Renowned realtor pinpoints potential Melbourne investment winners

Having spent what he justifiably describes as “lifetime in real estate,”, few people are better placed than Mark Errichiello to offer property investment advice on the Melbourne market.

A Buyers Agent Chapter Committee member for the Real Estate Institute of Victoria (REIV) and the state’s Real Estate Buyers Agents Association of Australia (REBAA) representative, Mr Errichiello said that while the market has experienced challenges in recent months, there are myriad investment opportunities in different segments of the Melbourne market.

Attesting to his lifetime of real estate experience, told API Magazine of accompanying his father and attending late night negotiations on real estate transactions in the northern and western suburbs of Melbourne as a child.

“Most Saturdays growing up in the 1980s and early 90s were spent following my dad to witness him perform up to 50 auctions per month with his team.

“Real estate literally was my first school, before even attending kindergarten and by the time I was 15 I was working weekends assisting with administration in the real estate office and handing out brochures and greeting people at open home inspections and auctions.

“I officially started my career in real estate at 18 years of age joining my brother and father in business and later met my wife working in the same office and it launched what is now a career spanning more than 22 years

“Surrounded by family working in real estate, the most difficult task is switching off from property and work conversations at the dinner table.”

Property investment opportunities abound around Melbourne

Property prices in Melbourne can be expected fall another 5 to 10 per cent over the next year or two, according to Mr Errichiello but for prospective buyers, trying to time the bottom of the market was a risky proposition.

“If we could forecast the bottom of the downturn and always get it right, there would be a lot more billionaire property investors.”

He said that while he expects a further easing of prices, some locations and property types will perform better and see a faster rebound for an upside when the market improves.

He had some specific advice on the types of properties that would perform well over five years and their location.

“Period homes, spacious free-standing houses and single dwellings and large townhouses on boutique three- to four-unit sites or dual occupancy sites side by side with street frontage or front and rear in established suburbs within the Western Ring Road northside of the Yarra River, or south and southeast or established Bayside suburbs within a 30 kilometre radius of the Melbourne CBD should outperform.

There’s a lot of older houses in the investment market in Victoria and many that don’t meet the current minimum standards for investment rental property.

- Mark Errichiello, Director of Master Advocates Real Estate Services

“If someone is considering buying in the inner north and west or north east, affordable property opportunities are not going to get much better than now and over the next three to six months.

“If they are looking at a buy and hold strategy, long term there is always an upside with time in the market.

“Within three to five years pending improvement in our construction industry and supply of new dwelling for migration, external economic and political factors, I anticipate great improvement.”

Mr Errichiello, Director of Master Advocates Real Estate Services, said that investors needed to be selective if they wanted to ensure the property generated an adequate rental return.

“There’s a lot of older houses in the investment market in Victoria and many that don’t meet the current minimum standards for investment rental property as far as building condition and safety compliance.

“They generally sit on fair size blocks that could be subdivided.

“The Victorian government are now actively enforcing the new legislation for maintenance on such landlords and I feel within three to six months, some of the owners of these properties may decide to sell if the costs to maintain or repair are high, combined with higher interest rates, land tax and whether they had any intention of selling in the next few years.

“They may find it more feasible to bring the plan of selling forward rather than investing in extra maintenance works now that they won’t see the return on in the short term,” he said.

Positives outweighing negatives in a turbulent market

Winner and losers were inevitable in a market that has seen rapid price rises over the pandemic period and a subsequent correction driven primarily by rising interest rates and further impacted by high inflation during a period of anaemic wage growth.

Mr Errichiello said that for those who bought more than five years ago, generally there has been some growth and equity, but there could be some stress ahead for those who bought more recently.

“If they are struggling to hold on to their asset or principal home or experiencing a bill shock with rising interest rates and expenses if they are on a variable rate, these households may be at risk if they are forced to sell and can’t explore options such as renting the premises and sharing or rentvesting elsewhere in more affordable conditions for a short period of time.”

He remained insistent, however, that the positives outweighed the negatives for property owners and investors in Victoria with a long-term outlook.

“In Victoria we are only starting to see recent improvement in demand and rental yield increases compared to post-pandemic conditions.

“Our vacancy rates have reduced back into the 2 per cent range and yields in some circumstances have started returning to pre-pandemic prices and increasing by up to 10 per cent for certain locations and property types.

“Infrastructure spending in Victoria, employment, logistics and lifestyle are all great and population growth is set to soar during the next five years, with migration approval figures for skilled worker visas and student visas catching up on the years lost due to the pandemic.

“I am anticipating a large majority of the new migrant approvals will be heading for Melbourne based on the forecast for Melbourne to have the largest metropolis population in Australia by 2030. 

“If we take a considered perspective over five to ten years, today’s problems are a drop in the ocean.

“It is easy to act impulsively then look back and regret it.

“Real estate is never a short-term game, if your budget can withstand short-term challenges you will benefit long term,” he said.

Limited distressed sales a reality

Mr Errichiello said it was inevitable there would be some distress to come for many families confronting rising rents and interest rates.

He pointed to the fixed interest loan anniversaries approaching where borrowers were enjoying  rates circa 2 per cent that are now likely to bump up to 6 per cent, which could be applicable to more than 50 per cent of the mortgages nationally. 

“Some communities and locations where borrowers are already struggling to keep up with repayments, such as first home buyers, young families with higher living expenses that have increased due to inflation, unfortunately there may be some hardship to endure.

“These are frequently in suburbs further out of the city with inferior infrastructure or volume estates, new land release locations, or high rise or high density developments that have not had time to establish and are oversupplied with similar dwellings.

“I witnessed many distressed sales during and post the GFC, mainly of the less desirable assets and property, whereas the inner city, more established suburbs and desirable property types weathered the storm.”