Beware of the spec buyers

Watch out for speculative buyers who are starting to move into the Melbourne CBD apartment market, is the word of caution from Hocking Stuart CBD director Scott McElroy.

He said the CBD market could now be divided into three categories – spec, invest or owner occupy – and the emergence of speculative buyers added an edge to the market that required a degree of caution.

Speculative buyers are looking to take advantage of a rising market and “flip” a property in one-to-three years for a profit.

This speculative buying trend is expected to be boosted by the February interest rate cut that has seen mortgage rates drop to historic lows.

Offering a word of caution, McElroy encouraged all buyers to take advantage of the extensive market research available before bidding at auction.

“I had a buyer come in the other day who was looking at a $50,000 loss on a property he bought three years ago because he paid too much and the growth didn’t meet his expectations,” he said.

Mr McElroy said the flip-side of the investment coin was another investor who was using the positive income from his CBD apartment to support his ageing parents.

He said investment buyers were taking advantage of the narrowing gap between mortgage repayments and rental income that was making it more affordable than ever to own a CBD property.

Surprisingly, rental levels have remained strong despite the influx of new apartments and capital growth ranging from 6 per cent to 10 per cent a year had encouraged market activity.

Mr McElroy said the “boutique” market was performing very well with a focus on the established apartments which were generally bigger than new stock.

CBD apartment stalwart Malcolm Dingle also issued a word of caution about the flood of new apartments coming into the market in 2015 but remains optimistic.

He said the immediate effect of the new apartments would be to extend the time it took to lease an older apartment before the two markets “meshed” in coming years.

Mr Dingle expects capital growth to mirror 2014 at around 3 per cent.

He said the established CBD apartment market remained underpinned by owner-occupiers who represented around 65 per cent of his total annual sales.

“The whole CBD is doing OK.  The market is positive and I believe the valuations will increase in line with 2014.  The market is in a healthy place,” he said.

Grant Müller Grant has been reporting on the property market for more years than he would care to admit.

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