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The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


The Secret Agent Report – Rent

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”
– Winston Churchill 

In this latest report we look at the state of rents. This is a key issue for investors within the market. The changing cost of money has changed expectations around yield, while newly built supply has created greater choice for tenants. This is an important read for anyone looking to undertake an investment decision, or a potential home buyer looking to establish whether they should buy or rent.

We look forward to March’s report and getting the early indicators of 2015 to you in The Secret Agent Report. It’s one of the most interesting times in the property market in years.
 
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The Rent Report

Excerpt:

At Secret Agent we speak a lot about buying property, what to look for and how much value a certain characteristic might add. In light of a fresh new year, The Secret Agent Report considers property from a rental perspective. With more investors in the buying sphere than ever before, there has been an influx of available rental properties in the market, especially in the inner city and CBD itself. This has been compounded by the growing number of new apartment completions from 2012 to 2014 and continuing into 2015.

As uncovered by Secret Agent’s last report, sale prices of apartments have remained stagnant in many inner city suburbs over the past year. This, coupled with record low interest rates make attractive conditions for buyers to strike. However, investor sentiment of late seems to reflect concern about rental yields.

The number of people choosing to rent has increased over the past few years. With property expensive to buy, many first home buyers are being forced to continue renting for longer periods than they would have in previous generations. People are relocating for work more than ever and may prefer the flexibility of renting. Furthermore, there is a continuous influx of foreign students coming to Melbourne to study each year, as well as increased immigration levels. There are plenty of people wanting to rent. The question is: can demand still keep up with newly built supply?

A few years ago there would be crowds lining up for an open for inspection, most people holding their applications in hand already prepared to submit on the spot. Competition was tough.

Now tenants have a lot more choice and with choice they can be more selective. Open houses are less frequently attended and applications come in days later.

There are of course exceptions for properties in well located areas, especially quality houses. The reduced competition seems to have put rental prices on hold. If owners choose to increase the rent, they risk having their property vacant for long periods. This has resulted in many tenants not experiencing a major increase in their weekly rent over the past 12 months.

This report will take an analytical look at the rental situation in Melbourne’s inner city suburbs. In particular we look at the annual growth in rents, the turnover of apartments leased out and annual rental yields within each inner city region. All one and two bedroom apartments were included in the calculation of median prices if their weekly or monthly rents were advertised. Fully furnished apartments for short term leases were excluded from the study. To adjust for seasonality in the rental market, the report focuses on sales in the fourth quarter (October, November and December) of 2012, 2013 and 2014. It should be noted that the results listed are gross yields due to the variable nature of outgoings for each property. To obtain a net figure, one can extract 20% from the median rents. Also stamp duty is not taken into account in this analysis.

Due to the large numbers of student accommodation apartments in suburbs such as Carlton, Brunswick East and Collingwood, the results may be skewed in these areas.


The Secret Agent Report – 2014 Review

When the number of factors coming into play in a phenomenological complex is too large scientific method in most cases fails. One need only think of the weather, in which case the prediction even for a few days ahead is impossible.”
– Albert Einstein

Urbanisation. We’ve said it once, we’ve said it twice and we would not be able to provide an accurate end of year review without mentioning it again. The top performers for 2014 were in suburbs that were flush up against the CBD highlighting the increasing value of proximity to home buyers and investors.

We also take a look at what we can expect from 2015. This section of the report aims to study the underlying momentum in Melbourne’s inner regions, without all the noise associated with average house prices.

We hope that you enjoy this reflection on the year that has passed and we look forward to providing you with many more exciting stories as 2015 progresses. 

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Year in Review Report

Excerpt:

2014 has been a buoyant year for housing in general. Interest rates did not move a whisker with Australia embarking on some of the most accommodative financing conditions in its history. Will this continue is the big question. Advanced economies have all seen very low interest rates stay, as part of their central bank policies. This effort appears directed at fighting deflationary conditions, since the 2008 crisis ripped through world economies.

