Why you should look to buy 'low-end' Sydney and Melbourne properties

Melbourne. Photo by kevin laminto on Unsplash

Looking to buy a new property sometime soon? Forget the inner-city suburbs: low-end areas in Sydney and Melbourne could be set to represent excellent value in the coming years.

Much of the media coverage in the past few months regarding property prices has been on Sydney and Melbourne - "green shoots" recently started to appear in these markets, driving a turnaround in median national housing prices following more than a year of falls. 

Furthermore, Sydney and Melbourne's property markets are also on-track to record double-digit price growth in 2020.

But some suburbs will record higher growth than others, and according to Riskwise Property Research CEO Doron Peleg, lower-end properties - properties with higher crime rates that can be gentrified - shouldn't be overlooked, with many of the suburbs earmarked by Riskwise in February 2018 outperforming the market in that time. 

"Our nationwide research actually found gentrifying suburbs with high crime typically deliver strong price growth and outperform the local benchmark," Mr Peleg said. 

“We found affordable high-crime areas with significant gentrification are likely to produce strong price growth, particularly when dwelling prices in the inner and middle rings are severely unaffordable.

“For example, even in high danger areas of New York City and London, etc, provided there is strong population growth and severe unaffordability throughout these cities, these crime areas still increase in popularity and therefore experience price increases.”

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

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Smart Booster Home Loan Discounted Variable - 2yr

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Monthly repayments:$1,499

2.10%Advertised Rate (p.a.)

2.46%Comparison Rate*

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Mr Peleg says high-end properties, while doing well to bounce back from recent downturns, are far more sensitive to credit restrictions and investor activity compared to low-end ones. 

“That's why high-end properties were impacted dramatically during the downturn but also bounced back dramatically when reversing the negative factors, as we are seeing in prestige areas of Sydney and Melbourne,” he said.

“Lower-end properties are less subject to credit restrictions and investor activity which actually make them a great buying opportunity. In fact, in some cases areas, such as Geelong, even benefited from the lending restrictions as buyers looked for more affordable options.”

Buyer activity is mixed at the moment. 

The latest lending to households data from the Australian Bureau of Statistics show a rise in lending commitments to households rose 1.1% in September and 3.8% in August - it has now grown for four successive months. 

But investor and first home buyer activity fell by 4.0% and 1.9% respectively. 

Auction clearance rates, on the other hand, have risen in both Sydney and Melbourne (our two largest property markets) and now comfortably sit above 70%. 

“The RBA’s interest rate cuts, some loosening of credit restrictions, significant improvement in buyer confidence and increased auction clearance rates provide very strong indications regarding these markets,” Mr Peleg said.

“Buyer sentiment in relation to housing measures has noticeably improved and the Westpac-Melbourne Institute’s House Price Expectations and Time to Buy a Dwelling Indices show a consistent trend.

“As we predicted immediately after the election and in our previous Risks & Opportunities Reports, the market has materially improved with affordable areas that have shown resilience recovering well. Other areas, including lucrative ones that experienced strong price reductions, are now leading the way to this recovery.”

Read: 15 Sydney suburbs tipped for growth in 2020

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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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