Apartments in Melbourne

Your family is correct. I find it concerning that your views are echoed on subs like this - it shows how little research ppl do when making investment decisions.

It seems to me ppl make decisions to buy apts based on some strange notion that 'it is always better to buy then to rent'. You have to ask yourself - why do you believe this? Have you actually done research and compared your investment options?

I’m going to go against the grain here and give you an alternative point of view and say it is viable but not as an optimal financial investment. So you have to ask yourself, are you looking to buy an apartment in Melb cbd as an investment or as a lifestyle choice? If you’re doing it as an investment, then like others have said, there are better properties to invest in, namely landed properties.

I did something similar and i don’t regret the decision at all. Was renting an apartment in Melb Southbank and after 2 years renting, landlord(developer) wanted to sell the apartment. As I absolutely hate moving constantly and I wanted to live in the city because all of my work is in the city, I offered to buy it from the landlord. My family also questioned my plan as to whether it was a good investment(rightly so) but I was happy to do it as a lifestyle decision, and not an investment decision, so I went ahead with it. In my head, as long as I can sell it for whatever I bought it for, I would be happy enough as I’ve used it as my home for all that time. Any capital gains would just be a bonus. Bought it for 575k in 2009 and recently, another apartment in same building that was exactly the same sold for mid-700s. So the value has gone up but probably not as much if I had used that money to buy a landed property instead.

I don’t have exact numbers but 20% deposit on 575k is about 115k, I had FHOG money which cut down on the stamp duty, but let’s say I invested around 130k all up and had it in an interest-only loan the whole time, and now I sell the property for 750k. If I’ve made 175k profit from an initial investment of 130k after 10 years, that’s not too bad considering it’s also put a roof over my head that whole time and it’s meant that I’ve owned my own place and didn’t have to deal with landlords, property agents, inspections, etc. The interest payments on the loan, I would just net off as equivalent to rental payments I would have to make anyway for me to rent a place to live if i didn’t buy that property.

Another key point is that I would only consider this viable for premium apartment buildings which have a good track record for quality and history of no major issues like Eureka Tower, Freshwater Place. I wouldn’t do it for some of the cheaper central equity builds where you can hear your neighbor through the wall, etc..

Yet another point to consider, and someone else alluded to this in another comment on this thread, is that Melb seems to be somewhat special in that apartment values don’t seem to move upwards much yet in similar places like Vancouver, and even Sydney, apartment prices keep going up and up. I was complaining about apartment prices in Melb cbd to a friend from Sydney and he pointed out that the prices I was talking about were actually very cheap compared to Sydney for equivalent apartments. So there may be untapped growth potential yet if comparing to Sydney prices.

I would still re-iterate that I would buy an apartment in Melb as a lifestyle decision and not an investment decision. Any capital growth is just a bonus cherry on top and not to be expected but if you’re looking for property for the investment prospects, there are better options out there.

Wife and I assess annually whether it's better to buy or keep renting and we keep coming to the same conclusion: buying only makes sense if you can get 100% of the purchase financed. Apartments are terrible capital growth investments and only generate an economic benefit if you have someone else living in them (referring specifically to a big city market).

It’s because you don’t understand that house value has nothing to do with the house and everything to do with the land size and location.

Simply put.

1. A 600 square meter block of land in the cbd is worth millions. Because you could build a 400 apartment building
2. The apartment itself is worth less because. A) there is 400 new apartments come onto the market. B) apartments are less desirable. C) 5 more apartment buildings could be build with it 300m. D) apartment building degrade and often become less desirable over time in comparison to newer buildings.
3. A house on 600m square is worth a lot because the land content of the asset value is high.

Or put simply. We can always make more apartments. We can’t make more land.

Apartments typically have much lower growth rates than house/land, mostly due to supply/demand (you can build a shit load of apartments in a small area, but you can't build more land). Also, not that it's your sole reason of buying, but thought i'd mention it anyway, you'd more than likely save money by buying a similar place out in the suburbs and public transporting or driving than buying an inner-city apartment. Besides, I live about 15 km away and i still bike into the city most days. Of course, that doesn't factor into your time spent commuting.

Not that buying an apartment is a bad thing if it's what you want (for example if you value your time more than spending it commuting). Just be aware it's probably not the best financial decision to make.

Ive said this before, and i may get shutdown for it, but PPoR is as much an emotional investment as a financial one. There is a lot more to a PPoR than pure percentage gains.

That said, apartments have pluses and minuses. Having sold my giant house in outer suburbs (Cranbourne) to buy a small apartment inner suburbs (South Yarra) nearly 2 years in, i have no regrets. Commute is less than 1/4 of the time by car, and in terms of KM i am down from 35,000km per year to approx 5,000km a year.

Power bills are less than 50% of the ones in the house.

Insurance is lower

Factoring in the high OC costs, im paying out about 50% less than i was for owning a house.

I've wondered about this too, in Vancouver I heard people saying the same thing then about a decade ago all the apartments shot up an insane amount and you won't be able to get anything in the city decent for under 600k-800k. So maybe once a city hits a certain tipping point on density the desirability of apartments changes.

