Heated argument over CBD ‘bubble’
Local real estate agents have taken issue with warnings that the CBD market is overheated.
Kew-based Wakelin Property Advisers were quoted in the metropolitan press last month warning investors away from the CBD.
Wakelin director Paul Nugent said CBD high-rise residential investors could expect difficulty finding and keeping tenants, flat-lining or falling rents and negative capital growth.
“The CBD already faces the greatest oversupply we’ve ever seen and that is saying something because we’ve followed the booms and busts of the high-rise sector for the last 20 years,” he said.
But Dingle Partners director Anton Wongtrakun agreed that the CBD had been over-supplied in the past, but said it was not at the moment.
He said outside, “so-called” experts often had little understanding of the intricacies of the CBD and tended to treat the area as a homogenous amalgam.
He said his company had 3000 properties under management and very few of them were untenanted.
“Rentals in the CBD are yielding good returns as more and more people are flocking into the city,” Mr Wongtrakun said.
The SQM Research website shows the CBD vacancy rate at 3.8 per cent.
This is lower than the surrounding suburbs of Docklands (4.4 per cent), Southbank (4.8 per cent) and South Melbourne (4.4 per cent).
Hocking Stuart director Scott McElroy said even more supply was needed to feed the growing market.
"There are a lot of new apartments being developed but what he fails to highlight is the demand that will continue through the population growth Melbourne continues to experience," he said.
CBRE’s residential director Andrew Leoncelli also points to CBD vacancy rates of 3 per cent as evidence of a sound investment environment.
“Whilst rents haven’t grown at the same rate as they have historically it’s because they are at their highest dollar amount ever in history and capital growth rates for apartments all over Melbourne including the CBD have been incredibly positive over the last 24 months,” Mr Leoncelli said.
“You can’t get capital growth and rental yield growth in the same market … investors must choose what they are after. More and more sophisticated downsizers are making the CBD and surrounds their home,” he said.
“We welcome the growth. Without more supply we will end up like Sydney with an average sales price of $19,000sqm for typical CBD apartments compared with Melbourne where we average about $10,000sqm.”
“Supply is not necessarily a dirty word,” Mr Leoncelli said. Mr McElroy said: "It is always easy to cast doubts about the real estate market when it is running hot like it is now and, yes, there hasn’t been as much short term capital gain on apartments, but that doesn’t detract from the fact that they are good long term investments."
"The only issue that could dramatically impact on values and or demand would be changes to negative gearing that will see the tax benefits of property diminished."
"Apart from the massive impact it would have on construction and the associated industries, it will also put pressure back on government and the public purse to offer more housing."