Melbourne apartments - Buy or Wait?

I'm on the fence. I've tried to get as much professional opinion as possible. So far, the opinions have varied. Some have said don't touch apartments, there's too many. Some have said to be patient, the apartment market won't move much this year. Other's have said apartments in Melbourne are significantly undervalued compared to houses and have a long way to go.

At the same time I'm seeing very decently priced units still sitting on the market since November. And yet some are still selling for 5% above asking price this year (this happened twice at an in-house auction).

I know apartments aren't something most investors bother discussing but I want to get the general consensus: Will it be a buyers market for Melbourne apartments this year?

 

It's a tricky one. If you are in the market for a CBD apartment, I'd say stay clear from OTP if it's cash flow with good CGT prospects

If it's long term cashflow play with depreciation for Div 40 and 43, I'd opt for OTP. I do envisages CBD apartments will remain flat within the next 2 years until supply is constrained. Having said that, there's not a lot of "developable land" within the Hoddle Grid so the next city boom will be around Fisherman bend. Our very own Manhattan in the future.

 

I think it's all about location, some inner suburbs will do well long term based on their location. Apartments with a little bit of character that would appeal to owner occupiers would be a good long term option. In saying that, it does seem that short term growth may not be there. But investing is a long term strategy in my eyes, chasing short term gains is risky especially with all of the growth Melbourne has seen recently - it can't go like this forever.

I do agree with those who say CBD is going to be a miss for a few years, the market is saturated with apartments and I don't know if Melbournians have really embraced CBD apartment living yet.

 

There are apartments and then thee are apartments!! Some can still be fantastic investments as long as there meet certain strict requirements.

 

depends on the strategy (don't just go buying like those ppl who go interstate based on hype ) - I used to buy southbank market (among one of the hardest markets to crack) and still made some coin and achieve records in many of the buildings on sale price during that time.

 

Wouldn't touch any especially more recent builds due to flammable cladding issues plus all the others oversupply etc. Also the quality of a lot of new ones are shocking with a lot of stuff pre-made in China and things that often don't fit, warped, etc.

I have spoken to tradies who have worked in new low level apartment developments who have walked off jobs because the material shipped in was so crap and they couldn't do the job up to standard they would sign off on. But there is always some tradies who will do sign off on anything

 

Very anecdotally interest levels appear to be on par with Sydney 12mths ago

 

I don't follow the apartment market, but (anecdotally) the housing market seems to be all over the place.

• 30 Palermo Street, South Yarra - guide price $2.4 to $2.6 million, sold for $3.03 million.
• 199 Ross Street, Port Melbourne - guide price $1.8 to $2 million, sold for $1.99 million.
• 14 Winmalee Road, Balwyn - guide price $2.8 million, sold for $2.4 million.

I was trying to find details on a couple of other properties, but there's a tendency for sales prices to be unreported. (Seriously, an auction is a public sale, why the coyness?) It's probably when they haven't met expectations.

My suspicion is that the market is pretty mixed right now. Something that's optimistically priced will hang around for months. For example, 29 Edwin Road and 33 Palermo Street have been listed since November. Other stuff seems to shift faster.

I don't foresee there being big price rises in the pipeline, and Melbourne could join Sydney in falling. I'd be inclined to wait.

 

So, let's talk about "general" apartments, as in a two bedder one bathroom and one parking with around 70 - 90sqm size. What i have learnt over the years is, stay clear from the "boom" areas. What does it mean by a boom area? It's where the media and gurus called the "hotspot", where plenty of lands will be converted into high or medium density with lots and lots of townhouses and apartments.

If you look at all these hotspots, they have flat growths over the last decades. You name it, Docklands, Southbanks, Box Hills, Footscray, Parkville, Brunswick, etc. What a lot of people mistaken was they read news and reports of these hotspots have such high transactions, thinking that they are very popular, so they went in and bought apartments there, which only profit developers. What you do want to buy in hotspots are landed house because the more of these apartments, the higher the land price will soar. But these products would have been extremely expensive for mum and dad investors anyway.

If you look at recent transactions, you will see areas such as Box Hill, Preston, Footscrays, apartment prices actually gone backward. My aunt bought a two bedder in Preston for 580k three years ago, now neighbor selling at 520k! Majority of apartments resold around 450k there now. Because there are just too many stocks coming into the suburb, and the demand is not strong enough to push prices higher. Again, we are talking about very average standard apartment here. For "unique" apartments (i.e. warehouse converted, heritage victorian, art deco, etc) that's a different topic.

CBD however, is an interesting market. So many people shaded it over the years, so many articles from the news and media reporting it as the most dangerous zone for investors, but hey, recent sales have been really good! Most of the two bedders now sold in $600-$700k zone, some even cracked into $800k. Of course, many of those brand new shoe boxes will continue to stay flat if not gone backward. I am talking about general apartments in around 70-90sqm.

352/299 Spring Street, Melbourne, Vic 3000 - Property Details

4110/318 Russell Street, Melbourne, Vic 3000 - Property Details

2309/668 Bourke Street, Melbourne, Vic 3000 - Property Details

12/410 Queen Street, Melbourne, Vic 3000 - Property Details

It's really interesting if you think about it. I think the biggest safety card for cbd apartments are the rental demand. In the worst case scenarios, people can easily rent it out with high rent and not having to worry about not being able to pay the mortgage. The rental market has actually gone up again in the city, a two bedder is commonly around $600 - $700! That can easily pay off your expenses monthly.

There are areas where apartments have been doing really well in burbs. For example, Hawthorn, Camberwell, Armadale, etc. Prices have been higher and higher, with tiny two bedrooms now at around 700k - 800k. Because there aren't that many developments, it's harder to get permit in those areas, hence demand > supplies.

It's that simple, but when doing it in real life, people often get blind sighted by emotions.