Oversupplied market? Falacy or Reality?

I recenty read an article from the Financial review which suggested that vacancy rates in Melb CBD apartments are at 7%. Most property people advise not getting involved in areas above 3-4% Also rents are way down and there are thousands of new apartments still to hit the market. Be very careful. Why not look in the suburbs. Land is not duplicatable in established areas.

MJK

Hola Fernando,

I work as a Property Investment Consultant in Melbourne. The reason for me being on this forum is to talk about my passion – Property, I’m not here seeking business. So what I say will be unbiased and to the point.
So let’s start by answering some of your questions:

Fernando your financial advisor has told you it’s a fallacy that the property market has been oversupplied – Not all true! yes there are many suburbs and also certain pockets of the CBD where there is not much construction activity and there is some demand, but then there are other pockets where you can count more cranes than cars.
Your financial advisor is probably advising you on the basis of a government study that says Melbourne will need a further 420,000 new dwellings in the next 20 years to supply the demand.

MJKMJK is correct in saying that the vacancy rates for Melb CBD is 7%. Fernando is also right in saying that it means that 93% is leased, but think about it a little more – 7%? what does it represent as in a total of units? 500? that’s a lot of units vacant if you ask me.

Let’s also put to rest about a vacancy rate issue at the Docklands – there isn’t one!
There are only two precints in the Docklands where some construction has completed (in other words settled) – 1. Mirvac’s Yarra’s Edge and 2. MAB’s New Quay.
Let me tell you that there are only 3×3 bedroom and 1×2 bedroom apartments available for rent in this whole area as of two weeks ago.
Always do your own research and don’t depend on others thoughts (including mine).
Ring Metro Real Estate at New Quay and also ring Mirvac and ask them for the rental availbility list.

Fernando – does your financial advisor invest in property?

I hope this helps.

Regards,
Mannie.

“It’s too late to go back and make a brand new start, but from today you make a brand new end”.

Hi Gus,

Cut price rates?
Some yes just like in many other suburbs (for many different reasons), but the majority come from certain sales agents telling their investor clients that they will get a much higher return. Some provide their clients rental appraisals that are just too high. It goes back to what I always say “do your own homework”! All it takes is to look at the internet, paper or call agents in the area. Believe me, many people do not do that.

As in yields in this area, the best you could do is 5% at present. It averages at about 3.5%, which represents a bad return. You really only rely on future Capital Growth here.

I don’t believe that the area will have a suffocation or oversupply of apartments. Even though it is still 12 years from all to be completed. The residential part of the Docklands will only be 52%.
It is expected that 6,000 residents will be living in the area in the next few years. Keep in mind that there will only be 8,000 apartments available.
I believe currently the number of residents is well under 1,000.

NAB Headquarters once completed next year is expected to have 4,500 workers. Don’t forget Waterfront City (almost $1 Billion) even though only about 80% of it will be completed by 2006 (Commonwealth Games) it will mostly consist of world class retail, commercial and public entertainment. Don’t forget other things like Central City Studios, The Ferris Wheel, Digital Harbour, Bureau of Meteorology, Moomba, Times Square (no name for this yet),etc.

Docklands Authority want this area to be rich and visited by many tourists. The place to go!

I don’t want to go on and on. I myself have invested in the area.

In regards to LVR’s – First of all LVR’s are quickly being phased out. What banks are now using is;
NICL (Nickel) Net Income Commitment Level.

Total Debt Commitment

In regards to a bank’s risk profile for inner city apartments is based on many points of criteria. Banks (in general) have their criteria attached to postcodes regarding inner city. I know the 3000 postcode is a big issue with banks where in general the best you can get from them is 70%.
Also remember it is also difficult to get finance from many banks with anything smaller than 50 square metres in size.
The Docklands is not the CBD it is a suburb of it’s own with it’s own postcode 3008. I personally have not seen or heard of any issues in regards to the lending towards apartments in the Docklands. Of course all banks are different.

Another important thing to look at when investing in this area is the price per square metre. Note: do not include balcony size.

Gus, that was a very good post, as you brought up some very good points.

I hope this helps Fernando even more.

Regards,
Mannie.

“It’s too late to go back and make a brand new start, but from today you make a brand new end”.

F J O,

To answer your question 7% represents the empty units.Close to one in ten. That means competition for tenants is fierce. I would not like to be one of the ten forced to discount to a 3% yeild to get a tenant. Rule of thumb for many years has been no higher than 3% vacancy is acceptable.

MJK

Hi Mannie,

Thanks for your post.

Most insightful!

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Steve and Sooshie,

Thanks for the encouragement.

Mannie.

“It’s too late to go back and make a brand new start, but from today you make a brand new end”.