Melbourne Property Boom?

Jason · 00:00Welcome to episode 247 over the numbers game. I'm Jace. I'm here with Nick and Marty. And quick shout out. Happy birthday to our producer, Tommy. Happy birthday. Hopefully there's some streamers, balloons, celebrations. I'm sure he'll throw in his, uh, production, uh, magic. But Marty, yeah. Good, good to have you.

Jason · 00:16And mate, how are ya?

Marty · 00:18I'm going. Well, Jace. Um, and to celebrate, you know, Tommy's our producer's birthday, I wanted to bring, I know I've, I've. Trashed Melbourne in the past. You know, I know I haven't been the greatest advocate, and I thought to myself, let's, um, let's challenge ourselves and find something good.

Marty · 00:36And I think I have, I think I've uncovered a little bit of gold that I wanted to, uh, present to you guys and, uh, yeah, just change perspective out there at the moment. Uh, Nick, you're, you're nodding. Are you, well, I dunno,

Nick · 00:50determine if you're challenging yourself or you're lying to yourself. I guess get through the next 20 minutes and,

Marty · 00:56and see what you got.

Marty · 00:57That's a very good point. I don't think I've decided fully yet, but I I'm going for it. No, I think, I think Melbourne. Could potentially have a property gold rush here in 2025. And I think the fundamentals, I was looking at the fundamentals in 2001 and 2020 when we had COVID and cheap interest rates. But really.

Marty · 01:18I feel like the fundamentals are arguably stronger in this potential cycle, and we're just not gonna get a dramatic jump. All of a sudden. I feel like it's gonna be a very good three or four years, and I'm particularly bullish about the townhouse and apartment market, and I'm not talking about apartments.

Marty · 01:38I'm talking more boutique. I feel like if. People are looking to get in the market around that 600 to seven 50 range and where the affordability is at in regards to incomes. And with interest rates starting to trend slightly down, I think there could be a fair bit of growth in that market. And you're seeing it in the Gold Coast.

Marty · 02:01There's limited supply in the Gold Coast. I know. But I feel like with the migration that's coming to Melbourne, uh, there's just, there's just, I got this inkling we're gonna really boom in this area. Um, I think even with migration, I think there's about 330,000 people coming into Australia a year. And we are picking up quite a bit of that.

Marty · 02:23Like it's probably about 102 hundred and 4,000 and they need somewhere to live. And those people are not all gonna be able to afford standard housing. So I feel like that apartment market and, um, townhouse market, including first home buyers coming in trying to get into the market, uh, is gonna be potential to see some real action and growth around, uh, that region.

Marty · 02:49Uh, initial thoughts, Nick?

Nick · 02:50Uh, yeah. Well I tend to agree on the first homeowner, um, comment. We're seeing it now. Um, obviously. No secret. We have a mortgage broking business, so there's a lot of young people that want to get in. I've always been bullish on the the boutique apartment. Um, market for a couple of reasons.

Nick · 03:10Obviously, they're generally a bit bigger than the new stuff that's built. Um, they're not gonna build them again like that. Um, 'cause it doesn't make sense economically for developers to do that. Body corporates are lower. Like one of the things that really kills the, the high rise apartments is the body corporate fees and people's ability to fund those.

Nick · 03:27And it's the next thing, right? Like if you can't hand, if you can't afford. A house, then you want your own little piece of land, which would probably be a townhouse. If you can't afford a townhouse, then you want a, an apartment that's got a bit of a courtyard. Um, so yeah, I, I totally agree with, um, I can see why you're thinking that.

Nick · 03:49And you mentioned the Gold Coast Brisbane's been a massive one. To watch. Um, only a few years ago, Brisbane apartment market had gone absolutely nowhere. And I think, you know, we've got some clients that have seen their Brisbane apartments double over the last few years. Clients that might have paid 500 grand for these properties that are now getting a thousand dollars a week in rent, sometimes more.

Nick · 04:12It's, and that's just purely supply and demand, right? It's just, um, it's, when does that happen here? When does the, the, the demand outstrip supply, yeah.

