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Is It Good To Buy An Apartment In Melbourne?

There is a lack of equity, a cramped layout, costly HOA dues, stagnant or declining property values, and low rental returns.

You won't be able to recoup the cost of fixing these problems when you sell. Therefore, it is prudent to make a well-informed property purchase from the outset.

When purchasing an apartment off the plan, it can be difficult to spot these problems because you are trying to visualise how the unit will function based on only a drawing.

Not only that, but there is currently a glut of apartments in Melbourne. Since there are now more sellers than buyers, we say that the market is in a buyer's position.

There's a sense of urgency to make a purchase in a seller's market, and it's not easy because everything always seems to sell out.

What are the telltale signs of a buyer's market? For starters, you could go to an auction where the final price would be significantly higher than the starting bid.

However, in a buyer's market, the situation is reversed, and purchasers focus on price drops and the possibility of loss rather than on the quality of the product itself. Consumers become more savvy in the property market as a result, which is to be expected from a market with more options.

Recent census data shows that Melbourne is home to the majority of Victoria's estimated 500,000 apartment dwellers. Many people in the area are reluctant to move because they know that the right apartment can provide an amazing lifestyle close to all the action.

Truth be told, if you take the time to do your research and find a good apartment in Melbourne, it's not a bad idea.

FAQs About Buying An Apartment In Melbourne

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Currently, Melbourne's house price growth is stronger than unit growth. So while most market sectors have been enjoying strong demand, the more expensive properties are now outperforming Melbourne's less expensive properties.

According to recent data from realestate.com.au, the average price to buy an apartment in Melbourne is currently $470,000, although one of the key factors determining an apartment's average cost is its size. As of December 2021, the average price of a one-bedroom apartment in Melbourne is $350,000.

Apartments and townhomes appreciate over time. So investing in property is all about buying a property that will appreciate over time and deliver capital growth and good returns.

Apartments in cities are generally a good investment and have excellent letting potential, assuming that the rental market doesn't become saturated. The best-selling apartments are spacious with at least two bedrooms and good views. Unfortunately, high annual charges can also make these more difficult to sell.

 

Tips For Buying A Stand-Out Melbourne Apartment

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Look For Smaller Apartment Developments

Generally speaking, the fewer apartments there are in development, the better. That's because if you ever resell in a large complex, there may be several similar apartments in the same building on the market at one time. So it can drive down your sale price.

Smaller developments may also have lower body corporate fees and fewer members, and they're often built with more attention to detail.

Think Carefully About The Location

When purchasing a Melbourne apartment, location should be at the top of your mind. After all, the whole point of living in an apartment is to sacrifice a little space to be closer to the city centre or a suburb of your choosing.

Look for apartments in locations like Brunswick, Ascot Vale and Fitzroy that are central and growing fast. Areas like these provide an enviable lifestyle with plenty of bars, cafes and shops, so they'll always be popular.

Prioritise Efficient Design And Daylight

Apartments that are well-designed and a pleasure to live in are far more likely to increase value over time. So when searching, keep that in mind and look for the following features:

  • Windows in every room and large windows into common spaces. Daylight and ventilation are key to making apartments comfortable and liveable.
  • Wide, rather than long spaces. Many apartments are long and narrow, but wider spaces are generally better to live in.

It would be best to consider the appliances and fittings in mind. If they're of premium quality, the rest of the apartment complex will be finished to a high standard.

Consider The Future

To buy well, you have to consider the future. Speak to your local agent and council about any developments planned in the immediate area around your apartment. Take extra time to look into what's planned for neighbouring blocks to ensure your view won't get built out.

If possible, try and buy a park or quiet residential road so that you'll never lose your view. 

Are You New To The Melbourne Property Investment Market?

Investing in property can be frightening if you are unfamiliar with what it entails. When considering it, realise that properties can generally be categorised into two groups: active or passive investments.

Active investment requires the investors to be on the run, and this could be buying a house, fixing it up and then selling it for a profit. On the other hand, the passive investment would typically include purchasing apartments or houses to be rental properties and getting the ongoing stream of income and growth in the value over time.

Whichever strategy you are going for, deciding to invest in property can still be intimidating, especially when everyone else seems to have plenty of cash to throw around. Even then, it isn't usually the cash that keeps people from getting started. Instead, people hesitate because of the various ideas frequently thrown around about property investment, mostly myths.

In our day to day lives, we hear much chat around people's perceptions and what it is to invest in property. It's an exciting industry that offers much potential to many different demographics. The problem is that with such a buzz comes much hot air.

Of course, some of the information you will have heard around investing in property will be true, but at the same time, much of it will be false. The key is knowing what you should believe and, more importantly, what you shouldn't. It can seem like an impenetrable minefield to people who don't have a professional background in property.