The role of expanding credit growth is directly linked to momentum in housing prices. The big question next year will be what happens if interest rates drop a further 0.25-0.5% and how will this impact on the property market. The reserve bank is cautious about stimulating the housing market too much, however may be forced to do so with further rate cuts. Australia’s deteriorating terms of trade and the desire to further devalue the Australian currency may force the RBA’s hand.

The business community seems to be engaging in further investment with higher credit growth starting to emerge again after the long de-leveraging period between 2008 and 2013. This will be good for the economy however the impacts might not be felt for a further few years after this investment has had time to produce fruits. Housing which had also been de-leveraging has showed a bounce back as we’ve seen with market conditions overall quite solid.

Most capital cities have started to see stalling growth with the exception of Sydney. Its growth curve now resembles a hockey stick which will also be worrying the RBA.

Low interest rates are most likely needed to help support regional areas and Australia’s smaller cities. However, Sydney looks to be getting to a danger point of blowing up if this trajectory keeps running its course. The RBA may introduce controls, such as have been done in New Zealand, which would force prospective property buyers to not be able to use the same amount of leverage to purchase a property. This way they can cool the market without cooling the economy which would be a symptom of higher interest rates.

The fastest growing section of the market in 2014 was the investor purchaser. Investors have caught up with owner occupiers for mortgage approvals. Also on the rise has been the foreign investor who is even better placed thanks to a lower Australian dollar. The importance cannot be stressed enough of the value of Australian property to many overseas. The safety in the asset is so highly prized that many investors have looked at Australia as simply a place to store wealth, rather than to create wealth.

The Chinese economy will be the most important economy to watch for Australia in 2015. China continues to get more important to Australia when it comes to exports. It’s hard to believe that in 2008 Australia captured more value in exporting to Japan than it did to China.

The economy of Australia is at a cross roads. Unemployment seems to be on an up trend and average hours worked is decreasing. This is a function of a winding down of the mining industry and technology allowing firms to be increasingly efficient.

The headwinds are a still very uncertain world economy and a slowing Australian economy.

Within the inner city areas of Melbourne the market continued to show strong demand. Houses were the strongest performer and have isolated themselves from the abundance of apartments that have been prevalent in the market. Houses grew in all the four regions we tracked – the inner East, West, South and North. The rush for homes within close proximity to the CBD is being fuelled by downsizers and young families looking to capitalize on the strong ranking state schools that have started to flourish over the past few years.

On the other hand apartments have actually gone backwards this year thanks to an oversupply of new apartments with proximity rich positions. This hasn’t affected the classic Art Deco apartment market however it has had a noticeable drag on buildings that are less than 20 years old and are starting to show wear. The explosion of new construction in the CBD has also created a drag on rents with generally no rental growth over 2014. We expect much of the same in 2015.

The interesting observation is that the top performers for 2014 were in suburbs that were flush up against the CBD highlighting the increasing value of proximity to home buyers and investors.

We hope that you enjoy this reflection on the year that has passed and we look forward to providing you with many more exciting stories as 2015 progresses.


The Secret Agent Report – The Arden-Macaulay Plan

You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.
– Buckminster Fuller

Big infrastructure projects are of great interest to Secret Agent. These large scale projects have profound implications to the liability of our city. Much is at stake for home owners and investors seeking to take advantage of the remodelling of large inner city precincts.

For this report Secret Agent decided to investigate an urban renewal project that is not so talked about. The Arden-Macaulay Urban Renewal Project (AMURP) is currently in its planning and implementation stages. This project is unique in that it is not a single suburb being remodelled but rather a significant area that encompasses two inner city suburbs; Kensington and North Melbourne.

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The Arden Macaulay Plan

Excerpt:

By now you would have heard about the massive number of apartment buildings going up in and around Melbourne’s CBD. Inner city Melbourne is rapidly changing and its densification is an ongoing process we have been watching develop over a number of years. In fact it is so commonplace now in the lives of those living or working in the inner city that we rarely blink an eye when we walk past another construction zone, drive through road works, or see a crane in the sky.

Big infrastructure projects are of great interest to Secret Agent. These large scale projects have profound implications to the liability of our city. Much is at stake for home owners and investors seeking to take advantage of the remodelling of large inner city precincts.

