Is the uptrend in VIC transactions linked to a return of confidence?
Posted by Development Ready on Oct 21, 2019

CBRE Victorian Developments Site Sales have witnessed a big uptrend in development site sites, transacting seven sites in the past two weeks alone. But what does this mean for the broader market and why is it happening? This is much more than developers regaining confidence from the improved clearance rate. We believe that developers and confident investors will be returning to the apartment / townhouse off-the-plan market; with reasons summarised below:

Melbourne’s ongoing booming population growth has created the tightest rental market we have seen for ten years. Vacancy rates are currently sitting comfortably under 3% across all Melbourne precincts. Given the slowdown in building activity, a smart developer knows that this trend will lead to improved investor conditions over the medium to longer term.

There is less competition but compelling reasons for an investor to buy, which makes for good reasons to buy sites:

  • Melbourne will continue to grow. We need affordable well located apartment product to cater for this booming demand for inner city living. Developers are pre-empting the under supply of residential product and are focusing their attention to buy sites now.
  • As rents grow and banks offer the cheapest debt in our history, it makes solid sense for investors to capture higher yields on their money than cash rates that banks offer.
  • Negative gearing will continue long term after the death of the ALP Federal Government challenge, so the higher yield will also be tax effective for many years to come.
  • Gross yields in some suburbs are now over 5%, with the benefit of depreciation, this figure could be even higher. This would indicate that apartment values could increase based on historical yield trends compared to other asset classes.

Melbourne is also a very safe place to buy – it is relatively more affordable than Sydney and it offers some of the best education in the southern hemisphere. It is an attractive proposition to lure many Asian investors back into the apartment market. In addition to this, increasing confidence in the residential housing sector will lead to more owner occupiers selling their homes to either downsize, or assist in funding their children’s first acquisition into the residential market. All up, it appears that we are heading back into a stronger market in the residential development sector.

Julian White
Director, CBRE City Sales and Development Sites
0422 764 137
[email protected]

*image, supplied CBRE, 779-785 Heidelberg Road, Alphington, VIC

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