John McGrath - Pockets Of Value For Buyers
Believe it or not, there are some great areas in metro and regional Australia that are defying the current property boom. In most cases, it’s not because they’re undesirable suburbs, it’s just because COVID has caused a temporary supply/demand imbalance that is favouring buyers.
CoreLogic has created a list of the best five suburbs in each state and territory where listing volumes are above the five-year average and home prices haven’t increased as much as neighbouring areas.
These are the pockets of value where buyers are spoiled for choice and can negotiate harder on price. Demand has dropped and supply has increased but it’s only due to COVID - or more specifically, the international border closure, so the impact will be short term.
This means the opportunity to buy in these value locations has a shelf life. You’ve basically got until the border re-opens, which the Federal Government currently expects around mid-2022.
Many of these suburbs are inner city or university precincts where buyer demand has dropped significantly because new migrants and international students aren’t there to compete with the locals.
It took just six months for the border closure to send Australia’s population into decline for the first time in more than 100 years - and that’s a problem (albeit short term) for property.
Other suburbs identified by CoreLogic have a lot of apartment stock and/or new developments for sale, with various COVID trends amplifying the supply/demand imbalance.
These trends include a strong preference for houses amongst buyers who can now work from home and want more space.
Here are the suburbs where purchasers have more buying power - at least for now.
East Coast’s Pockets of Value
- Macquarie Park
Australian Capital Territory
- Fortitude Valley
- Bowen Hills
- South Townsville
- Park Avenue (Rockhampton)
- South Yarra
- Port Melbourne
Source: CoreLogic analysis of total stock on market between 2016 and 2021 across Australian suburbs in May. The top five suburbs are those where stock is higher than the five-year average and annual home value rises over the past year are lower than the wider SA4 region.
The buyers that typically go for apartments are first home buyers and investors. Young buyers have dominated the Australian apartment market during COVID but activity is now slowing, with investors returning to take their place.
Investors are focused on returns and these suburbs provide the opportunity to buy well on day one, then ride the wave of capital growth that is likely to occur in the 12-18 months after the border re-opens.
By the way, the banks are noticing that investors are back and some have reduced their investor mortgage rates to attract new clients.
This is great news for investors, who have been forced to pay higher interest rates than owner occupiers since 2014 when APRA instructed the banks to rein in historically high investor credit growth.
One last tip if you’re thinking of buying an apartment in these pockets. Don’t go for the cheapest thinking you’ll get the best growth from the lowest possible base. Use the softer market conditions to buy a better property than your budget might have allowed prior to COVID.
The key to apartment price growth is purchasing better quality and of course, holding for the long term. So, target apartments in the best streets and buildings with desirable north aspects and more sqm on title than average.
Aim to buy above the suburb’s median price, as this means you’ll be purchasing a superior product that will grow in value faster and by a larger proportion than the rest!
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (June 15, 2021)
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