Urban renewal is not a new phenomenon. Think of Port Melbourne, Docklands, South Wharf and the future Fishermen’s Bend.

Even South Yarra underwent urban renewal to bring it to the vibrant and dense suburb it is today. These are all widely talked about suburbs and many of us have experienced the changes urban renewal has brought about in these areas (except Fishermen’s Bend).

For this report Secret Agent decided to investigate an urban renewal project that is not so talked about. The Arden-Macaulay Urban Renewal Project (AMURP) is currently in its planning and implementation stages. This project is unique in that it is not a single suburb being remodelled but rather a significant area that encompasses two inner city suburbs; Kensington and North Melbourne.

What is Urban Renewal?

Melbourne has been experiencing a massive growth in population over the past few years and this is unlikely to stop anytime soon.  A majority of this growth is occurring in inner Melbourne as we have talked about previously in our “Urbanisation” feature and “From Rags to Riches” report.

The CBD alone experienced a record 23% increase in population in 2013 (ABS, 2013). To adapt to the huge increase in the number of people, densification needs to occur across Greater Melbourne in a distributed manner. This means that changes need to be made to make the most of limited land supply close to the CBD so that Melbourne can accommodate the growing population and its status as one of the world’s most liveable cities can remain.

To enable this growth to continue smoothly, the creation of efficient and sustainable communities and the renewal of urban areas is essential. The concept of urban renewal involves redeveloping areas in order to reach their full potential. This requires increasing the density of land use, encouraging mixed land use and creating an environment where people can live and work together.

Urban renewal is often associated with the removal of slums, gentrification and the establishment of wealth in a community. This is easy to see when you think of some of the most successful urban renewal projects in Melbourne (Port Melbourne and South Yarra) and what has become of these suburbs as a result.

Reference:

ABS. (2013). 3218.0 – Regional Population Growth, Australia, 2012-13. Retrieved November 19, 2014, from http://www.abs.gov.au/ausstats/[email protected]/Products/3218.0~2012-13~Main+Features~Main+Features?OpenDocument


The Secret Agent Report – From Rags to Riches

Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.”
– Jane Jacobs

The extraordinary changes to our inner cities and downtowns are unprecedented in modern times.

The movement to the inner city is not just a local phenomenon but a worldwide trend that can be observed whether you are in London, San Fransciso, New York, Sydney or Melbourne. It is important to realise that what is being discussed here is not a general movement to a city, rather, this trend is a movement to the real inner core of the city. As cities grow the density of their cores increase and at the same time the density falls in their peripheries. This story looks at the consequences of urbanisation. It is about the extreme premiums being paid to be in a position that is highly walkable, close to the commerce opportunities of the CBD, rich in transportation options and a way of avoiding traffic congestion.

Our cover image this month has been provided by one of Secret Agent’s own connections. The house pictured is in Drummond Street Carlton North. The rooftop pictures are also in Carlton North. The celebration is not with champagne – but with a found litre of rotten milk!

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From Rags to Riches Report

Excerpt:

The drastic changes in sale prices as a result of the urbanisation trend have been none larger than Melbourne’s very own CBD and surrounds. In the 90s and early to mid 2000s the focus of the property market was on the tremendous change in rezoned farm land on the fringes of Melbourne. People could buy property or land cheaply and chose to set up their dream homes in the outer suburbs. Now, the focus has shifted and has become more about the centre of each capital city as waves of foreign investment clashes with local resources to secure prime centralised real estate in the inner city regions. 

Let’s go back in time to the year 1969, when the Soviet Union launched Venera 6 towards Venus, Nixon became President of the United States of America and Rod Laver won the Grand Slam for a record-breaking second occasion. It was a simpler life. A time when the humble restaurant menu had three choices. When coffee was coffee, and not spoken about as if it were a tropical fruit, “…sweet and well rounded with hints of pineapple, apple and red berries, with subtle vanilla on the finish.” Many of Melbourne’s young and adventurous creatives, artists, and bohemians embraced living in the inner city suburbs, while others fled to escape the dirt and slums that had developed.

