Latest / The Follio Property Podcast / Are Melbourne’s Outer Suburbs An Investor Trap?

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Are Melbourne’s Outer Suburbs An Investor Trap? · The Follio Property Podcast

• 0:05
  Welcome to I Call Bullshit Property Podcast, where we separate real estate fact from fiction. I'm Rhys Bettle, and in every episode, we uncover the truth behind the property market's biggest claims and trends. Joining me is our resident expert, Lachlan Delahunty. He's seen it all and isn't afraid to call out the bullshit when he sees it. If you're enjoying the episode, tap like, hit subscribe to make sure you never miss an episode. Let's jump into it. It's too early to invest in Melbourne's outer suburbs. It's too early to invest in Melbourne's outer suburbs.
• 0:32
  It's a good question, Rhys. Well, you know, it's kind of a polarising question because so many people, I feel, are very anti-Melbourne still, but we're also hearing a lot of noise from...
• 0:44
  buyers agents out there. A lot of the investment groups are pushing Outer Fringe Melbourne now. A lot of the investment groups are starting to push the Outer Fringe Melbourne. So I thought it'd be a good episode to kind of... It's coming on my reels frequently now. Some suburbs that I didn't know exist until our trip recently as the next hotspots. So I suppose we're about to work through that at the moment, aren't we? Beautiful. And good keyword there, our trip recently. So we did spend a week in Melbourne looking at inner city established, but we also took a...
• 1:11
  couple of days looking in the outer suburbs, especially on the new build side of things. So I thought it'd be good to maybe address some of those places we saw and what the data is telling us and what we actually, our opinion and what we actually saw from a ground level. So we'll start with the Northern Corridor. So Craigie, Byrne and Mickleham. Yep. Got the data on that. What was your first impression of that, Lockie? We weren't there.
• 1:35
  Well, there was a seminar that came out about four weeks. So there's a reason why we're going to these areas, right? Because there's a lot of noise. I think our job on this podcast is to call out the bullshit and understanding what is fact from fiction. And a lot of the push was in that particular supper, Mick Lamb, before that trip I didn't know existed, right? So it's popped out of...
• 1:55
  Melbourne in the last three years and it's how many k's out of the CBD? 35 I think you've got the data set there and there's a huge push one of the seminars that one of our colleagues attended to was essentially framing it as a
• 2:10
  a very similar growth suburb to the inner west in Sydney, where it went on a serious run between 2015 and 2019, saying that you could expect 50%, 60%, 70% growth out of there because of the access to the CBD, the proximity to the CBD, and the amount of infrastructure that's going to be spent in there.
• 2:28
  In reality, what we found is there's a V-line train system, and part of that is a V-line bus system to get access to the CBD. So it's not on the metropolitan train line, which is a huge issue. So to give context what that is in Victoria, essentially it's a regional travel route. So you're looking at a train or a bus that will pick you up to take the city every three to four hours, not like the traditional metro net, which will get you in there every hour, if not every 30 minutes.
• 2:56
  So straight away there was a huge problem with that, which we noticed. Yeah. And that was Mickleham. We also went to Craigieburn as well, which is just around the corner. Yeah. So obviously the transport for that, there is a major metro net that does run from there into the city. So far more supportive from accessibility. Because the one thing with Melbourne, we've touched on the podcast before.
• 3:16
  It's very different to other markets. Transport is key and the government's invested a lot over the last decade to improve it because historically it has had problematic public transport. So access to the CBD without a vehicle is imperative. So we could see very quickly that a lot of infrastructure had been invested around the train station. But as you got further away from that, prices become cheaper. There's a lot of land still available now.
• 3:43
  And there's a lot on the market. It's a market that's been on its knees for now seven years. The land market's seriously suffered, and that was evident when we were there.
• 3:54
  Yeah, and I think if you look at the data from Craigieburn and Mickleham, Craigieburn actually had a, over the last 12 months, had a 2.3% increase in property prices, which is, if you're looking at the metro average in Melbourne, it's- It's outperformed. Outperformed. Medium house price was at $655K versus Mickleham at $668K.
• 4:16
  not surprisingly when you compare it to the rest of Melbourne, was down 1.7% in the last 12 months. Yields are there and thereabouts. But I think sort of going on from the ground level, there wasn't too much attractive stock left in Craigie Band. It did seem like a lot of the agents were pushing kind of towards the Micklem direction.
