It may be second only to Sydney in terms of economic importance, but its liveability is unparalleled.
Melbourne has once again been voted the world’s most liveable city in 2012. It is the second year running Melbourne has received this honour, based on a survey conducted by the Economist Intelligence Unit.
Melbourne boasts a multitude of cultural attractions and is a cosmopolitan city. Enjoy some of Australia’s best gastronomy, sporting events (think the Melbourne Grand Prix), shopping and performing arts productions any time of the year. And this multicultural city welcomes residents from more than 235 countries and regions.
It’s no surprise then that Melbourne’s population is growing at a rapid rate. Currently the population sits at 4.1 million (Australia’s second largest) and is expected to increase to 5.2 million people over the next 20 years. This rapid increase in population will without doubt put pressure on the supply of residential accommodation, which bodes well for strong capital appreciation, strong rental demand and rising rental yields.
The state of Victoria, of which Melbourne is the capital city, is economically robust. And although the state takes up only about 3% of Australia’s total landmass, it produces about a quarter of the country’s total GDP.
Although the residential rental vacancy rate for Melbourne improved somewhat in the past year, mainly due to an increase in supply of new homes, it is still hovering around the 2% mark, reflecting a rental market that is still imbalanced. Generally a vacancy rate of 3% indicates a balanced rental market and anything under this reflects a supply issue, where supply cannot meet demand.
Melbourne remains the most sought-after property market over all other Australian cities from Singaporean investors. It is one of the most stable property markets in Australia in terms of steady, consistent, upward property price movement and offers strong capital growth and rental returns.
Of course another reason that Singaporean investors purchase Melbourne property is because it is a city with which they are familiar, perhaps having lived or studied in Melbourne themselves. But also of course, Melbourne boasts some of Australia’s, and indeed the world’s, leading universities.
Many Singaporeans have children studying in Melbourne such as in Melbourne University, RMIT, Monash University or Swinbourne University, and it makes perfect sense to purchase a property for children to stay during their study years rather than pay rent (and pay off someone else’s mortgage).
Of course the key questions are where to buy and what type of property. Melbourne is one of the largest cities in Australia geographically so it pays to understand where exactly are the most sought-after suburbs and locations that will ultimately produce the best capital growth and rental returns, bearing in mind that generally, Singaporean residents are restricted to only buying either brand-new or off-the-plan property. And the exit strategy is also another major consideration. Note, when you sell, you can only sell back to the local market, so although a particular type of property may appeal to you, it may not be in the least appealing to a local Australian tenant or future owner-occupier. It’s imperative that you thus take emotion out of the equation and focus solely on key investment fundamentals.
Top Melbourne locations
Traditionally those inner-Melbourne suburbs that are to the south, east and south-east of Melbourne CBD perform best, particularly those that are within the ‘golden circle’ (that is, a 5-kilometre radius of the CBD).
One major difference that Singapore residents should note is that, unlike in Singapore, the CBD in Melbourne is not always the best location for investment. Looking at property price growth over the past 10–20 years, it is those suburbs that are on the ‘fringe’ of the CBD, such as Southbank, South Melbourne, South Yarra, Prahran, Richmond, East Melbourne to name a few, that have performed much better compared with CBD property. There has been up to 5% higher capital growth in these fringe locations compared with capital growth in the CBD over the past 10 years. So it pays to really research specific locations and not buy property simply because it is similar in location to what you would buy in your home country. This can be one of the biggest mistakes an investor can make.
The state of Victoria allows for a substantial decrease in stamp duty costs for off the plan property purchases. Melbourne is the only major city in Australia that has this key benefit continuously. Only a small portion of the stamp duty is payable on the value of the land component and any improvements, upon completion and settlement of the property.
Having minimal stamp duty fees means that your investment dollars are going directly into your property and not into the government coffers. It’s all about maximising your investment monies and Melbourne is the only city in Australia that allows that – another key reason to invest in its property market.
By Jennifer Harrison