Like any investment, there are risks when buying an apartment in Melbourne. While Property values across Australia continue to rise, knowing the risk factors and what to look out for can save you a lot of time & money.
In this guide, we break down everything you should know when buying an apartment in Melbourne.
While there’s no doubt the Melbourne property market is strong with experts predicting over fifteen per cent housing growth each year. There are pitfalls and risks to be aware of when buying an apartment including negative equity, small floor plans, expensive body corporate fees, poor capital growth, location and low rental yields.
Negative equity – This occurs when the value of the property is worth less than the mortgage. High rise developments and high-density areas such as the CBD (inner city) where oversupply can occur leading to drops in property prices. Like any good investment, research is key to success when buying an apartment.
Small floor plans – Small apartments can limit who will buy and lease your property as larger segments of the market including families often require large living space. It’s also important to be aware that lenders can require a larger deposit of 20-30% of the property’s value for dwellings less than 40 sqm in size.
Body corporate fees – Most apartment complexes will require you to pay some sort of fee structure that covers building & maintenance costs. Items that impact these fees include, lifts, external gardens considered part of the building, pools, gyms and most other additional amenities. Just make sure you check with the seller to confirm what these costs are prior to placing an offer.
Capital growth – While the Melbourne property market is strong overall, there can be a lot of variation in capital growth rates across different parts of the city. Do your homework to learn more about the area you’re wanting to buy into. Things like access to public transport, nearby parks and recreation facilities can all have an impact on future growth potential. With apartments specifically, you also want to pay close attention to oversupply issues that can happen in high-density areas where lots of high rises are being constructed.
Location – How well do you know the area you’re buying into? The property location has and will continue to have a major impact on property prices. Speak to locals, ask real estate agents and talk to your mortgage broker about each suburb you’re interested in before making a final decision.
Rental yields – If you’re buying an apartment as an investment property, take a look at the current and historical rental yields for apartments similar to yours. It’s also worth talking with some local property managers to discuss vacancy rates and the type of tenants you could expect.
Finance – Getting your finances in order pre-purchase can help you save time, money and headaches. Chat to a mortgage broker who can assist you in securing the best home loan for your specific needs.
Why Should I Buy an Apartment?
Apartments can make a great investment opportunity as they’re low maintenance and low-cost.
Australia and other major countries have seen trends towards buying rather than renting. A purchase provides ownership and ends rental payments. In addition, owning an apartment secures the possibility of reselling at higher values.
Second, buyers are seeking smaller homes, either by necessity or in the interest of practicality. Many people have started to marry later, decreasing the average household size. Because of this, city apartments are now a viable choice for investors with smaller families.
Third, apartment dwellers enjoy the convenience of the city, including public transit, lifestyle options, and proximity to police and firefighters. Many Melbourne suburbs allow this privilege without feeling cramped in the inner city. It’s like having the best of both worlds.
Fourth, housing value across Australia is increasing. Due to immigration and population growth, the demand for low-cost property will continue to rise. Even if you are late to this prospect, the value is unlikely to drop for the foreseeable future, increasing fifteen per cent in Melbourne each year.
Factors of a Worthwhile Apartment
Now that you know why a Melbourne apartment is a solid investment, let’s talk about what makes one prospect better than another. Ultimately, price and location are the first to consider, followed by practicality and design.
A Fair Price
Since the value of housing for both apartments and houses is on the rise, so are their median prices. As of early 2022, the average cost of a unit in Melbourne is $468,400. Prices vary based on the number of bedrooms in each apartment, with most options having between one and two.
A one-bedroom apartment in Melbourne costs about $350,000, while a two-bedroom unit costs around $530,000. Prices are usually reflective of the amenities and location of a property. Finding apartments below these costs isn’t rare, but you may find it worthwhile to invest in a property with high demand over a low-cost one with less potential.
Saving money on an apartment price grants more leftover money for furnishing and upkeep, which raises the housing value over time. Consider all the options before allotting your budget to a base price to make the most of your investment.
Melbourne units often include additional and hidden fees. These include maintenance, holding, and body corporate expenses annually. Keeping your apartment in good condition will significantly reduce these costs, but don’t forget to factor them into the price when selecting a unit.
While strata insurance payments occur regularly, some special fees might arise unexpectedly when the building needs urgent repair. Investing in a well-kept, durable, and sturdy apartment will help you avoid those costs.
A Convenient Location
In a bustling capital city, location is everything. Proximity to groceries, your place of work, public transit, and more saves a substantial amount of money and energy over time. These factors heavily influence demand, which often equates to rising unit values and higher investment returns.