• 4:36
  Yeah, so the agent's going to push naturally what they have more of and what's harder to sell, which was further out. And Donnybrook is another suburb east of that that had an abundance of stock, no metro network. And again, a lot of things that weren't selling. So Craigieburn, far more established, been a market that's been around for almost two decades now.
• 4:56
  So certainly far more comfortable in that area where there was clearly infill, a lot of amenity, all your major shopping centres, goals, major childcare facilities. Everything you want to see in a key market was available in Craigieburn.
• 5:12
  Beyond that, east and north, I have serious concerns. And so some of that information that was getting or is getting tainted on various podcasts or buyers agencies or investment groups pushing these out of fringe suburbs beyond Craggyburn, I've got serious concerns based on what we saw and based on that data that we've just gone through. Yeah, and when I looked at...
• 5:33
  from the LGA perspective, so local government area. It both fall within the city of Hume. I think a couple of key points I wanted to have a look at was affordability from a mortgage perspective. We've spoken about affordability index on this podcast before, which kind of helps us determine where a market is at from a capacity standpoint. Also looking at the rental affordability and then the unemployment rate.
• 5:57
  And the interesting thing about the city of Hume, which covers both suburbs we're mentioning, highest unemployment rate out of all the areas we looked at and the least affordable for renters. So if you're looking at the rental affordability, over 41% are paying more than 30% of their wage on rent.
• 6:15
  Yeah, which is surprisingly significantly higher than pretty much the rest of Melbourne. Exactly. And then you're looking at the unemployment rate, it's pushing nearly 8% as well. So people are stretched already and almost 10% of that market doesn't have a job. So huge concerns for the outer north. And when you're comparing the different markets, north to east, east to west, I guess the attraction of the north is your proximity to CBD is close to that of the east.
• 6:42
  because east has typically been more favourable and your proximity to the airport. So you're sort of 15 minutes from the airport, you're 20, 25km from the CBD. So that's the upside. Downside is those things you mentioned and the fact the train line doesn't go out there.
• 6:55
  Exactly. And we didn't even make it to Donnybrook in the end because we, you know, I think we'd seen enough from those areas. Yeah, to draw some conclusions. To draw some conclusions. Next up was Melton. The Wild West of Melbourne. The Wild West and just, you know, recently been added to the Melbourne population. Metro, yeah. Yeah, Metro data. So looking at Melton, super affordable and affordable.
• 7:19
  Being in the industry, we hear a lot, probably similar seminars that you joined before. A lot of people trying to push that from an investor standpoint. Every builder, building broker, investment group, land and house and land package, advisory firms are all pushing Melton. And the simple reason is...
• 7:37
  stock you can literally go in there there's a thousand properties available to buy tomorrow and land to build out for the next decade so what's the easiest story to wrap a product around that you know you're not going to run out of supply is melton you can build pretty much from melton to ballarat and every you know 50 to 80 k's either side right through to werribee without any resistance of running out of land yeah huge concerns and i mean i said affordability and the reason is
• 8:04
  lowest medium house price that we looked in all the areas at $478. In terms of unemployment, much better than the city of Hume, which was Craigieburn and Mickleham. I'm going to get these confused Mickleham-Milton. They sound too similar. But in terms of the rental affordability, similar, I would say in terms of the previous areas we looked at.
• 8:30
  38% of people are spending more than 30% of their wage on rent as well. So there could be a bit of a... Affordability cap there. Affordability cap there as well. But yeah, I think that was an area, we probably had some opinions before we arrived that we were wary of. And I think once we, you know, done some...
• 8:47
  on the ground research too and they kind of back that up as well yeah it comes back to the fundamentals we want to see scarcity in a market and that's why there's consideration to the north because at craigie burn there is scarcity it is built up and it's it's fully established for most part you go out to melton melton east melton west
• 9:05
  There is just ample supply for the next multiple decades. And that's really concerning because in those areas, you build a new product. Three years later, there's a brand new product. Yours becomes depreciated, three years old. Then it sells at a discount. And then it's a discount.