Investment-wise, You would probably be better off buying a house in an affordable suburb and renting it out to others, and renting an apartment for yourself to live in the CBD.

I bought an apartment 10 ish years ago in Brisbane, the issue is there’s no supply cap, they’ve more than doubled the number of apartments in this suburb so mine has slightly decreased in value over that time, newer apartments have decreased more.

Had I put the money into an index fund instead and rented, today I could buy apartments instead. And that’s before you start looking at bigger maintenance items (eg the cheap bathroom that looked good when recently renovated prior to sale is more or less needing to be completely gutted and redone already, something that won’t add much value)

The only plus is I bought a great location to live and I didn’t need to worry about moving, though the downside is that moving would make this an even worse decision in hindsight. The next time I buy property it will be one they can wheel me out of.

it's just difficult to get into the market

That means people are not selling. I find that hard to believe.

Some apartments were designed for permanent residents but there has been a trend to short term rentals. These places are becoming slums (I'm looking at you Oaks Apartments)

prices are supposed to remain mostly stagnant.

According to?

My principles of real estate are

• apartment price and house price is related to land value; houses have more land than an apartment

• you make money when you buy, so make low-ball offers at least 20% under market price; there is always somebody desperate to sell

• I prefer fixer-upper houses and low-ball offering price; if its the worst house in the best street then I'm interested. If a klutz like me can learn DIY then anyone can.

• there are mortagee auctions, or auctions by councils of people who did not pay rates; you probably need cash to pay

I analysed here maybe 5 years ago that Pinkenba would be a good inestment; prices have doubled.

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Buying an apartment is not as financially sound an investment as, say, a house. You will find many on these kinds of subs advising against buying an apartment because of this. You will also find plenty of people advising based on what they do or have done as a way of justifying it to themselves.

So, as always, take everything said and read on here with a grain of salt.

That said, I think there’s the argument for any property from a purely financial perspective, and there’s the argument for any property from a purely lifestyle perspective. Inevitably, the two are almost always joined and mixed unless you’re wealthy independent of property to a point you can buy one purely for lifestyle.

It’s a matter of priorities and planning. If you’re buying an apartment because you want a short-term gain in lifestyle, assuming you’ll be able to use it for a long-term gain in financial, you may be thinking about it the wrong way depending on how much money you have and your goals and plans.

If you’re buying an apartment because you plan to live in it for 10 years and like the inner city lifestyle and don’t mind if it doesn’t appreciate, then maybe it’s not such a bad idea.

But, you need to do the research so you’re making a properly informed decision, not one based on an unquantifiable feeling.

Rentvest my dawg. Inner city apartments are for tax write offs for rich people and for hiding your money from the Chinese Communist Party

I’d suggest an older 4 or 6 pack unit in the inner/middle suburbs

There are a number of questions you need to ask yourself.

Is buying a better financial option vs renting?

If yes, is buying a house a better investment than buying an apartment?

If your purchase is purely a financial decision, do you really care if the house/apartment is in the city or not?

I think you’ve got a bunch of issues tangled up in one question. And most of the issues are emotionally based such as wanting to be close to the city (savings on public transport are negligible), wanting an apartment, thinking that rent is dead money etc.

If you’re objective is financial prudence, ask yourself some hard, honest questions, do the maths, make some comparisons and you’ll come up with an answer.

But it seems plenty of people here have already gone through these questions and most people are coming up with the same answers. Most people are saying that buying doesn’t make sense right now...

Ask yourself the questions and do the maths and see what comes up. Will be interesting to see what you find.

I doubt it’s difficult to get into the market, I’d expect it’s easy, precisely because prices are stagnant.

https://www.realestate.com.au/neighbourhoods/melbourne-3000-vic

If you want to live in the CBD, then do it, but that doesn’t mean you need to buy there.

In my opinion, it is best to rent an apartment while leveraging into ETFs. This way you can live where you want and invest in a good asset.

CG can be lower if you are buying into a medium-high rise apartment due to the lack of differentiation and higher maintanence/strata levies due to more amenities. Also, you are a price taker when it comes to setting the rent as you are affected by the asking price of the rent in your specific building (there are usually a couple/few vacant at a time). The tenant pool is more transient, given it is CBD - so you would have a higher turnover as well. However, a smallerish block in an 8pack or 12pack etc, has a "better" CG prospect as they tend to have higher land value, is built to last (different building standards back then) and tend to be bigger in size as well - which appeals to a larger tenant pool. As always, do your research, understand the risks yada yada... oh not sure if your family meant "prices are stagnant" in the blanket term... but you can just go on one of the portals and pick a few properties and see what their historical vs recent prices have transacted for. Good luck!

No one seems to have mentioned the very high strata costs with city apartments. I have friends who pay $5000 a year on top of mortgage for stuff like the pool, doorperson, gym etc... But they don't use them. The extra costs are there .. look them up before buying!

Have you considered remote work? Could sidestep this whole issue. If you are fairly into your career, those options are always there.

Just look at growth of apartments in Prahran vs houses over the last 1p years. Something like 25% vs 125%. It's a supply issue. Rentvest instead.