In 1969, you could buy a terrace like the one pictured above in Drummond Street Carlton North, for a modest $7,000. The surroundings were a little less comfortable back then and the neighbourhood was truly edgy. Edgy back then was more of a negative connotation rather than how we would use the term today as a positive description of many inner city pockets. This was a time when gentrification wasn’t even in the vocabulary.

To put the sale price for the property in perspective, consider the cost of a round the world airline ticket at that time. An airline ticket of this kind (like the one pictured above) could be purchased in 1967 for $567 – roughly a tenth of the value of the North Carlton terrace. The same type of airline ticket is now valued at four times the 1969 price.

On the other hand, the $7,000 terrace is now worth almost a million dollars which is 142 times the original price paid. Even after adjusting for inflation, the house has experienced an extremely large turnaround. $7000 in 1969 is approximately $76,000 in today’s dollars. In inflation adjusted terms a terrace in Carlton North would still be valued at over 13 times that of the one purchased in 1969. 

The cost of airline tickets is becoming cheaper and cheaper whilst house prices in the inner city continue to rise steadily.

The question on everyone’s mind is will this huge change in property value be repeated?


Melbourne’s Building Styles – The Guide

“It’s so fine and yet so terrible to stand in front of a blank canvas.”
– Paul Cezanne

When searching for a property to move into or to customise for your own needs, an understanding of the building styles available is paramount. Each town has a history, which helped to form its built fabric.

Create-By-Secret-Agent-Melbournes-Building-Styles
We have put together this guide to help you understand the history of Inner Melbourne. When you find your blank canvas, remember to take the rough with the smooth, and we hope this helps you find some inspiration!

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CREATE BY SECRET AGENT – INSPIRED HABITATS
Create is a division within Secret Agent that delivers personalised inspired habitats, for your home, investment property or office.

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The Secret Agent Report – Property Seasonality

“To be interested in the changing seasons is a happier state of mind than to be hopelessly in love with spring”
-George Santayana

With the winter period finally coming to an end things are starting to look a lot brighter. The days are longer, the clouds are clearing and the real estate market is coming out of hibernation. It is well known that there is a seasonal cycle in the housing market. Sale volumes are higher in the warmer months and lower in the cooler months. This is a worldwide phenomenon. In this months edition of The Secret Agent Report we look at the data to test the theory.

Our cover image this month has been created by freelance illustrator and graphic designer Dan Vaughan. Dan pays respect to the four seasons by presenting fruits that come into season at the start of each of them. With a tip of his hat toward Eric Carle’s classic The Very Hungry Caterpillar, Dan’s energetic style presents the movement and change of the seasons.

George Santayana was a Spanish Born naturalist, philosopher, poet and essayist, and we identify with his viewpoint above when applied to the property market. Spring is know as an exciting time for the industry, but it’s not to say we should ignore the fruits of the other seasons.

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The Secret Agent Report

Excerpt:

With the winter period finally coming to an end things are starting to look a lot brighter. The days are longer, the clouds are clearing and the real estate market is coming out of hibernation. It is well known that there is a seasonal cycle in the housing market. Sale volumes are higher in the warmer months and lower in the cooler months. This is a worldwide phenomenon. In both the USA and the UK, the housing market experiences above trend results for both prices and transactions in the two warmest quarters of the year. According to one study, in the UK, the difference in annual growth rates for house prices between hot and cold seasons was 6.5%. (Tenreyro, 2009)

Secret Agent decided to investigate this cycle to quantify how much seasonality influences house prices in the inner city property market of Melbourne. In the first part of this report, we analysed the results of house and townhouse sales for the last ten years in the inner city suburbs of Melbourne. All two and three bedroom townhouses and houses were included in the study if they were sold between January 2004 and August 2014 and if information about the number of bedrooms, bathrooms and land size was accurately recorded.

At a glance, there seems to be a positive correlation between the amount of sales and the average sale prices during the period. This is consistent with the notion of “hot and fast” versus “cold and slow” periods in the housing market. However, the results do not seem to entirely match what would be expected in the different seasons.