However, value in location has several interpretations. Closeness to convenience is merely one of them. In the Victorian capital, standard amenities are never far away. Although, from Fitzroy to Carlton, each area has its perks.
Some buyers seek to live in one of Melbourne’s many liveable suburbs, enjoying the middle ground between urban and community life. After all, overcrowding is one of the most common discouraging factors for buyers. It can be tricky to find the balance between affordances and scarcity.
Alternatively, you might define location value as whichever city sectors grow the fastest. Not all areas of Melbourne have witnessed the same prosperity trends. Certain suburbs are far more likely to increase regarding value and interest.
In general, you want to pursue apartment buildings with fewer units, which means less noisy neighbours, but also that the value of each home is higher altogether. Fewer units in a building mean that each one is in more demand, so your apartment will always hold that kind of value.
Let’s discuss each of these considerations and how they affect an apartment’s overall value.
People rarely move to a city and buy an apartment simply to stay home. Unlike a large house which becomes a more permanent living space, units facilitate coming and going. Because of this, the surrounding area is sometimes more of a deciding factor than the building itself.
Closeness to public transit stations provides relative proximity to almost every need, including food, work, and shopping, making them a critical component when deciding the value of a location.
Melbourne is a municipality encompassing fourteen official suburbs with more communities contained within. The communities are further divided as you travel into the inner and outer city areas. Outer Melbourne communities are further from convenience but less crowded. The central urban suburbs are closer to more lifestyle spots and amenities.
Among the Inner Melbourne suburbs, some like Fitzroy, St Kilda and Ascot Vale stand out as popular choices for first home buyers. Alternatively, communities like Carlton are closer to the pricey grandeur of typical city life. While Fitzroy apartments are in higher demand, Carlton units have higher base expenses.
Clayton, Deer Park, and Oakleigh comprise of some of the suburbs in Melbourne’s outer ring. Apartments in this area feel farther away from other buildings and often come with yards, driveways, and other suburban conveniences.
While the city commute is harder, many new buyers look for the relatively quiet outer Melbourne life. These apartments won’t see growth spikes like the ones in the inner city, but they maintain a consistent appeal among older homebuyers.
While word of mouth and public opinion are strong indicators of high apartment demand, the numbers speak for themselves as well. Some suburbs experience higher median unit prices than others. While this doesn’t guarantee buyer interest, the growth of these areas demonstrates a high probability of investment returns.
According to the Real Estate Institute of Victoria, Caulfield South, East Melbourne, and Moorabbin experienced the highest quarterly changes between September and December 2021. In other words, these suburbs showed the highest growth for apartments in recent months.
However, growth is not determined solely by unit prices. Many apartment buyers elect to rent their spaces to others, meaning that rental yield better represents high prospects. As of August 2021, Cranbourne, North Warren, and Mornington show the highest values in this area. If you plan to rent out your Melbourne apartment, these growing suburbs are worth considering.
Liveable Apartment Features
Features constitute the last member of the trifecta of apartment considerations. As the housing market grows, buyers want to be sure that they aren’t investing in a unit with too many upfront costs. A balanced apartment design with eco-friendly utility solutions, parking, and more adds significant value.
A unit isn’t likely to grow if it isn’t comfortable, liveable, and pleasing to occupy. Qualities like window access and wider rooms make an apartment feel spacious. They also give residents more freedom with customisation, ventilation, and natural light.
Parking, Accessibility, and Emergency
An apartment without accessibility options will have a significantly limited list of potential renters and less value overall. Similarly, securing a parking space for a unit makes it a far more alluring commodity. Invest in buildings with elevators, a nearby parking garage, and wheelchair-accessible equipment if possible.
In addition, Victoria has had recent issues with exterior home cladding, resulting in many buildings being fire hazards. It is wise to avoid investing in any high-risk properties until they have been reworked and made safer.
Appliances and Machinery
Many apartment units come with some appliances and machinery in place. A base cost does not account for preliminary furbishing. If you don’t have appliances, buying an apartment in Melbourne that comes with a few will save you some money.
However, make sure the unit equipment is up-to-date and functional. Washing machines, dryers, and other machines that don’t work equate to wasted money since they need to be removed.
Melbourne has plenty of spectacular apartments to choose from, but picking the best one requires heavily scrutinising price, quality, and location. Do you want to live in a nice, reputable suburb? Or would you prefer an area where your property value is expected to grow?
Living near public transit stations is critical for your livelihood in the Victorian capital, too. And what is an apartment if it isn’t comfortable or spacious enough? Will the unit be safe in case of a fire or the unexpected?
All of these points should influence your decision. No matter where you choose to invest in Melbourne, property values are expected to rise. However, take your time considering all the possibilities before you buy.