• 9:22
  and identical product that's now brand new pops up around the corner and that's going to happen for almost a full generation potentially two generations so i had concerns going there for that reason wasn't surprised when we got there if anything that you know when you look at the crime rates in that particular area it's certainly much higher than it was in the north and the east he said they had the lowest crime rates something we need to consider
• 9:43
  There was obviously Metronet, so you do have access to the CBD, so that was upside for sure. But certainly the quality of the housing, the build quality through there seems like a very high volume, low quality. A lot of the builders noted out there certainly weren't the credible builders that we were seeing in the northern corridor and the south, southeast. So again, it sort of highlighted everything we thought going to Melbourne in that western pocket.
• 10:10
  probably only a whole lot of the fact that we might be investing or advise clients to invest there in the future. Absolutely. We next, we went down to Geelong. We won't really touch on Geelong, but we did a bit of a road trip to Geelong, went to some nice places on the way back actually, I think.
• 10:26
  What was it? Lara, Lara we liked initially. Lara. But Werribee was the big one we were, as we were coming back that we wanted to check out. Geelong's an interesting one because there is out of fringe Geelong suburbs and Geelong typically does lag Melbourne's growth. So at the moment it becomes affordable. So you see a lot of these investment firms move into the likes of Ballarat or Geelong because affordability play for established property.
• 10:52
  The problem with Geelong, the vacancy rate is significantly higher than most other markets in Australia at the moment. And the stock on market hasn't reduced like the rest of the Victorian and particularly the Melbourne market. So good to go down there and see that there is a lot of stock available. You are spoiled for choice. It's a buyer's market, well and truly. Very different fundamentals of what we're seeing in Melbourne at this point in time, but that can change very quickly because it's a
• 11:19
  It's a regional centre, so you only need a handful of buyers, agents and firms to put a story around that, and a lot of that stock will be taken out of the market quickly. Yeah, looking into Werribee, medium house price at $610,000, which is still on the more affordable side. Hadn't seen any growth or any decline over the last 12 months, which...
• 11:40
  As we said earlier, looking at Melbourne across the board, saw negative growth in the last 12 months. So positive there that it remained flat. In terms of affordability from both the mortgage perspective and rental, figures are low as opposed to some of the other areas that we looked at.
• 11:55
  And unemployment's pretty low with that area as well. So looking at the data and from, you know, hearing a bit of noise from, I guess, the investors starting to enter a previously owner-occupied driven market, it seemed pretty positive. Is that kind of how you felt when we got there? Yeah.
• 12:12
  I think because distance from CBD is driving that market, not from as the crow flies, so to speak, but it's the road network. You're literally on the freeway within two to three minutes and you're straight into the CBD. So I think...
• 12:28
  When you're looking at, and you've got the train line, et cetera. So accessibility to the city on the major artillery routes is really important as well. But I think that's what highlighted to me Werribee is it's so accessible. We're out there and on the way back in, it took us 20 minutes to get back into the heart of the CBD from Werribee, which surprised me a lot when we compared that when we went to the north or the west, sort of bumper to bumper traffic in, you know,
• 12:52
  major thoroughfares not not major freeways so i think what they've done there and the infrastructures have been spent on sinking a lot of the transport under the west gate bridge now so what we saw a lot of the major trucks going to the ports is now getting diverted which is freeing up the access of the major freeway so i think werribee is going to become more popular just because of the you know the ability to get into the cbd
• 13:15
  Cool. And then we went east, southeast, I guess. We went east. East. So particularly looking at Cranbourne, Cranbourne East. Clyde North. Clyde North, Berwick. We spent a good half a day in that area and checked out a fair few of those spots. I think Cranbourne, looking at the data.
• 13:37
  Medium house price, $660,000, so a little bit higher than some of the other places we looked at. Clyde North, even more on a premium. Medium house price at $725,000. And Berwick,
• 13:48
  that seemed like the higher entry point out of all the places we visit at 885. And actually looking at the data, that had 2% growth in the last 12 months, which is kind of unheard of when you're looking at it. Very dominated by own occupiers, right? Correct. Yields were there or thereabouts in the low 4% like some of the previous areas. I think the biggest thing for me, though, in that area, so all those areas within the LGA of Casey,
• 14:14
  High population, so just 405,000 there. But in terms of the growth, it was the fourth largest LGA growth in Australia. Yep. In the last 12 months. So definitely has seen a rise in population. And the infrastructure felt pretty good when we were out there as well. It's very established. And it has been the eastern suburbs of Melbourne is notoriously the most desirable place to be.
