Latest / The Follio Property Podcast / These Melbourne Suburbs Are Rising While the Rest Fall | Property Experts

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These Melbourne Suburbs Are Rising While the Rest Fall | Property Experts · The Follio Property Podcast

• 0:00
  There's been a lot of talk recently about declining property prices.
• 0:03
  New data out today from realestate.com.au shows housing affordability is now at its lowest point on record.
• 0:10
  headline news would read that Sydney's coming off potentially 15%.
• 0:14
  Melbourne's coming off 10%.
• 0:15
  Rest of Australia house prices are falling.
• 0:17
  We've had rate rises, wars, trust lending bans.
• 0:20
  We've had the budget that's helped stop negative gearing.
• 0:22
  So anyone who bought 12 months ago, there's going to be a new range of new built product, which is going to put the values of the prices down and you can get 70, 80% of it right.
• 0:30
  That last 20, 30% can be a half a million dollar difference race when the market goes on a run.
• 0:35
  Do you see that as the sweet spot in terms of an investment grade budget at the moment?
• 0:39
  Absolutely.
• 0:40
  That sub-a-billion-dollar mark is going to rise significantly.
• 0:44
  You follow the data and the growth comes.
• 0:48
  You're listening to the Folio Property Podcast.
• 0:51
  I'm Rhys Beddell and I'm here each week with my co-host, Lachlan Delahunty.
• 0:54
  Lachlan, we're doing a review episode today.
• 0:57
  Our producer, Jonathan, actually shared an episode with us earlier today that we re-watched from 12 months ago where we predicted some Melbourne hotspots.
• 1:05
  So I thought it'd be good to review those, see are they still a hotspot in your opinion?
• 1:09
  I know you don't like calling them hotspots.
• 1:11
  And where you see the value in other suburbs in Melbourne moving forward.
• 1:14
  What's interesting is when you look at the high-level data of what Melbourne's done, it's getting thrown in the category of house prices are falling, we're going to see double digit negative house price movement in Melbourne this year, yet the figures we're about to go through completely debunks that.
• 1:32
  That's what's important to highlight.
• 1:34
  It's not we got it right because we don't get everything right.
• 1:37
  It's understanding the importance of markets within markets.
• 1:41
  So, albeit headline news would read that Sydney's coming off potentially 15%, Melbourne's coming off 10%, the rest of Australia house prices are falling.
• 1:53
  There are markets within markets that are increasing in value and doing extremely well above their long-term growth rate in times of uncertainty.
• 2:02
  It's understanding that there's markets within markets and that's what we're here to highlight.
• 2:06
  I'll go through some of these suburbs that we highlighted, talk through what it's done, but actually probably more unpack with yourself why you like those suburbs and are they still good suburbs moving forward.
• 2:17
  And then we're going to now review those opportunities.
• 2:20
  Are they still active opportunities moving into 2027 and talk through what your top picks are moving into 2027?
• 2:26
  Suburbs here, just highlight, but we're not going to get deep into the data because I don't want to be here all day, Lachlan, but let's talk through some of the suburbs we chose on the podcast 12 months ago.
• 2:35
  We're going to clip up and have the predictions there, but we had Berwick, Sunshine West, Ferntree Gully, Carrum Downs, and Laylor.
• 2:44
  Any characteristics about these particular suburbs that you liked?
• 2:48
  Let's take back and have a look at the clip and Reece's hair clip, what, 12 months ago?
• 2:53
  Last year, when it was on its knees, did 2.7% growth for the year.
• 2:57
  It's already done.
• 2:58
  It's tracking to do 5% to 10% this year alone.
• 3:02
  So it's already got the drivers in place for some serious growth this year.
• 3:05
  The growth that we've seen, already done 5.2% this year.
• 3:09
  These figures are probably a couple of months behind.
• 3:10
  So we're on track to do well over 10% growth.
• 3:13
  Yeah, we'll see that market do double digits this year.
• 3:16
  But last year it did 4.6% as well.
• 3:18
  So it's probably already in its sort of out of its recovery phase, I should say.
• 3:22
  Well and truly.
• 3:23
  And going on opportunity phase.
• 3:24
  It's already had 4.5% growth in 2025.
• 3:26
  So another one that is on track to do more double digits, I'd say, growth for 2025.
• 3:32
  It did 6.2% positive in the green last year.
• 3:36
  This year we're sitting at 1.8%.
• 3:39
  But we're predicting that that's going to have, there's a lot, especially with this
• 3:43
  first home owner scheme cap, this will get a bit of a growth.
• 3:46
  Your changes in haircuts over the last 12 months, Rhys.
