In today’s show we talk with Greville Pabst, from WBP Property Group, one of the judges on The Block, about a possibility of over-supply in the Melbourne market and how it will relates to the unit market.
Kevin: In the past, we’ve talked a reasonable amount about a possibility of over-supply in the Melbourne market, and it particularly relates, a lot of commentators will tell you, to the unit market. I guess that makes selection criteria very, very important for you if you’re looking to buy a unit in Melbourne – and no doubt a lot of people will. And they should, otherwise there’s going to be even more of a problem.
Greville Pabst is a buyer’s agent with WBP Property Group and is also a familiar face on television because he’s one of the judges on The Block. He joins me.
Greville: How are you, Kevin?
Kevin: Good. Greville, what’s your feedback? What are you seeing about apartments in Melbourne? Is there an over-supply?
Greville: The oversupply question is an interesting one. Look, property growth and performance really is based on where the population shifts are. At this point in time, most people are wanting to live close to the CBD, and if you live in the CBD, particularly young people are wanting to live in apartments.
Kevin: Yes. Then that factor has no doubt driven developers to go into a situation where we possibly do have an over-supply, particularly in those capital city areas. It’s not unique just to Melbourne, because we also hear that there could be some over-supply in the Brisbane market, as well.
It makes that selection criteria very important. If you are looking to buy a unit in, say, the inner ring of Melbourne, what would you be looking for specifically?
Greville: There are a couple of things. The first thing that I always look for is scarcity. What I mean by scarcity is I’m looking for an apartment that may be one of 15 or 20, a boutique development. That’s probably the first box that I’d like to tick.
The second one, it has to have a relationship to a lifestyle element, whether that be a café strip, transport, or a school. It has to have that relationship to that amenity. That’s really important.
The third thing is that it really must have a high underlying land value. If it’s in a block of ten, we want it to be sitting on highly valuable land that might be worth $2000, $3000, or $4000 per square meter so that the apartment that you are buying will only share the value of that highly-valuable land with as few other people as possible.
Kevin: I guess the other issue, too, is if you’re looking at an area where there already is a bit of an over-supply, it’s important to know what’s going to be coming up in the future in terms of the suburb zoning.
Greville: Yes. Zoning is very important, and zoning in many capital cities around Australia has changed, particularly in Melbourne, so you need to be aware of those changes.
The demand and supply equation is something that’s been talked about a lot. Just recently – in the last few days – I’ve heard that one of the biggest tower developments, 108 City Road, where there are 1105 apartments, 1000 of them have sold within the last two months. But I suspect that many of those are to overseas buyers.
Kevin: Is there anything other than the fact that they’ve gone to overseas buyers that makes them unique, Greville, in your book?
Greville: It is unique because that particular development is the tallest building in the southern hemisphere. But the other thing – and this is what I think many investors and buyers need to be aware of – is that that particular development does not complete until 2019. The question that I raise is, “What is the market going to be like in 2019? Are you still going to get the same value that you have paid today?”
Kevin: Yes. I guess that’s a big question, too, that maybe some partners have come in on the basis because it’s not going to be completed for such a long period of time, maybe they can punt it and make a profit out of it. But I would have thought those days had well and truly gone, Greville?
Greville: Yes. I don’t truly like to speculate when I buy real estate. To me, one of the best investment decisions that you can make is to buy those vintage apartments – the lower density, the Art Deco, the 1950s/1960s/1970s apartments. Some of those are the best investments that you’ll ever make.
The thing is they have a history of performance, so you’re not speculating. You actually calculate capital growth in arrears over the last 20 to 30 years. The data is now available for you to do that, so there’s no need to speculate when you’re buying investment property today.
Kevin: Greville Pabst, thanks for your time.
Greville: Thanks, Kevin.