• 14:41
  and that be it the inner east is is where you want to be that's extended to the outer east so comparing all outer fringe markets certainly felt most comfortable in the east due to the infrastructure that's already established but also what's going in so obviously in that casey area you know the facilities that they're put in just the melbourne football club alone the soccer team etc that's been there for well over a decade now so they're essentially
• 15:05
  and redevelop that entire area. If you look at a little bit inbound from there, you've got Monash University, which that precinct, that Monash precinct, is actually the second largest CBD in Victoria. So a lot of jobs activity at the hospital, university, all the major research hubs around that. So you can see there's a lot of jobs out there. It's almost its own city, in a sense. And that's where you say, albeit it's a lot further from the CBD than, say, the north or west even,
• 15:34
  you wouldn't expect that all the community, all the way into the CBD, a lot of those jobs would be going and stopping around that Monash precinct, or then featuring out to Frankston. So you can see how it sort of operates as its own central hub. Clearly Berwick being the own occupier dominated market
• 15:50
  When you looked at Cranbourne, equally there was a mix between own occupier and investment activity. Clyde Clyde North is obviously where a lot of the infrastructure is going in now. So certainly most comfortable in that area for that outer fringe stock. And it's no surprising that the growth's already been seen in that market in the early phases of the cycle for Melbourne.
• 16:09
  And train line ended the stop, so I think it was like 50, 55 minutes to get into the CBD as well. Correct, yep, but there is a direct metropolitan train. You've also got the main artillery routes via car as well. So from that point of view, transportation, it's a tick for my mind. Affordability was still there. Yeah, well, I mean, looking at the mortgage affordability and out of all the places we've seen,
• 16:35
  that are the lowest percentage of people paying over 30% of their wage. So what that's saying. So explain, yeah, explain that. Exactly, so 30% of your wage goes on your mortgage repayment. They've kind of set that as a benchmark of what- What is affordable. What is affordable. Some of those areas are pushing 30, 40% over that. So 30, 40% of people are paying more- So what that says, it's reaching its ceiling in terms of a rental income. Yeah, so only 20% are paying over 30%. So there's plenty of leg room to see growth in rental prices.
• 17:04
  Correct. And unemployment rate under 5%, which when looking at some of those other areas is pretty competitive. It's almost half what we're seeing in the north, right? So you're seeing wages rise, arguably, when you get employment rates sub 6%. You're seeing affordability from a rental point of view and debt to income in those areas are also quite affordable. So from what we've seen, certainly the market on the outer fringes... And you raised some good points there. I think it almost was...
• 17:30
  Some of those areas were specifically owner-occupied areas. Yeah, absolutely. So from an investor standpoint, I know we always try to, from an investor standpoint, want to buy where the owner-occupiers are because you've got the high demand there, you've got a pool of people wanting to enter that suburb. Didn't feel like with a lot of those other suburbers there was as much of a demand, especially when you're looking at the Clydes and the barracks of the world. Exactly. But you may not hear or see much of a push towards the east because there's
• 17:57
  It's more difficult to get stock, so those that are pushing product won't want to push it because they'll hit a ceiling on what they can sell you essentially very quickly, where in the West there's infinite stock, so it becomes easy to put a story around that to get you convinced. But also the affordability plate is more expensive in the East slightly. We're looking at entry points from 700 to 800 versus the West where it's more 600 to 700.
• 18:22
  So typically the more affordable suburbs attract more investors. So that's probably why you'll see less of a push to the east and why we haven't heard much about the east. We've heard a lot more about the north, your Donnybrooks and your Melton Wests and your Micklehams that you can't pronounce because there's infant supply and they're cheaper. Yeah, 100%. And I think the options that we were looking at over there, they were between sort of $650 and $750. So there is obviously that...
• 18:49
  we were having a chat with one of the ladies over there and it was a million dollars was kind of entry point in some areas in Berwick as well, which obviously from an unoccupied standpoint is going to be a good value. Yeah, but you're paying for lifestyle there. Well, it's quite undulating. You've got hill views and those sorts of things.
• 19:03
  Yeah. Last stop on the list was Frankston. Love Frankston. Love Frankston. You've got a bit of a soft spot for Frankston, having lived there. You live there, I play for you there. It's like come on, don't drag me into that. No, I don't, I like Frankston. So what are you telling us? So Frankston, I think from the investor community, that gets a lot of publicity now.
