Why buying Melbourne CBD apartments is a bad investment, even during the current housing affordability crisis in 2024!

Dear Fellow Property Investor,

Apartments are selling at a loss in Australia's two biggest cities even during a housing affordability crisis, new data shows.

Record-high immigration has pushed up house prices but more inner-city units are selling at a loss in already-overcrowded Sydney and Melbourne than anywhere else. 

An ultra-tight rental market and a digit-double surge in rents during the past year is also no guarantee that units will go up in value, especially if they are in a high-rise tower.

In the centre of Melbourne, 40.7 per cent of apartments sold at a loss during the December quarter - or 6.8 times the national average loss rate of 6 per cent, CoreLogic data showed.

Tim Lawless, CoreLogic's head of research, said oversupply was an issue in that part of Melbourne.

'Higher supply levels across the inner Melbourne apartments sector are likely to be a factor in this under performance, coupled with the preference shift towards lower density housing options though the pandemic,' he told Daily Mail Australia.

'Areas of inner Melbourne are now recording the highest population density of any region nationally.'

In the centre of Melbourne, 40.7 per cent of apartments sold at a loss during the December quarter - or 6.8 times the national average loss rate of 6 per cent, CoreLogic data showed (pictured is the Docklands area near the city) - and 98 per cent of loss-making sales were apartments.

CoreLogic noted that 98 per cent of loss-making sales were apartments, even though sellers in the Melbourne City Council area had held on to their apartments for an average of nine years and eight months.

Losses are more likely to occur in areas where apartments were built during the 2010s, when interest rates were lower and building activity was much stronger.

This has led to an oversupply of apartments in some areas and in some cases, quality issues.

'Unit supply was particularly elevated in the mid-to-late 2010s, buoyed by a high concentration of investor participation in the housing market and structurally falling interest rates,' CoreLogic said.

In Melbourne's city centre, the median apartments price is $473,483, or 28.2 per cent less than greater Melbourne's mid-point apartments price of $607,473.

Despite the tight rental vacancy rate, North Melbourne's apartments prices fell 0.3 per cent during the past year to $505,702. 

Apartments are even cheaper at Flemington with a median unit price of $410,528. 

But at Docklands, they are a bit dearer at $592,863, which would still be attainable for an average-income worker on $98,218.

In the neighbouring Port Phillip City Council area, 21.3 per cent of apartments sold at a loss, with this densely-populated area covering bayside St Kilda where the median apartments price is $530,584.

In Windsor, the median apartments price plunged by 6.2 per cent during the past year to $512,633. 

Next door in the Stonnington council area, 27 per cent of apartments sold at a loss.

This covers South Yarra, a suburb with a median apartments price of $579,182, following a 4.2 per cent decline during the past year. 

In ultra-upmarket Toorak, the mid-point apartment price fell by 3.4 per cent over the year to $1.033million.

So my advice is do not buy apartments in Melbourne CBD just yet…unless you are taking on a ultra long-term investment horizon and plan to hold them for 20 to 30 years!

If you have enjoyed this short email, then I encourage you to reserve your place and join me and 55 like-minded property investors for the next Real Estate Investing Fast Track Weekend for 2024!

Click HERE to reserve your seat now!

Dear Fellow Property Investor,

Inner, middle and outer Melbourne have aligned to bring widespread stability to the city’s market for the first time in years.

Not since the June quarter 2021 have both house and unit prices in all three of the Victorian capital’s rings recorded positive quarterly growth, according to data from the Real Estate Institute of Victoria (REIV).

The figures reveal widespread increases throughout Australia’s second-most populous city, with increases driven by the city’s outer suburbs, which saw house prices jump 1.3 percent and units 1.8 percent in the three months to September.

Additionally, the city’s 20 top-performing suburbs for house price increases over the last quarter were dominated by entrants from its outer fringe, notably Keysborough (up 13.2 percent), Rye (13 percent), and Ringwood East (12.2 percent).

A by-product of the city’s widespread growth, suburbs in Melbourne’s east experienced strong price growth in the three months to September, culminating in Upwey entering the million-dollar club with a median house price of $1,060,000.

On the unit front, the Victorian capital’s median unit price climbed 1 percent during the three-month period to $633,500, with Toorak leading the way regarding price growth, with apartments in the affluent south-eastern suburb jumping 39 percent to approximately $1.292 million.

Following Toorak’s lead, Bentleigh East, where prices increased 5.6 percent over the quarter, was the city’s second most expensive unit market with a median price of $1.29 million. Brighton East, Brighton and Glen Waverley rounded out Melbourne’s five most expensive unit markets last quarter.