• 3:49
  The common themes amongst watching that is they are all landlocked suburbs, most importantly.
• 3:55
  Think post-budget.
• 3:57
  Everyone's straight away from that.
• 3:58
  We've seen a lot of commentary that builders in Victoria, in particular, and other markets are getting busy because people are buying house and land packages for investment.
• 4:06
  So looking at the data, and you've got PropStack there, compare the growth of the markets we just discussed versus some of the markets we said don't buy because it's also important when not to buy.
• 4:18
  I think if you clip it up there, there's some pretty dramatic differences.
• 4:21
  Well, the three that we've got here that we said...
• 4:24
  not to buy was Melton, Frankston and Donnybrook.
• 4:27
  And you can see here have kind of flatlined from a growth perspective in the last 12 months.
• 4:32
  Yields are down as well.
• 4:33
  So these particular markets that we didn't like, what are the characteristics around those that turned you off?
• 4:42
  high saturation investment activity even prior to the budget.
• 4:46
  So typically 70% or more transactions were investor-based, which is a red flag.
• 4:52
  Opposite to that, what we want in the market versus the other suburbs we mentioned to buy.
• 4:57
  It's typically 80% to 90% or more owner-occupiers versus investors.
• 5:02
  They're also in areas recently that are not landlocked.
• 5:05
  There's very little infrastructure.
• 5:06
  There's
• 5:07
  ample supply that can be built out over the next three, five, ten years and we're seeing that supply come on.
• 5:12
  So anyone who bought 12 months ago had bought probably a new built product of which this year there's going to be a new range of new built product which is going to put the values of the prices of those who bought 12 months ago down.
• 5:24
  Obviously, they reduce.
• 5:25
  That's the whole philosophy of buying new product.
• 5:28
  It depreciates in value and that's really important to understand.
• 5:31
  So those areas, if you start to forecast out over the next 12 months, I think are going to get even more exposed because not only now do you have a market that's flatline and essentially in some instances had negative growth, the activity in there is almost solely investors who are buying a product that they're not going to be able to resell to an investor because they don't get the same benefits.
• 5:58
  now with the post budget environment.
• 6:01
  Lachlan, so the suburbs 12 months ago that we said was due for some growth or we'd like the fundamentals behind was Berwick, Sunshine West, Fern Tree Gully, Carrum Downs and Laylor.
• 6:11
  Now, a lot has happened in the last 12 months since we did this episode.
• 6:15
  We've had rate rises, we've had wars, we've had trust lending bans, we've had debt to income caps, we've had the budget that's stopped negative gearing.
• 6:24
  Now the fundamentals you liked about these particular suburbs and from a growth aspiration, do they still apply in today's market?
• 6:32
  Absolutely, and I think that's why collectively those markets have done north of 6% growth in a market that's high levels almost fallen 10%.
• 6:42
  So we're talking about a 16% swing in market movements.
• 6:47
  And the reason for that is because the fundamentals of property is shelter, location, housing,
• 6:55
  and lifestyle that supports that, right?
• 6:57
  And so what I mean by that is people, through good times or bad times, particularly in uncertain times, will revert back to the need for shelter, first and foremost, and for location.
• 7:08
  So location with proximity to friends, family, schools, amenity.
• 7:14
  And so that sort of highlights the importance.
• 7:17
  And when we did these predictions, we did not predict that.
• 7:20
  a number of those macro events.
• 7:23
  We certainly didn't predict a war.
• 7:24
  We didn't forecast rates would get to as high as they're about to get to.
• 7:28
  We didn't forecast the budget that was going to play out.
• 7:30
  So there's a lot of things we didn't predict, but it just highlights the strength of buying quality locations over speculative assets.
• 7:39
  There's more to those suburbs.
• 7:40
  If we're going to unpack them, the infrastructure spending per person was three times the Victorian market and about four times the national market in terms of how much money the government was spending in those locations per person.
• 7:54
  They're significantly skewed to particular school belts in those areas.
• 7:58
  So there's a lot of underlying data that backs up our position in those submarkets, but it shows the strength and the weight of quality location that's supported by
• 8:10
  really good economics and data that even through the most uncertain macro times produces good returns and good outcomes.
• 8:21
  We haven't seen double-digit growth in these areas, but we're certainly seeing in excess of its long-term growth, which is probably remarkable considering the headwinds that macro markets faced.
• 8:32
  And in terms of those fundamentals there, you know, looking into Melbourne in general, right?
• 8:38
  Let's look into how the market is now in Melbourne and the opportunities moving forward.