Unfortunately, this type of mentality scares off many people from getting involved in the property market in the first place, and the misinformation surrounding it leads others to make crucial mistakes that cost them time and money.

Common Myths And Why They Shouldn't Keep You From Growing Your Property Portfolio

Everyone's A Property Investor These Days

Thanks to several factors (tax incentives, our growing wealth, and that pervasive passion for estate among them), there's been an increase in the number of Australians investing in property. There's also been a rise in international investment in Australian property and countless media stories about investor mania.

However, there's still only a relatively small portion of people venture into property investment, and fewer even develop substantial portfolios. People have other priorities, and it does take consistent effort to build wealth through property, which doesn't appeal to everyone.

Investing In Property Is A Get Rich Quick Scheme

While you can make much money from investing in property, it's by no means something that you should jump into expecting an immediate return. Unfortunately, many people try and sell this myth that you can make a fortune in the property overnight to profit from unsuspecting investors. The reality is that it's all about patience, timing, and knowing the right moves to make.

Property is a substantial investment, and as we explained above, it's always on the up as a financial trend. The key here is not to expect too much too soon. Instead, wait for the value of your property to rise, and don't panic if your returns aren't immediately as high as you had hoped.

You Need To Buy Your Own Home First

It is a massive impediment for prospective property investors. They believe that just because they don't own their own home, they can't begin investing in other properties to profit.

It is a property investing myth!

Buying a house to live in is taking money out of your pocket that you could be investing elsewhere. So when considering your position as an investor, you need to start thinking about things around you as assets, and your own home isn't an asset because it's not making you any money.

Start by investing in other properties first; then, you're better placed to generate an income and move onwards from there.

Only The Rich Can Afford To Invest

With the growth of property values all across Australia, this myth does appear to be true, but in reality, many individuals with incomes below $100,000 are investing in houses.

An online survey found that of the 1700 households who responded, 37 per cent have an income under 100,000 dollars.

Data also showed that 29 per cent of those respondents had incomes between $100,000 and $150,000, and 34 per cent made more than $150,000 per year.

Just because your property-investor friend has much cash now doesn't mean they started that way. Purchasing a house on a full block certainly would cost a lot, but you can start with much smaller investments, such as townhouses, units, and apartments.

When you start earning income from these investments, you'll have more money to finance others. On top of that, if you pick the right asset at the right location at the right time, the property would appreciate in a few years, which translates to more equity to fund your next purchase.

You don't need substantial savings to account initially, either. Many Melbourne apprentices, electricians and tradies – who don't earn that much – have found money to invest in properties.

If you are just getting started, you can benefit from the equity in your home. If you have significant equity and have made timely payments, you may be eligible for a loan to build a new house or apartment purchase. Owning another asset may provide a tax advantage, thus extra cash, as well.

Paradoxically, some think only the very wealthy can afford an investment property. While it's true that you should enter into an investment with a financially responsible lens, some are choosing to purchase an investment property as your first property. In addition, people on 'ordinary' incomes are finding they can take a step into investment by leveraging the equity in their existing home or with savings they've worked hard to put away.

Property investors come in all forms, and not all are wealthy. Although you need to be in an excellent financial position to take out a home loan, you do not have to be rich. People on average incomes and even first home buyers find that they can save and purchase an investment property.

Houses Grow In Value Faster Than Units

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This widely held belief is most perplexing because, as a generalisation, it is just simply not right. A well-located, well-researched property should give good returns regardless of the dwelling type. Equally, a dwelling in a poor location will perform poorly, regardless of whether it is a house or a unit.

My property portfolio comprises 10% homes and 90% units and townhouses. My top ten performers in terms of growth and yield are ALL units.

If you cut through the media noise of over-supply and high-rise fear, you'll soon start to see the numbers for what they are. For example, if you look at Brisbane, which is continually being lamented as being in over-supply apartments, you would assume there are no successful units.

However, if you take a look at some of our clients who purchased at Bastion (a well-researched property in a well-researched location), their rental yields are strong and will surely boost the value of their units.

Some parts of Australia are highly desired, and yes, the price of land leads to increases in property value.

Remember, however, that not all land is the same. You won't need to look too hard to find millions of hectares of land in Australia that won't grow in value.

Why?

Desirability plays a massive part in real estate growth. In fact, without it, you won't see an increase in your property's value. It is why your property research should be targeted towards those areas where people want to live.

Mistakes Buyers Make When Buying Apartments.

These are usually high rise (10+ floors) and have small floor plans with poor lighting. Vendors/property owners find it difficult to lease or sell this property for good prices due to high volumes of the same low-quality stock on the marketplace.

Buying Off The Plan. 

