A new breed of upgrading ‘home investors’ injects buoyancy into the subdued suburban property market

Recently, a mid-20^th century home at 64 Rosedale Road, Glen Iris, was quoted at $1 million to $1.1 million. It sold for $1,226,000. 

Soon afterwards in Sydney, a period-style property at 10 Korrinda, Avenue Kensington, was quoted at around $1.4 million. It sold for $1.63 million. 

Both properties needed renovating to bring them up to their best – yet both auctions generated fierce competition from multiple buyers. 

Significantly, neither home has a previous sales record. Each one was tightly held for decades before changing hands and achieving a strong result for the vendor. 

What’s going on? Why did these properties bring such good results for vendors in a market that has otherwise been caught in a holding pattern throughout 2012? 

Bucking the trend 

This year, I’ve been fascinated to observe a consistent trend in the characteristics of properties achieving good sale prices in Melbourne and Sydney alike. These are mid-priced properties in the $1 million to $2 million price bracket, bordering the inner and middle-ring suburbs such as Blackburn, Box Hill and Glen Iris in Melbourne; and Kensington, Haberfield and Artarmon in Sydney. 

In each case, these properties need some cosmetic work, but are otherwise solid and liveable. They may not be oil paintings, but they are being fiercely contested at auction, with multiple genuine bidders and dozens of interested onlookers. 

In Melbourne and Sydney alike, this sector of the market is consistently bucking the trend in 2012. 

These properties highlight one of the great unsung truths about the property market. Even when the overall picture is one of subdued activity and restrained price growth, some property styles and locations will always outperform the rest. 

Why is this the case? 

Low debt = few forced sales 

The first factor lies on the supply side. Vendors of these homes moved in 30 or 40 years ago to raise their young families. With plenty of time to pay down their mortgage, they have little or no debt on their home. 

Because debt is not an issue, they can sell when the time is right for them, not when they’re under financial pressure. This keeps supply levels relatively low and makes these markets harder to get into. 

Fulfilling the home buyer ‘wish list’ 

Secondly, demand for these properties is being fuelled almost entirely by 30- and 40-something home buyers. This sector falls into what is now the mid-range of the market in Melbourne and Sydney: too expensive for first-home buyers, and away from investor-dominated markets like entry-level properties in the inner suburbs where most tenants want to live. 

These properties have most or all of the characteristics that home buyers (particularly those with young families) look for when they’re upsizing from their first home: a good-sized block of land; proximity to well-established schools and public transport routes; nearby parklands, sporting and healthcare facilities, shopping centres and so on. 

Effectively, these buyers are looking to step in and take over where the vendors are leaving off. They’re perpetuating the popularity of these areas for a new generation. 

In short, these star-performing properties and locations are characterised by long-term scarcity of supply and consistent levels of demand. That’s always a recipe for solid capital growth. 

The rise of the ‘home investor’ 

What’s more, home buyers seeking to enter this sector of the market understand that their family home should serve as an investment. Yes, they want a secure roof over their heads. Yes, they want a property and location that satisfies their lifestyle criteria. 

But they also know that in 20 or 30 years – when the time comes to move on and hand over the mantle to a new generation of home buyers – they will want that home to achieve a similarly strong level of capital growth as it did for the person who sold it to them. They know that when they do eventually move on, the equity from that home must serve as a springboard for moving on to a different phase of their life. 

In other words, the psychology of home buyers in these areas is changing. Thanks to the information age, and the volume of information available about the property market, these home buyers are becoming more educated about the true dynamics of the market and are using this information to their advantage. They are becoming what I call “home investors”. 

The combination of limited supply and strong demand means that buying into these areas is no easy task. From what I’ve observed, those who succeed come to the table with a fair amount of equity from the sale of their first homes (probably one- or two-bedroom apartment or single-fronted terrace in a sought-after inner suburban area). 

These people will always make good money when they sell, because they have always viewed their home as an investment. 

Pragmatism over idealism wins the day 

Interestingly, home investors don’t necessarily need to “fall in love” with a property to see its potential. They don’t mind if the kitchen isn’t renovated. They can do without a four-car garage and a media room. They just want a property that fulfils their lifestyle and investment basics: good-sized block, established location, good amenities. 

These pragmatists are the driving force what I believe has been the strongest sector of the property market in 2012. There is very little softness in this sector. It's the market sector that is bucking the trend – and will continue to do so as a new generation of home investors takes up the mantle.  

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.