• 8:42
  You've mentioned that those same fundamentals are so important from an asset selection and from a growth perspective, making sure that the fundamentals, like you mentioned there, from an infrastructure project, is it close to nice schools?
• 8:53
  Is it owner-occupied appeal?
• 8:55
  Now, flip particularly the interest rates.
• 8:58
  And what I really want to flag here is the interest rates and the negative gearing.
• 9:02
  And why I want to flag these two especially is because that has hampered serviceability from an investor standpoint, not necessarily an owner-occupier standpoint.
• 9:10
  And the reason I want to hone in on that is because it has brought down the investor belt asset, right?
• 9:16
  Like I think if we were having this conversation 12 months ago, a lot of people from an investment grade asset selection were probably looking close to a million dollars, whereas now they're looking in that $650 to sort of $850 range.
• 9:28
  That particular range might be outpriced with some of these assets that we recommended 12 months ago.
• 9:34
  Do you see that as the hot spot in terms of, or the sweet spot, maybe not the hot spot, the sweet spot in terms of an investment-grade budget in Melbourne at the moment?
• 9:42
  Yeah, we'll dive into some suburb selection and where I see certain opportunities in a moment.
• 9:47
  But without a doubt, and it's our job is to do to the best of our abilities for forecasting race.
• 9:53
  And if you look at a high probability of a coalition government by the end of this year...
• 9:58
  and there's some of their policies that they're promoting, absolutely, that sub-a-billion-dollar mark is going to rise significantly.
• 10:05
  And the reason for that, you're talking about no stamp duty for anything under a million dollars.
• 10:09
  The federal government still have the first-home-buy scheme, where anything under sort of 850 for first-home investors, anything under 850, they still only require a 5% deposit.
• 10:21
  And people's budgets for investing have been reduced because of serviceability due to interest rates, but also because you can't claim negative gearing.
• 10:31
  So you've got three markets plus a typical own occupier market all competing in a similar sub-market.
• 10:40
  So the key is, and our job is, to locate these areas where we think there'll be outperformance.
• 10:46
  And the data is skewed.
• 10:48
  You follow the data and the growth comes.
• 10:50
  The big one though is I've seen this quite a bit recently with the portfolios that we're seeing come in that weren't previous clients of ours.
• 10:58
  They're coming to us for the first time and the suburbs are correct.
• 11:02
  The suburbs are correct.
• 11:03
  The price point is there or thereabouts, but it's actually the asset selection that's letting them down and,
• 11:08
  And that's the tough conversation you're going to have with some of these people is you've heard the tidbit, maybe on the Folio podcast, you've heard us talk about a suburb, you've heard another podcast talk about a particular suburb where you've seen these reports all through your Instagram feed.
• 11:22
  But actually what's letting you down is the asset selection and potentially it being a compromised asset as well.
• 11:28
  Happens more often than it doesn't.
• 11:29
  Our team across the country, we're inspecting two to three hundred properties a week, Reese, of which only a handful come through as past due diligence.
• 11:41
  We're talking well less than 5% actually past due diligence.
• 11:45
  And what does that even mean for a lot of people?
• 11:47
  Like, well, what can be wrong?
• 11:48
  What fails due diligence?
• 11:50
  Like, how long have you got for an episode?
• 11:52
  And maybe we do a full episode on due diligence.
• 11:54
  Everything from flight path to site contamination to strata levies to social housing to then everything surrounding the asset, what DAs are in, DAs meaning what development approvals and or applications in the area, what building permits are in the area, is there going to be any shadowing?
• 12:10
  There's so much.
• 12:12
  that takes place and that's not without even looking at the macro environment of the area.
• 12:15
  So the rising incomes, reducing incomes, who is the local government, what are they pro, are they investing in the school, where the infrastructure spending coming from.
• 12:26
  There's just so much to unpack and you can get 70, 80% of it right, the right macro market at the right time, but that last 20, 30% can be a half a million dollar difference, Rhys.
• 12:38
  When the market goes on a run, and we've seen it in both Brisbane and Perth, almost a half a million dollars of difference between right timing, right location, wrong asset.
• 12:48
  And that's so critical.
• 12:50
  And I've seen that in all my reviews.
• 12:52
  They thought they've got an absolute steal back in 2021.
• 12:54
  They're trying to sell it now.
• 12:57
  And they're selling for a disproportionate discount now because they got it wrong on the asset selection.
• 13:02
  Just before I get your predictions or thoughts on where you see the value in the Melbourne market for the next 12 months, just on the coalition, the government, not a political podcast, but it's been a lot of media attention around the potential of the coalition winning in Victoria in November.
• 13:24
  Big ones you mentioned there was a lot of the property removal of some of the- Stamp duty.
