 3 years ago, compared to now. Used to be abel to get 3-2-1 around $600k - $700k in 2013, 2014, but these days you need close to $900k to get one that is decent.
     
  20. Omnidragon

    Omnidragon Well-Known Member

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    Right I haven't followed that market too closely. I looked at a double storey 3 bedroom on Little Collins in the Quest building a few years ago. I thought that was nice. Was $750k from memory.

    For $900k though you could get a fairly nice single storey terrace or double storey townhouse on say Capel St or Howard St, which I'd prefer.

    If Robert redevelops that area as proposed, it should do very well but retain sufficient street ammenities.
     

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