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

author-avatar By on December 17, 2019
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.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 27, 2021. View disclaimer.

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


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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