• 13:28
  The stamp duty.
• 13:29
  Will that light a fire amongst the whole property market in Melbourne or will there be a particular price point you see that that actually helping to be a big driver for some growth?
• 13:39
  Yeah, for sure, Rhys, and understanding that they're pro-reducing land tax.
• 13:43
  So pretty much all of Victoria on a macro level is going to benefit.
• 13:47
  It's going to make it far more attractive for investors because there's been concerns around land tax.
• 13:53
  So a reduction in that would be extremely advantageous.
• 13:57
  But you're absolutely right.
• 13:58
  The markets that we're tracking is where is going to be the most advantageous
• 14:04
  uplift or competition between first-owned buyers that are going to be getting national benefit as well as state benefit competing with the investor market.
• 14:14
  And that's where you're going to get disproportionate returns in terms of growth rates.
• 14:18
  That's where we'll see markets do north of double digits.
• 14:21
  Let's look to see what you're forecasting as some areas in Melbourne over the next 12 months.
• 14:29
  Now, I'd say cash flow is more important to an investor these days now off the back of some of the advantages they had from a negative gearing perspective.
• 14:36
  So are the assets and locations you're looking at now a nice combination of cash flow and capital growth?
• 14:42
  Cash flow has to be considered.
• 14:44
  And that's an unfortunate consequence of the budget.
• 14:47
  But yeah, absolutely.
• 14:47
  We can't have things that are...
• 14:49
  significantly negatively geared because the cash burden is too high.
• 14:52
  The markets or the assets that I'm personally buying have that serviceability buffer where it's not neutrally geared, slightly negative, but it's allowing me to buy more than one or two properties.
• 15:05
  Cool.
• 15:05
  Okay, Lachlan, you mentioned there obviously cash flow is super important now in this market.
• 15:11
  What are the other fundamentals you're going to be looking at in Melbourne from an asset selection type?
• 15:15
  And then let's talk through where you potentially be looking.
• 15:17
  Where we're buying and what we're buying, Rhys, I'm sure you've got it on your screen there for those that are listening, Rhys is showing the marketplace feature that we've got on PropStack.
• 15:25
  This house is exactly the suburbs and the assets that are live that have gone through a complete due diligence process.
• 15:31
  So if you want access to them, go onto PropStack, click the link in the show notes and you can come onto the marketplace and see exactly the type of assets and the location fundamentals of what we're buying.
• 15:42
  Your question around what does that look like, it's characterised by what we've discussed.
• 15:48
  Strong employment, so when you track back incomes in these suburbs, we're seeing household incomes growing disproportionately in comparison to the rest of the country and also compared to the local market there in Melbourne, for instance.
• 16:02
  We're looking for macro factors, decreased vacancy rates, decreased days on markets, but we're also looking at tracking the own occupier data and the conversion compared to investor data.
• 16:13
  As we just spoke about just before, Reece, overlaying that with now first home buyer data and new investment coming to the suburb is creating that interesting parallel where we're seeing that disproportionate uplift.
• 16:26
  That's a more recent data set that we've been tracking, seeing how many investors are coming to this market competing with first home buyers.
• 16:34
  in a market that has traditionally been saturated by own occupiers.
• 16:37
  That's the sweet spot for me because we know at the end of the cycle, own occupiers will still want to live there.
• 16:44
  It's still desirable.
• 16:45
  History tells us there's typically more families than there are investors, but more recently, we're seeing an uptick in first-owned buyer activity investors.
• 16:55
  It's good taking a trip down memory lane there.
• 16:57
  Looking at our predictions from 12 months ago, things have changed though.
• 17:01
  Market has changed massively in the last 12 months.
• 17:03
  We've changed physically.
• 17:05
  You have.
• 17:05
  Definitely your hairstyle and your attire.
• 17:08
  You in a little college knit jumper and a college shirt.
• 17:12
  I've definitely found my place.
• 17:13
  And also PropStack, our baby is live, right?
• 17:15
  So I think there's no point going through and giving out suburb hotspot reports and all that jazz when actually log onto the marketplace and see the exact due diligence we're doing on the exact areas of buying and why we like those areas too.
• 17:27
  And the beauty now in the suburb data, you can compare any suburb in Australia and you can do it yourself.
• 17:32
  You don't need to listen to Riesel, right?
• 17:34
  Go through there and compare market to market, suburb to suburb.
• 17:37
  It's sickening how many hours I spend on the suburb data just tracking trends.
• 17:42
  That's the point of it.
• 17:43
  You've got the power to do it yourself.
• 17:45
  You've been listening to Folio Property Podcasts.