Summer was the worst performing month in terms of number of sales and average sale prices. It would be expected that since the weather is warmest during summer, if warm weather positively influences house prices then, the average sale prices would be highest in summer. This was not the case. The turn of the seasons, autumn and spring performed the best with both the highest number of sales and highest average prices. Winter did not perform as badly as expected with a significantly greater amount of sales compared to summer and also a higher average sale price. However, if you compare winter to spring, the results appear as you would expect with the average number of sales picking up in spring and prices increasing quite significantly. Overall spring was the standout season which is consistent with the general perception that spring is the best season for real estate transactions.

There are many other factors that could be impacting house prices in different seasons that couldn’t be controlled for in this study. For example, spring not only brings warmer weather, but also a greater supply of stock to choose from. Owners with better properties tend to wait until spring to sell, and properties which have beautiful gardens will be listed during spring to showcase these at their fullest. It is interesting that even though supply and demand both go up as the weather gets warmer in spring, prices also rise concurrently. In general, properties being purchased equate with properties coming onto the market on the other side of the equation. This means that the supply of properties rises alongside the market demand (though slightly later). Since both supply and demand rise, basic economic theory would indicate relatively stable pricing but interestingly the market consistently experiences a price spike as the weather begins to warm up.


The East West Link – One Step Closer to Reality

The East West Link Project moves one step closer to reality. 
Secret Agent has paid careful attention to the upcoming East West link since releasing the East West Link Report. 
 
The Victoria State Government has today announced its selection of Lend Lease as the company responsible for building the project. This will create many opportunities/ disadvantages in Melbourne over the coming decade. 
 
Lend Lease today announced that is has entered into an estimated $5.3 billion Public Private Partnership with the Victorian State Government to finance, design and construct stage one of the East West Link in Melbourne. The project remains subject to financial close which is expected to occur during October.
Lend Lease Group Chief Executive Officer and Managing Director, Steve McCann, said, “Lend Lease is pleased to be announced as the Victorian Government’s partner to deliver this important infrastructure project. The East West Connect Consortium will leverage it’s international and local expertise to deliver an outstanding outcome for the people of Victoria.”
 
We encourage you to read the East West report to examine this in further detail. Property owners and aspiring property owners should try and get as much information as possible around this topic to optimise their financial decisions. 

 

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The-Secret-Agent-Report-September-2014-The-East-West-Link


The East West Link Report – It’s here.

On the 20th of August 1860, Burke and Wills led a 19 man expedition to cross the continent of Australia, beginning the journey from Melbourne. 23 horses, 6 wagons and 26 camels were the unsophisticated transport methods helping the 19 men navigate the Australian landscape that was previously uncharted by European descendants. 15,000 Melburnians yoga burn review gathered at Royal Park to cheer off the great explorers. Now 154 years later, the exact spot that Burke and Wills set off from has become the subject of controversy for many Melburnians.

Directly below the starting point of the expedition will sit the proposed East West Link tunnel. This new infrastructure is set to revolutionise transport in Melbourne. From camels to concrete tunnels, we explore the latest milestone soon to be added to Melbourne’s fabric. In this special report Secret Agent takes a look at the most recent road infrastructure project in Melbourne: The East West Link.

“Without deviation from the norm, progress is not possible” – Frank Zappa

Our cover image this month has been created by freelance illustrator Jasmin Neophytou. Frank would have been proud of Jasmin. Her works deviate from the norm by way of her playful use of colour, shape and proportion. Her cover brings a lightness to the serious topic of the East West Link project.

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The-Secret-Agent-Report-September-2014-The-East-West-Link


The East West Link Report – Coming Soon

Secret Agent is soon to release its latest findings on the East-West tunnel, and the likely impacts on Inner Melbourne. 
The paper discusses the pricing implications for many inner city property owners, and is a must read report for prospective purchasers considering any inner city suburb that sits North, West and East of the CBD. 
Issues covered:
  • Pricing projections during and after construction of the East-West tunnel. 
  • Potential health risks associated with the East-West link during and after construction. 
  • Long term benefits that may be achieved after construction. 
To be one of the first to receive a copy when it is released to the public, please sign up to The Secret Agent Report via our Thinking page.