Marty · 04:21Fair point. I think, uh, the Melbourne market, uh, it peaked sort of 2022. I think we had a sort of a medium overall house price at about 1,000,090. Uh, but we haven't hit those peaks again too.

Marty · 04:34So I think our value proposition in Melbourne is also really good. I think we're sort of. Bottom, we've, we've, we're bottoming out in the market and what I've seen over the last four months is sort of that trend go to the upside. Clearance rates are just recently starting to consistently hit 70%, you know, sometimes slightly under, sometimes over and over 70%.

Marty · 04:57You start to see a bit of a hot market start to emerge. So that's certainly happening and we've had price growth in Melbourne for the last four months. So that in itself, I feel like we've got this little breaking trend going forward that we're gonna see some good times ahead and out of, um. All the Melbourne suburbs, uh, in the outer East and across, all across Melbourne.

Marty · 05:20Really 70% of suburbs are showing growth over the last four months. So there's definitely that hasn't been seen over the last couple of years. In fact, we've been in decline in some suburbs. And we've also, an interesting stat, um, that I picked up was the Sydney Medium House price is 64% higher than Melbourne, and it's the highest.

Marty · 05:43Difference historically, ever, ever. Um, historically, Sydney's always been around about 29% higher over the last decade. So that is an enormous, enormous point of difference, um, that I, you know, I haven't seen before. And that's showing up in the stats as well. So you've got migration levels into Sydney. Uh, happening sort of a little bit higher than Melbourne, probably 130,000 a year.

Marty · 06:11120,000, 30,000 going into Sydney. Uh, 120,000 coming into Melbourne. It's a little bit low. I think it's about 104,000 into Melbourne, but I go think about the affordability difference. If people are coming into that, into Sydney and New South Wales, then. It's pretty unaffordable, right? And there's not an oversupply of rentals there.

Marty · 06:33So where do those people end up going to? Potentially Queensland. And there's a shortage of supply there, but Melbourne's actually got a half decent supply of property. So I feel like we're gonna get, and we've got. The, like a great cultural diversity, but there's a lot of jobs too. So, and, and you know, just emerging type jobs.

Marty · 06:54So I think there's gonna be more opportunity and we're gonna see people coming to Melbourne. And Jace, you'd be interested in this as well, the. Vacancy rate on rentals was dropped to 1% in January this year in, in Melbourne, which is extraordinary. Like a, a decent vacancy rate usually sits around 3%. And, um, it's loosening a little, but it just goes to show that, um, even from a point of view of.

Marty · 07:23Tenants being in the market and struggling to find property in the market, it's almost forcing them to have to buy and go into one bedroom, two bedroom apartments, and, and it's, and, and it's 30% of tenants income is now going towards rent, which is the highest it's ever been as well. When you compare that to mortgages, 40% of people's mortgage income, um, it's about 40% of their income go to the mortgage, 30% going into rent.

Marty · 07:52So it's like, it's, um. Some interesting numbers there. Chase.

Jason · 07:57Yeah. The, the numbers. Uh, Marty, you know, this is why you always come with the goal for the Numbers Game podcast and why, if there's ever been a viral video that's gone around, it's been your head on it. Um, I guess one, one of my questions back to you, the way, I mean, you know, you, you're bullish about it, you've got some confidence.

Jason · 08:11Is there anything that you can see that could go wrong for. These predictions and, and you know, you're not alone. I think there's a lot of, you know, property advisors and sprues out there and, you know, brokers or, you know, anyone who's looked at the Melbourne market and has an understanding of these numbers is feeling bullish about it.

Jason · 08:28But Marty, I know you also think outside the box, so is there anything you can see that could go against Melbourne at the moment?

Marty · 08:34It's the conversations we've had in the past. Obviously the property taxes, uh, you know, are a bit of a killer, uh, particularly for investors. Uh. But will the lack of, um, vacancies in, in tendencies on, on investment properties increase the yield up as well?

Marty · 08:53So I go, you know, we had 11% rise in rentals last year and we're already at 4% off the back of that this year on increase, right? So I'm going now, eventually it's gotta stabilize, but I'm going, are we sort of looking at the, the perfect storm and I, and even looking at the number of people coming in, like in Melbourne, we're gonna have 9 million people by 2050.

