[Podcast] To Sell or Not to Sell: Navigating the Dilemma of an Underperforming Apartment

You’d have to be living under a rock not to know that apartments have underperformed houses in the last decade or so, so today I explore the reasons behind this trend, its implications for investors, and what future trends we might anticipate with independent financial advisor, Stuart Wemyss.

We also discuss what criteria you should use to decide if you sell an underperforming apartment.

We explore the complex puzzles facing Melbourne's apartment sector and discuss strategic responses to the challenges as well as the reasons behind the market's underperformance and consider whether investors should maintain their positions or reallocate their capital.

This will be an important episode for anyone interested in understanding the broader dynamics of the property market and making informed investment decisions.

Mastering the Melbourne Apartment Market

In this episode, Stuart Weems and I have an in-depth chat about the current state of property investment, sharing insights into the stagnant growth in Melbourne's apartment sector compared to the surging housing market.

Additionally, they explore the impact of regulatory changes and offer strategies for investors facing underperforming properties.

• The cyclical nature of real estate and the potential for growth in the apartment sector
  • Going through a flat cycle means holding onto a property for longer because you need at least two growth cycles.
  • Additionally, the flat cycle that the apartment sector is in is an unusually long one, and it’s likely to last for another year.
• Whether to hold or sell underperforming properties in light of market history
  • The apartment markets can't continue to move in real terms.
  • The gap between houses and apartments will eventually have to return to the mean
• What contributed to the current flat cycle
  • Between 1980 and 2010 in Melbourne the median apartment price increased by more than 9% per annum
  • There was an influx of newly built apartments around 2010
  • COVID impacted prices
  • Construction costs are up by close to 40%
  • There are concerns about quality and a focus on increased quality
• The hidden potential of older-style apartments for capital growth
  • Established apartments are 30% below the cost of new apartments
  • Established apartments have land value
• The dilemma of buying versus renting in a competitive rental market
• Federal housing initiatives and the differences between build-to-sell and build-to-rent sectors
• Advising long-term investors on the benefits of holding undervalued properties
• Is it feasible to wait?
• Prudence is important because selling an underperforming asset can be costly
• Is the apartment a high-quality asset? Consider:
  • Number of rooms
  • Land value
  • Location
• If it’s a quality asset and you can afford to wait, it makes sense to wait

Links and Resources:

Michael Yardney

Stuart Wemyss – Prosolution Private Clients

Stuart’s Book – Rules of the Lending Game & Investopoly

Get the team at Metropole to help build your personal Strategic Property Plan Click here and have a chat with us

Some of our favorite quotes from the show:

“But if you buy in a nice Art Deco block in one of the inner suburbs of our capital cities, the council rating certificate will tell you what the land value is, and very often, you're not paying much more than that for an established apartment.” – Michael Yardney

“Over the next five years, maybe 30,000 new BTR apartments are going to come out, so that's really not going to move the needle in affordable rental accommodation.” – Michael Yardney

“But rather than shortening our work hours, instant messaging emails and our smartphones in the 24-7 news cycle just seem to have made life more frantic.” – Michael Yardney

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