Credit: Eddie van Pamelen
As the property market takes a breather and prices that were booming earlier this year start to cool off, it’s important for investors to remember one of the critical rules when it comes to buying property; location is key.
When we enter the slower phase of a property cycle, as seems to be occurring now, the importance of location becomes very apparent.
As most seasoned investors know, part of growing a successful portfolio is purchasing in tried and tested areas that consistently provide strong, above average, long term capital growth.
In our experience, the most proven suburbs are always found around the inner areas of Australia’s major capital cities and bayside locations. You don’t have to take my word for it; just consider data recently released by the Real Estate Institute of Victoria that clearly shows inner Melbourne house prices have significantly outperformed their more distant counterparts over the last decade.
The REIV figures demonstrate that inner city property owners have done considerably better than those in the middle and outer rings, as house prices within 10 kilometres of Melbourne CBD have risen by 88% since 2005, compared with 80% for suburbs within a 10 to 20 km radius of the CBD and only 53% for outlying areas.
So why does this trend continue? Quite simply, it is the result of supply and demand and the perpetual imbalance between these two factors that exists around our capital cities.
Demand for inner city living continues to grow, as people seek to live closer to their work, good public transport links and shopping and entertainment hubs; essentially, sought after inner city suburbs that offer a modern lifestyle for young singles and couples just keep gaining popularity.
However, land in these areas is simply unavailable; they’re not making anymore and most of the existing land is already built out. In other words, even though demand continues to escalate from a booming population, the supply of dwellings around the inner ring of Melbourne’s CBD is very limited. It is this imbalance that causes property prices to rise.
Conversely, in the outer suburbs that have shown the least growth over the last five years, supply generally outweighs demand. These areas are traditionally not as sought after due to their distance from employment and infrastructure and there’s often large tracts of developable land still available; it’s the combination of these factors that tends to keep a lid on property prices in Melbourne’s outer corridors.
The REIV’s communications manager Robert Larocca says quality of housing doesn’t seem as important when it comes to inner city property values; rather it is the mere fact of close proximity to the CBD.
He says you only have to consider the two markedly different inner city suburbs of Camberwell and Footscray. In the prestigious neighbourhood of Camberwell, the median house price was just over $1.5 million in the March quarter this year, while Footscray’s median house price was a more affordable $563,500. Yet in both neighbourhoods, prices have risen by 201% in the last decade.
Leading the field when it comes to house price growth in the inner city since 2000 was South Yarra, with a 314% increase, followed by Malvern (303%), Hawthorn East (261%) and rounding off the top five were Kew and Prahran on an equal 257%. It’s interesting to note that all of these areas are in the South Eastern or Eastern corridors of Melbourne’s inner city.
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