Marty · 09:16So it's not like it's gonna slow up and. We still have a supply that's available even though we're still probably about a hundred thousand dwelling short. But there's more availability in in Melbourne Victoria than there is in any other state, like literally any other state. So it's, um, and some people will say, well, that's, that's a bad thing.

Marty · 09:37But because, you know, that will make, that will ensure prices don't go up. But I think a little bit differently on it. I think that will drive people to us because. Where do they go? Otherwise, they're not gonna pay these absorbent costs in Sydney. Um, to secure a property, brisbane's really tough to get into now in, in Queensland, so you're gonna be spending a good dollar there.

Marty · 09:58Whereas I think Melbourne, you're gonna get this nice incremental increase if you can find your way into the market over the next four years, uh, where you're gonna get some reward for it. So I'm, I'm, I'm just quietly. Yeah, quietly bullish on Melbourne, but I don't think we're gonna get a, a massive spike, but I just feel like the next three or four years, uh, will come into our own based on just the, the, you know, the numbers I'm seeing across, uh, renters wanting to get into homes and, um, yeah, migrant's coming in.

Marty · 10:30Just, um, it's the upgraders I worry about. It's probably, it's probably the people that are not gonna want to overcapitalize. So are we gonna get that extensive growth in the 1 million to 2 million market? I, I'm not sure. That's what I'm not sure about.

Nick · 10:45I think that's the challenge because there's, we've spoken about this in the past, but at some stage you, there's just not enough money in the family budget to keep paying more.

Nick · 10:54So, you know, you mentioned. 40% of your mortgage, um, going towards your, uh, sorry. So 40% of your income going towards your mortgage, how much can that continue to grow? Um, but does it push those people that need bigger houses out into those other areas that they, that they can afford? So that pushes the prices up in those areas.

Nick · 11:14Do people choose to, to stay in the area they like and maybe just deal with a smaller home? But, um, to your original point, I think at that lower end. Um, where that's obviously where people will come in. There's definitely gonna be appetite there. And as I said, we're seeing it.

Marty · 11:29I, I'm interested in your thoughts too, Nick and Jason.

Marty · 11:31Um. In regards to that bracket, the upsize of bracket. Do people now, because of what the, what the taxes have come out at on investment properties and we know insurance is a costing a bomb to hold property. There's a lot of costs in property. Are people now going to pivot to go, you know what? I'm gonna invest in the home.

Marty · 11:52I'm gonna put more money into the home. I buy as my significant asset, and then start to diversify into shares and, and other assets as you know, because traditionally people buy their home. They might look at one investment property, the moms and dads, and um, you know, and the, and, and that sort of investment type continues and provides tendencies.

Marty · 12:13But do you think people are gonna be more. All in on the home and try and extend a little bit more on that because there's no capital gains on it and they're not getting taxed as aggressively.

Nick · 12:24100%. And, and the one thing the state is doing is, um, trying to bring people down to a level playing field that's absolutely clear with what's happening.

Nick · 12:34And, you know, you can go down a rabbit hole on that stuff, but. There's no longer, uh, well, there is incentive, but the incentives are nowhere near what they were to, to get ahead. So if you look at the cost to hold an investment property now, and it's, it's a cost, um, particularly in Victoria, if you buy an investment property, unless you're buying a one bedroom apartment, if you're buying an investment property and you're funding, uh, most of it through a loan, you're negatively geared.

Nick · 13:00That's just a fact. So. People just don't want the headache anymore. So you, you're negatively geared then if it does go up, you've got significant capital gains. Um, now they've, you know, I know that super rules at three mill, some people might say that's outta reach, but the problem is they've tapped the super funds now.

Nick · 13:17So where does that end? Um, the only safe haven at the moment is owner occupied property. And I know. You know, there's plenty of, um, property, um, gurus out there talking about, you know, renting and building these big portfolios. And, but for a majority of people, they're not trying to get rich off building big property portfolios.

Nick · 13:40They just wanna be happy. Um, and unfortunately in this state, one thing that doesn't make you happy at the moment is holding an investment property. It's so difficult. It's really difficult to do. Um, so yeah, to your point, I think, um, most people, they are gonna pour money back into their owner occupied home.