Many issues can arise, like project completion times, Sunset clauses that offer developers ways out of your agreement and quality of finish. 

Buying Property With A Sunset Clause 

A sunset clause is a statement typically used by developers selling apartments off the plan. What does the clause do? First, it puts a time limit on the contract's validity. If a settlement has not occurred by the end date included in the clause, both parties are legally entitled to walk away from the contract. In such a scenario, the buyer would receive their deposit back in full.

Buying Property With Fire Cladding Issues

The 2018 Victorian Cladding Taskforce identified 354 low/moderate-risk buildings and 275 high/extreme-risk buildings.

The VCT found dangerous materials are widely used on buildings throughout Victoria; this highlighted the fire safety risks arising from the non-compliant use of exterior cladding. 

Location, Location, Location

As a result, many new apartment complexes are being built in the far reaches of the suburbs, far from the core services and facilities that residents really need. Therefore, it is wise to adhere to simple rules, such as proximity to the city (no more than 8 km from Melbourne's CBD), proximity to a train station, coffee shops, schools, shopping centres, parks, a beach, or walking tracks.

A one-bedroom apartment in the central business district (CBD) can cost several hundred thousand dollars more or less depending on the street it is located on.

Cost Of Upkeep

Many apartments in Melbourne have large corporate fees and existing structural issues that can cause a price crash in the property value. Therefore, it's important to do your homework before buying any property. For example, did you know some apartment buildings in Melbourne charge body corporate fees upwards of $15,000.00 per annum? It doesn't include the cost of council rates, water rates and insurance.

Apartment Buying Checklist

Many people avoid buying apartments as investments because of their low dwelling to land ratio, but if you find the right place, they can be great little investments because of their low maintenance.

Apartments have the advantage of being cheaper than the average house or unit, so if you don't have a huge budget, apartments are worth considering. That being said, there are many potential pitfalls when buying apartments, so here are the main things you should consider to protect yourself from a bad investment:

General Things To Consider

  • Are the other occupants noisy, and can you hear them through the apartment walls?
  • Are they considerate during the night?
  • Is the apartment near the waste collection, and are there any bad smells?

Finance

  • What are the annual owner's corporation fees?
  • Is there any outstanding balance on the apartment owed to the owner's corporation?
  • Has the owner's corp borrowed any money or has any debt?
  • Is there a maintenance fund that you are expected to contribute to?
  • Are the finances held in a trust or a bank account in the name of the owner's corporation?

Subdivision Considerations

  • Will you be a member of more than one owner's corporation (this is unusual but still possible.)
  • Is the car space part of the same title as the apartment? Ensure that the title is transferred along with the apartment
  • If it isn't part of the title, make sure you have a license to use the car space.
  • What would your voting rights be relative to the apartment itself? Not all apartments are created equal in some buildings.

Management

  • How many and what sort of complaints were made at the last annual general meeting? Ask to see the meeting minutes, and you'll get an idea if there are any reoccurring issues.
  • What are the particular rules of the owner's corporation?
  • What is the procedure for dealing with issues and complaints?

Maintenance

  • Are there any major maintenance works planned that you will be required to contribute to? Has the owner's corporation already raised the necessary funds? (Beware of cladding issues which are currently affecting many apartments.)
  • Are there any obvious maintenance issues that need to be attended to? A building inspection can be useful if you are unsure.

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How To Play The Apartment Market To Your Advantage

A two-bedroom, one-bathroom, one-car apartment in Sydney, Melbourne's more expensive sibling market, goes for around $1 million. That's almost twice as much as the cheapest apartments in Melbourne.

Why does it cost so much? Migrants and corporations alike are drawn to Sydney because of its status as a global metropolis. Even though purchasing an apartment in the city centre is still within the financial reach of the middle class, the cost of land in the city centre is prohibitive.

Even though Sydney has always been the more well-known city, Melbourne is quickly catching up. The highest immigration and employment rates in Australia were recorded in Melbourne, and its housing market is seen as more affordable than Sydney's.

Apartments in Melbourne are inexpensive to buy, inexpensive to occupy, require little in the way of upkeep, are conveniently located near excellent services and infrastructure, and, most importantly, are within easy commuting distance of high-paying employment opportunities.

It's important to do things right before you buy a home to increase the likelihood that you'll enjoy being a homeowner. It is much more efficient, cost-effective, and stress-free to have a competent group of people to help "steer the ship" through decision-making.

The term encompasses a wide range of professionals, including lawyers, accountants, real estate agents, and brokers. These factors contribute significantly to the long-term viability of your assets.

Conclusion

If you want to live close to the city centre, have easy access to public transport and all the amenities that Melbourne has to offer, then an apartment may be a great investment for you. However, if you don't mind being a little further out from the CBD or looking for more space, buying a house may be better.

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