Where will $700,000 – $750,000 perform best; Melbourne or the regions?

A week ago I presented to a great team of wealth experts in Melbourne. I was asked to present on alternative options to typical, Melbourne blue-chip areas. I decided to conduct some analysis and past sales history charting to illustrate why some Victorian regions are worth running a ruler over.

The budget is a popular one for investors. Many are keen to circle entry-level houses in established areas with this spend in gentrifying areas. Alternatively, for those with a preference to stick to traditional, blue chip areas, their options in this price band are restricted to boutique apartments. Even in the inner-east, a $750,000 could be insufficient for such a selection.

Apartments haven’t out-performed over the last decade, but we have seen a slight capital growth improvement in sales for boutique apartments. The chart below shows historical sales for this apartment in Melbourne’s inner south-east. The long term growth hasn’t been disastrous, but the last twelve years would no doubt be disappointing for the owners who held tenure during this time.

Pivoting to this brick house in Werribee, (Melbourne’s outer north) shows that this recently sold property has an historical sales line of best fit indicating 6.1% capital growth. Limited to just three data points suggests it’s not a perfectly reliable marker, but it’s indicative. This level of capital growth, when taking into account a likely gross rental return of 3.5%+ suggests a house in Werribee’s returns are not too bad.

However, when we switch our attention to a regional city, things get interesting. Despite our Victorian regional markets losing some ground following COVID lockdowns, the data suggests regional assets,, when chosen well, certainly perform.

This beautiful Victorian house tracked at 8.9% average year on year growth, and the sales data points sat comfortably within the line of best fit. By anyone’s measure, this is a great return. Combined with 4%+ gross rental yields, Ballarat’s premium suburbs deliver some results that arguably outperform more expensive, Melbourne markets.

These examples were not cherry picked. I scanned recent sales which met the following criteria for this snapshot study:

• Recent sales

• Three or more data points in history

• No obvious compromises on location/floorplan

Obviously there are several limitations this model, including inaccuracies such as;

• Renovations/additions

• Market timing

• Impact of COVID lockdowns, particularly for regions

• Vendor circumstances/agent quality

Investors will have many questions and considerations when selecting a strategy, but those who skim past regional cities might be missing out on some great opportunity.

Next week I will venture into the $1,000,000 budget and I’ll showcase some more examples, this time with Geelong as a feature city.