How to achieve capital growth thanks to our booming population and the GFC

As the economy is on the upturn now is the time to take advantage of demand and supply mis-matches in the market before the economy gets into full swing.  We show here you how if you buy smart and get your timing right you can take full advantage of our booming population.

Melbourne’s population is growing on a scale not seen in Australia before, swelling by almost 150,000 people in two years.   This means Melbourne is growing by more than 200 people a day, or almost 1500 a week - outpacing all other major Australian cities.

Over the same period the Global Financial Crisis has stalled the funding of many property developments.  The result is a shortfall in supply of properties to meet this escalating demand.  Supply shortfalls and constraints will inevitably lead to increased prices.  We are now seeing the first wave of this price growth.

Despite the State Government's policy that Melbourne should grow upwards rather than outwards, the Australian Bureau of Statistics (ABS) estimates that 61 per cent of last year's growth was in Melbourne fringe suburbs such as Werribee, Melton, Casey and Whittlesea. 

Unfavourable finance conditions for developments have thwarted the Government’s plans to grow upwards as building starts have dropped to their lowest levels since the early 1990s for multi-unit dwellings (see the red line in the graph below).

 “The multi-unit sector has been very weak for a long time” according to HIA Chief Economist, Dr Harley Dale, “Approvals are 21 per cent down on the same month last year,” 

While supply of multi-unit apartments is being constrained, demand is gathering pace as more baby boomers are downsizing from their empty nest; the Generation Y’s are more interested in living in the same location as where they work and play; and the lack of purpose built student accommodation has seen demand for units increase markedly from the overseas student sector.

“The up-cycle in housing starts will be slow to gather momentum,” Harley Dale says. The supply shortfall can only mean increased prices for apartments in inner and middle suburb locations.  We are already seeing this trend as recent statistics from Rpdata report that capital growth associated with apartments is virtually on par with detached housing over the last five years. This equivalent level of capital growth associated with units is a relatively new phenomenon

Despite these demand pressures in Melbourne, median unit prices are still modest compared to other cities.  The median price for units in Melbourne is $382,000 which is

well below prices in Sydney and Perth and only marginally different from other smaller capital cities.  This augurs well for future capital growth in Melbourne. According to John Edwards CEO at Residex Melbourne unit values should leap by over 30% in the next five years.

There are reports of intense competition and price rises as Melbourne heads into its spring property period.  CommSec equities economist Savanth Sebastian said the market was showing early signs of a property boom. "Melbourne is seeing phenomenal strength over the first half of 2009. There's a lot of demand being placed on housing supply and it's not being met at the moment and as a result of that prices are rising,"

The price pressures must be at their strongest in the highly sought after inner and middle suburbs.

How can property investors take advantage of the current market without being trapped into paying too much in the middle of a price war? 

Most sophisticated property investors achieve this by buying “off market”.  That is, they get access to properties before they are advertised to the general market so they get the best deals without having to compete in a bidding war.

These investors usually achieve this by keeping their ear to the ground in an area where they want to buy and build relationships with potential vendors and real estate agents. 

This is exactly how Onyx goes about preparing investment projects for its clients.  After the success of our 50 lot project at Bacchus Marsh we have now sourced an exclusive release prior to general public marketing of apartments in a boutique 15 unit development in Glen Iris. 

The Zara apartments pictured below (artist’s impression) are located in the heart of Melbourne’s Eastern suburbs.  The apartments are now available off the plan and are due to be completed in mid 2011.  The prices are based on panel valuer’s sworn valuation and are not subject to auction price bidding pressures.  It’s a great opportunity to buy at the beginning of a step up in prices but not settle until 2011.

Zara has all the lifestyle offerings - located close to trains, trams, freeway, major private schools, parks, Chadstone and boutique shopping strips like Chapel Street.  With prices from $379,000 it’s is very affordable to both investor and owner occupier.  

Click here to see plans, prices and other details for Zara or call Greg Clough on 0409 029922.