Nick · 14:01I've spoken about this on the podcast before. It forms a big part of people's retirement. Um, maybe not the best financial decision, but people are after that, they're after, um, certainty and just, just, just been happy. So, mate, 100% we're seeing it now, all this first homeowner activity that's happening now, they're buying investment properties.

Nick · 14:21They're buying investment properties that people are fed up with, they don't wanna hold them anymore. Um, so you're gonna continue to see that for sure.

Jason · 14:30Yeah. I'd say as well, we're, we're probably having the most conversations around debt recycling as of part of this. Paying, getting rid of the investment property, taking whatever money was be able to be made on, uh, on that as a profit, putting it back into paying off the main residence and then being able to use that to draw back against the main residence into.

Jason · 14:49Putting that into a managed fund where the interest is then tax deductible against the growth in that managed fund dividends that you earn from the fund, and then being able to turn that into a portfolio that you can grow year on year as a bit of a different strategy. So, and then you've got diversification.

Jason · 15:03You're not, you know, double dipped into two properties and, you know, losing couple hundred bucks a week on negative gearing. It's a bit of a different kind of mindset of the interest on that loan. It's invested into something different. So, um, those conversations, we, we haven't had as many, like as I said, more recently than we've ever had before because that psychology of the investment property is hard work.

Jason · 15:25There's so many rules and regulations, so many things that have come out, the noise around the taxes that are coming for, for property in Victoria especially. Um, so simplifying. When it comes down to it, you know, uh, of all the investment properties that are owned by, you know, the, the Aussies out there that had a crack, 72% only have one.

Jason · 15:44You know, the, the idea that like, you know, all these property investors, they get all these properties and, you know, they're, they're making heaps of money. Most of them are, uh, you know, they're. They're stretched. They're stretched to pay their repayments. They're dealing with the stress of the property.

Jason · 15:57Sometimes there's tenants in there that are, that are causing some dramas. It's not very often you get to the second property, third property, fourth property. Um, it's just not that. The numbers don't show that that is happening. And usually that comes down to strategy and you know what's happening in personal circumstances as well.

Jason · 16:12But you know, people's lives change and their priorities change.

Nick · 16:15Just on the headache, and this is the stuff we're seeing at the moment. It's just rife. Um, the young guy in here, uh, he had a, a, an issue with one of his, um, well, he is got a home and an investment property, had an issue with the roof, and there was leaking.

Nick · 16:29So the, the agency, which is a good agency, they just went and got their quotes sent, um, some quotes off. He, the quote that he got back to fix the roof was $8,800. Now. That's call out fees. That's everything. Now, this particular individual in our business happens to be pretty handy. Um, so he went and had a look at it himself.

Nick · 16:52Um, had a good look at it himself. Sent some quotes to some other people or got some quotes from some other people end up getting it down to 3,300. Now, this particular young guy had the time to go out there, the ability to get up on the roof and have a bit of a look, take some photos. But most people would've copped the $8,800 because trades are now starting to take advantage of this stuff.

Nick · 17:17They're all if they're, I dunno if they're busy or whatnot, but how do you get three, three to eight, eight. That just doesn't make any sense. So if a mom and dad gets that quote at eight eight and they think that's what they've gotta pay, what's the, what's the first thing they're gonna consider doing next?

Nick · 17:32They're gonna consider selling the property because they probably only get 25 grand a year for the property, then they've had to fork out eight, eight to, to fix one issue. So these are the things that are happening at the moment. Mate, I might sound like I'm ranting a little bit, but, um, it's just. It's just the fact of what's going on at the moment.

Nick · 17:50I don't think it's gonna impact what you are saying because at the end of the day, it's the owner occupies it, picking those places up. I think

Marty · 17:55that's the space. I think that's the space where you can create, you know, you, you have to think about creating wealth for yourself, but like you say, that story there, you know, just that, that cost to someone could, you know, decimate their year basically.

Marty · 18:08So it's um. Yeah.

