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Melbourne apartment market teaches investors a tough lesson

It’s no secret that we are experiencing a housing shortage in some parts of Australia, with more people coming into the country than we have dwellings to accommodate them. In turn, we have seen house prices and rents increase significantly over the past decade as demand outweighs supply.

However there’s been an about face in Melbourne recently, with a glut of new apartment stock coming onto the inner city market at the same time as a mass exodus of international students occurs due to the ever increasing Aussie dollar. 

These two factors combined will see many investors stuck with over valued properties, reports the Herald-Sun, with analysts predicting a severe price crunch ahead for Melbourne’s apartment market.

Smaller, generic inner city stock, which is favoured by international students for rental, is likely to be the hardest hit. And with prices in this sector taking a dive, it’s anticipated that the broader market will also slow down as some over-capitalised investors are forced to sell up at deflated prices and offer lower rentals on property they cannot move.

This is not welcome news for investors, particularly as it comes on the back of falling auction clearance rates and a 0.8 per cent drop in Melbourne property values over the three months to April, as reported by RP Data Rismark.

Monash University’s population and urban research centre head Bob Birrell said many investors jumped on the apartment bandwagon at the height of the property boom, encouraged by the large number of overseas students who came to Australia during the GFC when it was relatively “cheap” to attend local universities.

However they did not anticipate the “significant drop” in overseas student numbers that has occurred as our dollar soars to record highs. Worse still, Birrell predicts that this trend will continue as existing students leave the market upon completing their courses and are not replaced by newcomers.

International student enrolments dropped by almost 10 per cent in April from the previous year and have declined by more than 6 per cent for the first four months of this year alone.

ANZ head of property Paul Braddick said: “It is fair to say there has been a glut of student accommodation over the last 18 months as they pulled back quite dramatically.”

“If the dollar stays between $US1.05 and $US1.10 it is a big disincentive (for students to come to Australia).”

While it’s too late for many investors who dove headlong into the overseas student accommodation market over the past few years, this should serve as a cautionary tale for others.

The fact is that niche markets, such as the international student tenant market, are speculative, high risk prospects at best. Longevity (and certainty) is in properties that are in constant, strong demand from a large number of both owner occupies and tenants.

But that’s what I’ve been suggesting in these blogs for years, isn’t it?



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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