I hate to say I told you so!

I predicted this a few months ago and went through the entire Melbourne apartment market in my YouTube video called;

Melbourne’s Off-The-Plan apartment prices to raise by 25 per cent in 12 months – By Konrad Bobilak

Click HERE to watch it now.

Newly elected REIV president Jacob Caine said the results come as no surprise given recent market trajectory.

“As expected, stability has continued into the latter half of 2023, with the quarter showing strong signs of recovery on property prices across Melbourne and regional Victoria,” he remarked.

The state’s regional market, unlike its metropolitan counterpart, experienced no quarterly change in the three months to September, meaning house prices remained firmly at their June median price of $604,500, while units held steady at $416,500.

The institute’s figures are consistent with CoreLogic’s September Home Value Index, which found values in the Victorian capital climbed 0.4 per cent over the month as part of a 1.3 per cent quarterly growth.

Mr Caine believes the data goes to show that “for buyers, this is a good time to enter the market after a period of some uncertainty.”

In addition to rebounding values, Melbourne has experienced a spring surge of auction activity, with over 1,000 homes going under the hammer this past weekend. Moreover, the Reserve Bank of Australia’s decision to enact the fourth consecutive cash rate pause at its October board meeting has filled the market with greater confidence.

Let me ask you something…

Do you have a game plan for 2023 and 2024? 

Or will you watch savvy, educated, market-ready investors snap up all the bargains at the bottom of the Melbourne property cycle (which in my opinion by the way has already bottomed out in November 2022), 

Or will you join them? 

So, what are you waiting for? 

Reserve your place and join me and 55 like-minded property investors for the last Real Estate Investing Fast Track Weekend for 2023!

Click HERE to reserve your seat now!

Off-the-plan apartment prices in some Melbourne suburbs could go up by as much as 25 per cent over the next year as developers adjust pricing amid rising costs and increasing demand, property advisory firm Charter Keck Cramer says.

“Prices will recalibrate upwards, and I think in about 12 months, it’s going to be across the entire Melbourne apartment market,” said Richard Temlett, Charter Keck Cramer’s national executive director.

“In certain areas, depending on the developer and project, buyers can expect to pay between 15 per cent and 25 per cent, even more in some cases. That’s certainly where the market is going and evolving.”

Developers will have to increase prices to offset the rising land values and construction costs so they can continue delivering apartment projects. But many remained reluctant to raise prices amid low consumer sentiment and higher interest rates, Mr Temlett said.

“Many developers are still very worried about increasing prices. And I’m encouraging them to be a bit more brave because there are sound fundamental reasons to support price increases,” he said.

“The development industry needs to realise that over the next six to 12 months, they can increase prices in a lot of areas and will still be met with a deeper pool of buyers. In fact, it’s already happening in some projects.”

Charter Keck Cramer’s analysis of a sample of off-the-plan apartment projects across various locations in Melbourne shows that several of those released this year have increased their prices by 15 per cent to 25 per cent compared to pre-COVID prices of apartments in earlier stages of the same development or in comparable projects in the same locations.

The study spanned 10 suburbs in the middle ring areas, and consisted of three apartment projects on average. 

“The price gains were submarket specific, but those that posted large increases were not high-end landmark projects, they were quality owner-occupier stock in the suburbs,” Mr Temlett said.

“Interestingly, the market is accepting those price increases, albeit at a slow rate. Buyers understand what’s happening with costs and what’s happening in the market, and they are prepared to pay a higher rate.

“So these are demonstrable examples of apartment prices reverting upwards. I think there’s going to be an increase in demand for such dwellings because we’re not building enough houses or apartments.” 

The advisory firm predicts that Melbourne’s apartment supply is set to slump by 7900 units, or 65.3 per cent, by 2025.

Mr Temlett said the rapid interest rate increases, substantial rise in construction costs and volatile consumer sentiment have made many apartment projects unfeasible and led to very slow sales rates.

Meanwhile, the 4 percentage point interest rate rise since May last year has slashed buying power by more than 40 per cent. 

However, these factors also opened up a very large but slightly different buyer and renter pool over the next 12 months, he said.

“With rapid rate rises, there is anticipated to be a ‘shuffle’ downwards or trade-off, where many buyers are forced to trade into medium- and higher-density dwellings as dictated by their revised finances,” Mr Temlett said. 

“Many people are still willing to buy, but they can’t afford to buy a standalone house because of affordability, so more will either be forced to live in apartments or will embrace apartment living.”

The price premium of houses over apartments has widened to 60 per cent despite a 9 per cent house price drop from the peak. Since March 2022, house prices are still 15 per cent higher than pre-COVID and are poised to continue rising.