Nick · 18:10And, and to Jason's point, you're never gonna get a, a, a bill from the, from the managed fund or the manager that says, we need eight eight because, uh, we've got a, the office has got a, a leak in the roof. You know, so it's, people are just over the complexities. Mm. Money aside. They're just sick of it.

Nick · 18:27And, um, so I think that's the one thing that. Could I even hold the growth back a little bit because the supply's now coming, the supply's there for these young people to get in. But fundamentally, I agree with everything you're saying. Like you just look, look at the, the cycle, the next, the next phase for Melbourne's up.

Nick · 18:44There's absolutely no doubt about that. So

Marty · 18:46yeah, I'm just encouraging. Younger people to get into property. Like there's two beds around, you know, Richmond that you can pick up for 650. And you know, they, if if these people get into those types of, you know, properties with facilities around them, it's um, you know, they're gonna do okay.

Marty · 19:03So, yeah, don't give up hope out there. It's, uh, there's, there's opportunities, but I think you're right Nick, too. It's just trying to work out how people can then. Diversify into other assets. You've got the 3 million cap into super. But again, you, you've almost gotta play the system for what it gives you.

Marty · 19:20Don't you, you've gotta come in and go, alright, well let's, uh, let's maximize to that point. Might be 20 years, 25 years. And then you're thinking maybe it's a business, you know, where you're creating money through a business vehicle. You, you've gotta, you've gotta be nimble and ask. Deeper questions, and maybe that's enough.

Marty · 19:37You know, you own a rock and getting 3 million Super, you'd be, you'd be very happy. But, um, but again, you, you've gotta utilize what's available in the right way, just so you don't burn money for no reason.

Jason · 19:49No, I really like it. I think as well, you know, there's a lot of people out there and look, we speak to, you know.

Jason · 19:55Um, young couples that are trying to get married or married and starting a young family, and a lot of the time I think the thought process or expectation is, you know, if we save a little bit more for a little bit longer or we save for another year or two, we'll be able to buy, you know, the million dollar property and then we can afford that.

Jason · 20:12Then when we've, you know, back at work or, you know, we're a few more years into our career as opposed to getting in now in the 600, $700,000 property. Rather than paying rent somewhere else or, you know, depending on your circumstances. So I think, you know, with that in mind, Marty, of what the property prices can do for the next couple of years, it probably is time to change the mindset from sit out of the property market for three or four years and wait to buy down here.

Jason · 20:37'cause all you're doing is letting the property prices get further and further away. So,

Marty · 20:41yeah. And, and the danger is, is the yield too. Like if, if we look at that 11, I know, I know yields weren't doing much on investment properties for years. Probably 10 years. It was pretty stagnant there, but I'm going, you know, it's back up to 3.7%.

Marty · 20:56Um, and that's, that's up from 3.3% last year. And the average rental in Victoria at the moment is six 40 rent per week at the moment. Um, so again, if that starts to escalate. I don't think it's gonna escalate to the point where the investors go, oh, that's a great, great idea given like what Nick just said, with the, some of the costs that come up and the insurance is virtually doubling, you know, every year on year.

Marty · 21:22It's, it's, it's crazy stuff. But you're, you're vulnerable if you're a first home buyer and you're looking to rent and you're staying out of the market for the next four years. Um, you know what concerns me is if you don't make a move with where you're at. Uh, I feel like you might miss this boat and the other boats around Australia have already run and, um, I feel like I'm, I'm very certain that the next six months you'll wanna find your way in somewhere and then be able to ride the wave and get that nice sustainable growth and get in.

Marty · 21:54Um, yeah, Marty,

Nick · 21:57what I can promise you is it's already happening. Yeah, it's absolutely already happening. So speaking to real estate agents, things are going over reserve. Um, the first homeowners are paying more than what they expect to pay, so, um. Yeah, obviously there's, there's a bit of runway, but it's already happening.

Nick · 22:18The market is definitely on the way up. Um, and you know, I think when you, um, you know, you mentioned the stats around it has gone, it's going up sort of month on month, but we're seeing some significant jumps in particular properties, um, because people, uh, are listening to people like yourself. And the expectation now amongst people is the, the, the market in Melbourne is gonna, is gonna jump.

