2016 Property Management Report: How did Melbourne do?

When you buy an investment property in Melbourne, you’re looking for more than just a nice place to live. As a source of income, its performance and benefits can be measured in hard data. It is the job of the property managers at Nelson Alexander to make sure you are as happy as possible with your rental property, and to make sure everything runs as well as possible.

So as we close out 2016, let’s take a look at the performance of rental properties across the Melbourne market – did your investment deliver what you wanted?

Capital gains: Strong across the board

Melbourne is typically a powerhouse for capital growth in property, and 2016 was a continuation of this trend. With 11.3 per cent annual growth recorded in the latest CoreLogic RP Data indices, most landlords will find their year has ended with some excellent value gains.

Houses dominated this growth, at 12.16 per cent. Unit growth was 3.92 per cent in annual terms, which is perhaps a reflection of the high levels of supply coming to the Melbourne property market.

Surprisingly, it is Outer Melbourne that has outperformed the rest of the city, with the Real Estate Institute of Victoria highlighting its high level of growth, particularly in the north and west. It appears that Central Melbourne still has some catching up to do if it wants to retain the title of top contender in Victoria.

Rental yields: Strong performances in the Inner North

With prices and values rising so strongly across Melbourne, rental income can’t necessarily keep up. This results in reduced yield, as landlords focus on the benefits of capital growth. However, there are still many suburbs in Melbourne that perform well in this regard.

Real Estate Institute of Victoria data from the end of September shows that 3-bedroom houses in Coburg and Brunswick, for example, have a steady rental yield of just above 3 per cent – a stronger performance than many suburbs in other central areas. St Kilda and Elwood, for example, sit at 2.7 and 2.4 per cent respectively, while the median yield for inner Melbourne as a whole was 2.6 per cent. Small differences on paper, but in terms of your positive cash flow, it can make a huge difference.

Units on the whole had better-performing yields. A 3-bedroom unit in Brunswick yielded 3.9 per cent, while in Collingwood yields reached 4.4 per cent.

Vacancy rates: Among the tightest in the country

The demand for buying property in Melbourne, driven largely by migration and better affordability than Sydney, has been emulated in vacancy rates. As of October, SQM Research data showed that Melbourne had a vacancy rate of 1.9 per cent, second only to Sydney (1.7 per cent).

At the same time in 2015, we had an overall vacancy rate of 2.3 per cent, indicating that demand for Melbourne rental properties is still on the rise. Asking rents went up 2.2 per cent in the same time period, furthering a market that already strongly favours landlords.

Considering Victoria’s migration statistics are the best looking in the country, this suggests that landlords and owners using property managers will continue to see excellent returns throughout 2017.

Legislative changes: Case studies for the future

There have been some interesting developments for Melbourne property managers and landlords from a legal perspective this year. The Supreme Court ruled that subletting a rental property as an Airbnb broke a tenancy agreement, and a Victorian Government rental review is scrutinising minimum standards for repairs and cleanliness.

Plenty has changed this year, and almost all of it good. Whether you manage your rental yourself or use a property manager, it’s important that your real estate is up to standard and performing well. Speak to the team at your local Nelson Alexander office if you want a rental appraisal to check if you are getting the best out of your investment.