• 19:28
  My memories of Frankston was probably like 15 years ago when Sam Newman was going out there doing straight talk. Stay off the train line. And the characters out there. So being away from Australia for so long, it is interesting to see a bit of positive noise about Frankston. It's gentrified and is gentrifying. And certainly South Frankston, for instance, beautiful spot. You're on the water there. And what people forget is you're 15 minutes from the Morning Peninsula, which is...
• 19:51
  probably the most affluent pocket of Victoria, be that Portsea, Sorrento, five to $20 million homes, and you're 15 minutes from that. You've got beautiful beaches in Frankston, and your CBD access, you've got a major artillery route by car and a major train line in the city within 45 minutes. So it makes sense. And yes, there is a lot of a push from some of these investment groups to Frankston.
• 20:13
  I support that. I think it's undervalued for what you get there. It is more established, which I like. It's not an out-of-fringe area. That new-built stock doesn't exist as frequently, but certainly was happy with what we were seeing, albeit there's pockets of franks, and so if you are buying by with caution, there's a lot of social housing. There is some areas that still haven't gentrified yet, so be careful with your tenant mix and those sorts of things.
• 20:40
  But yeah, overall, I was quite pleased and it improved a little bit since I played footy there, which is nice. Best pizza you've ever had apparently there as well, you were saying. Love a getter. But yeah, you're too right. I think out of all the areas we were looking at, that was heavily established. For that sub-million dollar price point, which is what we're talking, that's where a lot of the investment activity takes place. Yeah, that was certainly the pick.
• 21:01
  Yeah, and you're looking at the medium house price in Frankston at $740, no growth or no decline over the last 12 months, which you'd almost give it a tick considering what's happened in Melbourne. The mortgage affordability, not going to explain that again, but mortgage affordability was actually the lowest by far. So only 15% of the population are paying more than 30% of their...
• 21:23
  their wage. So that's a big tick from an affordability standpoint, especially if you're looking from an owner-occupied perspective as well. Unemployment, they're in balance with some of those other areas as well. So yeah, you could probably see why there is starting to get a bit of a positive mind frame on that area.
• 21:43
  And that's what you want to see, a market to go through aggressive growth. You want a combination of own occupiers competing with investors. And that's what we're seeing. Days on markets has shrunk significantly over the last six months. Speaking to agents on the ground, they're seeing multiple offers on properties. A lot of East Coast and some West Coast agencies buy inside unseen. So it's the state of a market that's now going to go on a run. It's clearly evident.
• 22:10
  But again, buy with caution, making sure you're not buying sight unseen because like I said, some of the properties that we went through, you certainly want to be careful due to those building reports more imperative than other markets we've seen before. Absolutely. I think we'll touch on an upcoming episode, maybe more the inner city findings that we had as well. Absolutely. We'll talk in detail on the more established and traditional areas of Melbourne. But I think out of fringe summary, we went through it. Yeah. I call bullshit on the north. I'm still sceptical. Yeah.
• 22:40
  Yeah, so just north is Craigieburn, Micklem. Yeah, so there is an exception for Craigieburn in pockets, but certainly beyond that, north or east of that, let's stay away. West is a no-no. Certainly don't get conned into buying something in the west. Yeah.
• 22:56
  Look, there's a case to be made in pockets of Werribee. Like I said, high domination of own occupier. I'd be selective. You're going to get a cheaper price point, but making sure you're close to amenity. And then, obviously, our preference for the outer fringe was, without a doubt, the southeast. A lot of value out there. Again, be selective, like everything, making sure you're getting proximity to the train line. As soon as you get a little bit east of Cranbourne, the further you get away from the train line, the more difficult it is going to be able to rent the property.
• 23:22
  And that was evident in the rental returns we've seen as you got into Clyde North, et cetera, further away from the train line, you started to see a diminishing return on rents. So, yep, that was a tick. And then established, Frankston was really happy with. Beautiful. So, Lachlan, what's the verdict? It's too early to invest in Melbourne's outer suburbs. Fact or fiction? Do you call bullshit? I call bullshit on the North and the West. Certainly a case to be made for the East. Make sure to join us next episode. Stay informed, stay curious, and keep calling out the bullshit.