Buying An Apartment In Melbourne

Buying an apartment in Melbourne is a risky task with many factors that must be considered to avoid a real estate money pit.  

Problems like negative equity, a small floor plan, high body corporate fees, poor capital growth and low rental yields. 

All these issues will affect your bottom line when you sell as most of them can’t be fixed. So it’s wise to buy the right property first time around to avoid the headaches.

When buying property off the plan, most of these issues are difficult to spot as you’re trying to work out how the apartment is going to work off an architectural drawing.

In addition to the above, Melbourne’s experiencing an oversupply of apartments. This has created an environment where there are more sellers than buyers, we call this a buyers market.  

Purchasing in a seller’s market is difficult and for some reason attractive as there is a feeling of missing out and everything seems to sell.

How do you know it’s a buyers market? Attend an auction, you will see multiple bidders and the sale price will be well above the quoted advertised price.

In a buyers market it’s quite the opposite, buyers are thinking more about risk and prices dropping.  Buyers become property savvy, this is only natural due to increase in choice.

Listen to our Property investor podcast. 

Many successful investors understand how to profit from market cycles, Warren Buffet famously said ‘buy when people are selling and sell when people are buying.’ This simple rule works with any sort of investment.

Taking the above into consideration, 2019 is a great time to buy an apartment as we are in a buyer’s market. The key is buying the right property for the right price so when it comes time to sell, buyers are competing to buy your place.

Mistakes Buyers Make When Buying Apartments.

 – Dime a dozen property. 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 market place.

– Buying off the plan. There are many issues that can arise like project completion times, Sunset clause that offer developers ways out of your agreement and quality of finish.  More information on this topic read: The Dos & Don’ts For Buying Off The Plan. 

– 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? It puts a time limit on the contract’s validity. If settlement has not taken place 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. 

More info on the cladding audit update.

– Location, location, location. Many apartments are appearing in the outer suburbs away from important local amenities and infrastructure. To avoid buying into a money pit, it’s wise to follow simple rules like; distance to the city (maximum 8km from Melbourne’s CBD), walking distance to a train station, coffee shops, schools, shopping centres, parks, beach or walking tracks. 

Even buying property in the CBD, a one bedroom apartment can vary by hundreds of thousands of dollars depending on which street you buy in.

– Cost of up keep: Many apartments in Melbourne have large body corporate fees and existing structural issues that can cause a price crash in the property value. It’s important to do your homework before buying any property. Did you know some apartment buildings in Melbourne charge body corporate fees upwards of $15,000.00 per annum? This doesn’t include the cost of council rates, water rates and insurances.

How To Play The Apartment Market To Your Advantage In 2020

Looking at Melbourne’s big brother property market Sydney, an entry-level 2 bed, 1 bath, 1 car apartment sells for approximately $1M.  This is almost double Melbourne’s entry-level apartment price.

Why is it so expensive? Sydney is a world class city that migrants and businesses flock to. The price of inner-city land is unaffordable to the middle class where buying apartments are still in reach.

Melbourne is showing signs of not being far behind Sydney when it comes to popularity.  Melbourne experienced the highest migration and employment rates in Australia, and the apartment market is eyed as affordable in comparison to Sydney.  

In Melbourne, apartments are relatively cheap to purchase, cost effective to live in, low maintenance, located close to great amenities and infrastructure, and most importantly close to high paying job opportunities.

To ensure your property ownership journey is successful, you have to make the right moves pre-purchase. Having a good team to ‘steer your ship’ by influencing your decision-making saves you time, money and headache.

This means finance advisors, finance broker, buyer’s agents, property managers and solicitors. Each has an important role to play in your assets long-term success.

How do you spot a good ‘quality’ apartment?

Our buyer’s agents have been buying property for over 20 years.  We understand the key factors that affect capital growth and apply this when selecting an apartment. Some selection criteria we apply:

• • • Minimum size apartment.
    • A healthy balance of apartments and residential property.
    • Lower number of apartments in the complex.
    • Around infrastructure (trains).
    • Secure car park on property title, not leased.
    • Life style options (cafes, shops, parks, beach etc).
    • Low maintenance and holding fees.
    • High rental return, 4% p.a.
    • Certain proximity to the city.
    • Checked and approved by the fire safety board.
    • Read the minutes of meetings to make sure there are no major repairs be conducted.

Only 5% of the property on the market at any one time is suitable for investment.

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 have 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?

Owners corporation fees are one of the major things that differentiate an apartment or unit from a stand-alone house so it is important that you know exactly what you are signing up for. Excessive owner’s corp fees can be the difference between a viable investment and a property which simply doesn’t make sense.

Subdivision considerations

• Will you be a member of more than one owner’s corporation (this is unusual but still possible.)
• It 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 license to use the car space.
• What would you voting rights be relative to the apartment itself. Not all apartments are created equal in some buildings.

Management

• Does the owner’s corporation have a manager who is registered with Consumer Affairs Victoria? Check here: https://www.consumer.vic.gov.au/licensing-and-registration/owners-corporation-managers/public-register
• 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?

Don’t hesitate to contact the chairperson or manager of the owner’s corporation to ask any questions you might have. If they’re not willing to talk to you or particularly unfriendly, this can be a bad sign.

Maintenance

• Are there any major maintenance works planned in the near future 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.

Using A Buyer’s Agent To Do The Work For You

Buyer’s agents are experienced real estate buyers that understand what makes an average property vs an excellent property.

They spend all there working hours looking at property that’s for sale and negotiating deals with real estate agents. In addition to their property experience they used to be real estate selling agents, hence understand the ins and outs of negotiating a property purchase.

Their role is to short list the best property on the real estate market.  This includes property that is off market, inspect and conduct the due diligence on the property then negotiate a great price via an auction or private treaty negotiation.   

If you’re considering buying an apartment in Melbourne consider how a professional property buyer can ensure your success, contact Wise Real Estate Advice for an obligation free chat.