Selling an IP in South Yarra

Being new to Melbourne I would be interested to hear you elaborate on the time line and values along the way!

It's hard to even gauge values now as there is so much on the market for wishing prices and because its not selling at auction you only see what it passed in for... Normally its passed in on the vendor bid at their wishing price....

 

Thanks for all the inputs. Appreciate them.

A few of my thoughts:

Those newer apartments that are smaller sized are also lower in absolute quantums. Not even in the 700-800k range. Some 2 bedders were sold as low as 500-600k. So in terms of rental yields, you could quite easily get 4.5-5%. For overseas owners, that's a peach of a property in a good location. And for overseas owners, many of them pay full in cash. They do not have motivation to sell. In fact, they can afford to leave them empty.

I have friends who are foreigners and they're buying to keep apartments long term for their children to stay in when they come to Melbourne for tertiary education.

In terms of location, South yarra is desirable and will always get tenants. For many of the overseas buyers, good cash flow is sufficient for them. Despite the incoming supply, I don't think it will cause a crash, especially if the quantums are low.

 

Just to add for comparison:

In china, most of the apartments are only 70 years lease and they cost much more than what you see in South yarra.

In Singapore, for the price of a 2 bedder in south yarra, you can't even buy a 99-year lease 1 bedroom apartment in a similar prime location. Most of the 1 bedders cost about $1m at least.

So I think that puts things into perspective for foreign buyers.

 

Any inner city suburb, preferably East but am open to anyone give recommendations etc. as I am no expert when it comes to this market.

 

Thanks mate. If you can forward me the details that would be wonderful.

Yes appreciate your inputs. Definitely helpful.

 

Pool I'm not sure what information you are privy too but the news being reported is that most of the foreign investors were putting token deposits down then relying on finance at settlement.

Now given the tighter lending conditions they are unable to fine finance so contacts are failing left right and centre.

This was a massive issue because originally these contact failures were deemed a resale so they could only be onsold to Australians.

The rules have been recently changed but it looks too little too late as there is no finance for foreign investors.

 

Thanks for that Y-man!

Such a big run up in just 6 years then a slow wind down over almost 10.

The fall was not super bad but given inflation and holding costs over the years buying in in 2008 would have hurt!

Will be interesting to see what the looming oversupply does.

 

From what I know, most of the south yarra ones (mainly along claremont and daly st) have mostly been completed and settled. There are only a couple of new developments along chapel that are on the higher end in price range.

Bank lending has tightened but I heard that many other non-bank lenders have come in to fill the gap. The issue isn't as bad from what I know. There is financing available, just not from traditional sources. i.e I know singapore banks do finance completed australian properties (and even at a lower interest rate of about 3.2%), just that they require 70% LVR - still very manageable for cash rich investors.

If there is a problem it will be with the CBD where big supply will come in from next year until 2018. But if I have a 5 year horizon, I think the supply will eventually be absorbed once new building permits comes to a halt - and I know for certain that's already happening.

 

I had a very frank discussion with an agent yesterday. He is handling the sale of all remaining developer stock of a recently completed South Yarra apartment building.

The experience begun when I met him in the lobby, unplanned. He handed myself and another guy a list of appartments that are for sale that details the price, strata, rental ect.

The other guy was interested in a two bed two bath apartment but refused to indicate what he was willing to pay, the agent many times, asked the guy to make any offer as he could 'make a deal'.

The other guy was so conditioned to keeping his low estimated to himself he had no idea how to behave in a situation where the conditions were truly in his favour. He left rather confused and I stayed on to chat with the agent.

We talked about how his one bed apartments were priced $150k above what the auction market was passing other in at. He admitted that was half the issues with the economics of the situation, too much stock at wishing prices.

We got so frank I told him I'm probably early but I expect Melbourne apartments to suffer greatly so I'm after bargains. We went on to chat about how bad it's likely to get.

I left my number with him and told him to call me when the vendors become truly motivated. He winked and said 'call you in 6 months'.

 

I'm not sure if the apartment market is going to crash especially in a good location like South Yarra. I know for a fact that many of the younger buyers are priced out of the price range for houses in the million dollar suburbs and are now looking at next alternative of buying affordable apartments in prime locations near cbd. The underlying demand is there. So if you want to bag a bargain, it's probably good to act fast when opportunity arises.

Anyway, I've put aside the idea of selling the IP. My PM just called me last friday and said that rental market has moved in the area and he recommended me to increase the rental by 10%. I gave the go ahead and today the tenant agreed to sign the new lease. That's close to $50 increase pw. Cash flow for my IP is now positive and I'll hold it instead.

 

I can confirm there has definitely been a push in prices over the last 6 months! But it seems to be a listing price push as less people are attending opens while there are more and more properties coming up for rent. I have been dedicating my Saturday's to on the ground market research in South Yarra so I'm as close as you can get to the action!

It's very interesting as rents are falling everywhere but Melbourne*... Which has one of the greatest over supplies! I'm putting it down to too much momentuam in the maktet, all the hot money from overseas pushed up prices which creates the expectation that rents should rise too.

But I have pretty diverse social circal and in my experience people are struggling from the "freegan's' I know though yoga though the complete spectrium to the engineers I work with and other more affluent friends.

Rents can't rise past what people can pay, when you lock the last of the people that can pay into a lease it leaves only the people that cant pay. If you have too much supply in the market with weak demand the turn around is historically pretty savage.

I am continuously becoming more bearish, plan is to keep saving over the next 12 months then buy what I think will be discount apartments in the trendy area's close to the city to hold forever for cash flow.

* https://www.prosper.org.au/2016/12/13/retiring-to-live-on-the-fat-of-the-land-may-not-be-possible-rents-are-falling/

 

If you don't want to go down the traditional REA selling rout then you can hire a Vendor Advocate which is like a BA and they will help.
Speak to @Lil Skater and she can put you in touch with her husband James who does BA and Vendor Advocacy