6 Lessons Learnt Investing In Melbourne Property Market

If you take into account the wealth of all Australians, majority of that wealth is in property segment. Ironically the reason is not because properties perform better than other investments but rather most of us (including me) invest with the belief that properties are safe bet and will always win in long run.

Most of us invest our hard-earned money into properties because we don’t know anything else that is less risky than property and return mediocre (compared to other investments) returns.

I am not saying money can’t be made in property market, I think the dynamics have shifted quite a bit since 2008 global financial crisis. Pre GFC you could throw a dart, buy a property and potentially double it in 7 years.

Property investment in Melbourne has changed significantly, there are suburbs that have doubled and suburbs that have barely moved, and I believe it has a lot to do with Chinese investors.

I am one of those investors who have purchased property in no growth suburb in 2010. With the benefit of hindsight, I would have done things differently if I knew what I know now.

I have learnt lessons hard way, I have put together the list of things that I think we need to be aware of before buying a property. The following are the observations from my experience and feel would have done lot better if I were to know these before.

Public Transport.

Melbourne public transport is segmented into zones, the farther you are living from CBD the more zones you will be travelling through, hence spending more time and money. When I bought my property, I was living very close to CBD and my goal was to find a property in zone1, thereby reducing my travel time and money.

There is no wrong with this thinking but this should not be primary factor while looking at purchasing property.

This is what has happened to me since then, government has removed zoning structure merging all zones. They have rolled out express trains for longer distance travel and outer zones making time to commute almost same, thereby neutralizing the positive impact it had on my suburb.

Property Cost

I always wanted to buy a property that was low in cost, so as I don’t have to borrow large amount of money from the bank. While I was looking for a suburb I was making sure that the median price of the suburb is low.

Rationale behind this thinking is that, the bigger the mortgage is on the house the more interest I would be paying to the bank year on year. Eventually when the time comes to sell the property any profit I would have made would be eaten away by my bank.

With experience I now feel this is the dumbest factor anyone could have while purchasing property.

If a suburb is below the median price of whole market there is reason for it and the reason will continue to persist resisting growth, unless something drastically changes in the area giving a facelift.

Demographics

Of all the reasoning that I had then, there was only one thing in common its ‘Me’, what I like, what I want and where I want.

There is whole set of demographics that one should consider while buying a property, what does your area provide for new couple, young parents, people with children and old age people.

The more demographics you include in your research, the more is the demand and hence higher demand –higher growth.

Falling in love with the property

Because I was looking for a property that was low in price, all the properties that I could inspect were a bit run-down in the neighbourhood.

Sooner this has shifted as we couldn’t find anything that can be easily restored without any major work.

Looking back I think we did fall in love for this unit as this was brand new and our eyes were at ease after extended exposure to old and run-down houses.

Land Size

As the population keeps growing there will always be a demand for land. I consider this as one of the biggest mistake in my search.

Even though I had always been aware of this before but the love of property had made be to bypass this criteria.

How big the land size be? Typically older houses in and around Melbourne have bigger block size, giving you the ability to build a unit in the backyard.

I believe the bigger the better but anything smaller than not able to subdivide will not have an impact on the growth of the property price.

School Zone

While we were looking for a property, I was married with no kids. This meant I had no insight into, what it takes to bring up kids. I had never considered the impact it will have of having a good school in the suburb.

Not only me but most of my friends are either considering moving in or have already moved into a suburb where the schools are rated as one of the top schools in Victoria.

As parents most of us will stretch and are willing to even pay a bit more than market average price to buy a property or rent a place in those suburbs. Please note that these schools are zoned to the suburb you are living in, limiting the intake for residents of the suburb who have been living in the zone for the past one or two years.

So readers, with the benefit of hindsight here are my biggest mistakes that I have made while purchasing property, what are your thoughts on factors that impact property prices.