No Sydneysiders, Melbourne housing isn’t “cheap”
Domain ran a spruik over the weekend noting how Sydney investors are increasingly targeting new Melbourne housing developments because they are “cheap” compared against similar projects in Sydney:
Sydney investors frustrated with the city’s sky-high prices are heading south to scoop up “cheap” Melbourne real estate according to developers, with many buying property sight unseen based on the price difference.
The trend is such that Melbourne developers are now targeting internet marketing directly at Sydney IP addresses, the same way they would chase overseas buyers from China or Singapore.
Marshall White project director Leonard Teplin said since March, Sydney investors had ramped up their interest in Melbourne and were purchasing without making the trip to see what they were buying.
“With Sydney prices going through the roof, Melbourne is seen as relatively cheap,” he said.
Well, that’s pretty stupid. While the price of property might be cheaper in Melbourne, gross rental yields are the lowest in the nation in addition to being the lowest on record as well.
As shown in the next chart, which comes from Core Logic-RP Data’s latest rental report, gross rental yields in Melbourne were a pathetically low 3.0% for houses and 4.1% for units as at end-July, below Sydney’s (3.2% and 4.2%) and well below the other capital cities:
The only thing that is relatively “cheap” in Melbourne are rents, which at $456 (houses) and $404 (units) are below Sydney’s, Perth’s, Darwin’s and Canberra’s, and comparable to Brisbane’s:
We also shouldn’t forget that Melbourne has for three years experienced a large dwelling construction response, which is gathering strength now just as population growth fades:
This means that rental growth in Melbourne is likely to come under further pressure, holding down returns.
And when combined with the insane price appreciation currently on display in Melbourne, which has accelerated to more than 12% growth year-on-year:
It means that gross rental yields in Melbourne (and Sydney for that matter) will compress even further.
Melbourne certainly is not a “cheap” market from an investment perspective. Quite the opposite in fact.
unconventionaleconomist@hotmail.com