“With rapidly rising rents, some renters may decide to buy and pay off a mortgage given that rental repayments may be similar to mortgage repayments in some markets and across various product types,” Mr Temlett said.

“These potential buyers are likely to seek the most affordable product type, which will be apartments.” 

Mr Temlett said while conditions in the build-to-sell apartment market were arguably the toughest they have ever been, the sector will continue to improve.

“We believe that the RBA is close to the top of the rate-tightening cycle. When rates stabilise, we expect market demand will start to be expressed and sales rates will accelerate,” he said.

“When rates start to be cut, there is anticipated to be an extremely elastic response across the entire housing market, with the apartment market well poised to benefit.”

Dear Fellow Property Investor,

Did you know that one-bedroom flats in the big cities have missed out on Australia's property boom despite interest rates being at record lows?

National home prices last year surged by 22.1 per cent - the fastest annual growth for a calendar year since 1989.

House values in some capital cities went up by a third in just one year as two and three-bedroom units had double-digit annual price growth.

But one-bedroom apartments hardly increased in value at all, especially in cities with oversupply issues, Domain sales data showed. 

In Australia's biggest cities, values were either flat over the year or increased by single digits even though the Reserve Bank kept the cash rate at a record-low of 0.1 per cent.

Young couples with a child usually prefer something larger with a bedroom for the baby, which means the potential market for one-bedroom units is smaller.

Investors often buy smaller apartments to rent out but Sydney's unit market is now going backwards for the first time since late 2020 despite a reopening of Australia's border to international students and skilled migrants. 

Economists are expecting the Reserve Bank to raise interest rates later this year, which would cause a slowdown in house price increases and a fall in 2023. 

In Melbourne, the median price for a one-bedroom unit remained flat over the year, staying at $395,000 as the city was kept in lockdown for many months.

By comparison, mid-point house prices in the same city rose by 18.6 per cent to $1,101,612. 

Apartments in general still had a lacklustre year with two-bedroom units in Melbourne going up by 4.5 per cent to $606,000.

Larger, three-bedroom units did better though with values rising by 12.1 per cent over the year to $846,250.

Inner-city areas of the Victorian capital had some of Australia's highest rental vacancy rates during the earlier stages of the pandemic, after the border was closed to foreigners.

Sydney also saw smaller units vastly underperform the increase in house prices and larger apartments.

One-bedroom units went up by just 6.6 per cent annually, to $680,000. 

This was well below the 33.1 per cent surge in the median house price to $1,601,467.

Larger apartments, however, had double-digit growth with two-bedroom unit prices rising by 10.9 per cent last year to $825,000. 

The median price of a three-bedroom apartment in Sydney went up by 14.1 per cent to $1.325million.

But new CoreLogic data released this week showed Sydney's house and unit prices together falling by 0.1 per cent in February - marking the first decline since September 2020, before the Reserve Bank cut the cash rate to a record-low of 0.1 per cent.

Median apartment values dropped by 0.3 per cent to $831,793, which was the sharpest decline since November 2020.

Australia's median home price last year rose by more than 22 per cent, marking the fastest calendar year increase since 1989. 

The annual increase has slowed to a still-strong 20.6 per cent, with $728,034 now the middle point for a property.

One-bedroom units in Brisbane went up by just 4.1 per cent over the year to $333,150, the Domain data showed.

This occurred as the median house price surged by 25.7 per cent to $792,065.

Two-bedroom apartments had double-digit price growth, going up by 10.2 per cent to $452,000.

But the median price for a three-bedroom unit fell by 2.1 per cent to $460,000.

Canberra, however, was a rare exception with the median price of a one-bedroom unit surging by 15.4 per cent to a still-affordable $410,000.

Two-bedroom units did even better with an annual price increase of 28.6 per cent to $575,000 as three-bedroom apartment prices rose 25.9 per cent to $752,000.

Last year, Canberra's mid-point house price rose by 36.6 per cent to $1,178,364.

But in the other mainland capital cities, the value of one-bedroom apartments went up in the single digits last year.

Perth's median price for a one-bedroom flat rose by just 6.3 per cent to $276,500. 

But this was at least better than the 1.4 increase for two-bedroom units, taking the mid-point to $350,000.

In Adelaide, the median price of one-bedroom apartments increased by eight per cent to $289,000.

By comparison, two-bedroom unit prices rose by four per cent over the year to $348,500.

Nonetheless, three-bedroom units had strong growth, with prices climbing by 15.9 per cent to $524,000.

Kind regards,

KONRAD BOBILAK