Nick · 22:43Rates go down again possibly soon. Um, it's just a matter of time. So people are more educated now and that FOMO is already here and prices are moving and they're moving quickly from what we're seeing.

Jason · 22:57I think it's, uh, one of those things as well is only so many times you can hear this message around Melbourne's property prices before you start to take action.

Jason · 23:04So, uh, Nick or Marty, you know, if somebody's listening to this and then thinks, well, what do I do next? Where do I start? Like, you know, I, I can afford. Six 50 to seven 50. I've been sitting outta the game and I'm ready to get back in. What are the first steps? Where do I start?

Marty · 23:19Yeah, I'd, I'd be getting some, uh, strategic finance advice and, and around, and why I say, why I say strategic talk to a mortgage broker a hundred percent, because there's so much variance depending on which finance person you're sitting in front of.

Marty · 23:36You know, some people have been told they can only do five 50, yet they've got the capability to do, you know, six 90. You know, it's, you really want to get a good broker. You know, working for you to ensure that, you know, your maximum capacity. Um, yeah, and the, the, the amounts vary. I, I've seen many a time Nicks, you've seen this too, where we've had brokers come in that, uh, you know, have gone to people and thought they could get 600, yet they can get 700, you know, based on their actual circumstances.

Marty · 24:08So, you know, make sure you get strong advice and make your move where you're at and, um, and feel good about it. Feel good about getting in.

Jason · 24:16Yeah, I like that. And then, uh, usually brokers probably pretty good opportunity to, they've probably got buyer's agents that they know if you, you know, if the person can't find a property themselves or, that's usually another barrier that we see is that, you know, clients have been talking about buying a property, but then the decision paralysis of should it be there?

Jason · 24:33It should be there, and what type of property? So if you're also someone who's struggling, then. Talking to your broker and then buyer's agent, somebody after that.

Nick · 24:41Seeing, seeing a lot of that. You know, I think, uh, I read a stat the other day that buyer's agents are only 7% of the market in Australia. Uh, that's gonna change and it's gonna grow significantly.

Nick · 24:52We're definitely seeing that in both investor and owner occupier space. So, um. You just, you just gotta get the right, um, people around you because you know, you don't wanna be sitting on the sidelines nine months after you've made a decision to get in. And I think, uh, we've seen that in the past in markets that move and move pretty quickly.

Nick · 25:13So I. Speak to people that have, that are experienced, whether it's good mortgage brokers or buyer's agents who've been in a market like this before and can, um, you know, give you some, um, give, give you some reality on what's happening in the market and what you need to spend, um, to execute. 'cause you just need to execute as soon as you can.

Marty · 25:32Yeah. And why I like that advice is because we're seeing. A lot more often that, um, buyer's agents are getting access to properties off market, uh, prior to them coming on. So if you want to be, you know, best in show and first in show to have a, have a strong contract and put up to the vendor, then, um, so, you know, I think the buyer's agent is, is a really good way to get that first, uh, first ride of opportunity.

Marty · 25:58So yeah, think about it in those terms.

Jason · 26:02Well, Marty, it's, uh, nice to have had a positive conversation about Melbourne and not mention I, it, you know, COVID, Dan Andrews taxes, it's, uh, foot an exciting footy cricket. What a state, you know, and we're approaching two 50, so there's gonna be bats raised. It's gonna be all happening here.

Jason · 26:16But David, thank. Go. Victoria. Victoria is bouncing back. Uh, thank you for joining us. You've enjoyed this episode. Don't forget to subscribe, like depending on where you are, share the numbers. Game with a friend. Follow Nick Marty and myself on LinkedIn or you know, you can find us on all different things. I think Marty might even be on TikTok now, which is how he's going viral everywhere.

Jason · 26:36So you never know where you're gonna see our faces pop up. We do appreciate you joining us and every like, rate and subscribe really helps, uh, the numbers Game podcast get out and about. But until next time, if you're not looking at our Melbourne property prices, you uh, should be listening to the numbers game.

Jason · 26:50Until next time,

Marty · 26:51Victoria on the move. I think game over

Jason · 26:56this podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, you consult a licensed professional.

Jason · 27:09Individuals on the podcast may hold positions in the companies discussed. ---