I hesitated before posting this, but can't help it. I have lived in the area for 7 years and own properties here too. I know that Frankston "looks cheap" compared with other areas in Melbourne, and I agree that fundamentals (infrastructure, transport, beach, freeway) are sound. HOWEVER, 300k+ for Karingal Drive is ludicrous IMO.
Fundamentally flawed argument in its entirety..
Just beacuse an area increases in value more than one's own perception of that area does not make the increase ludicrous. The increase in prop values is proportional to the potential ( or perceived potential) of that area and basic fundamentals. Karingal sits only 2 kms away from the cleanest beach in Victoria, has nice area appeal overall (on par with most middle ring suburbs), has rental yields in the viccinity of 5% or higher, has close proximity to schools, sits next to a big shopping centre (which is going through a massive expansion), offers low price points making housing affordable, will be connected to the new Eastlink causing a massive increase in accessibility and sits next to one of the major commercial hubs of melbourne, has TAFE and Monash Uni very close to it and is situated at the gateway to Penninsula - Why on earth a nice 3 bedder sitting on 600 sqm selling for $300k in karingal based on the above factors "a ludicroous buy" is beyond me.
Give me just one other suburb in Melbourne that has so much going for it as Frankston has currently and it might help me in drawing parallel between that area and Frankston.
I have had a laugh with a couple of the agents over the past 6 mths at some houses going way over the odds.
I had a good laugh too when properties started selling for close to a millions dollars in Reservoir and Preston. I am happy to admit that it was a foolish laugh since the area moved another 30-40% more after I had my laugh..! I also had the last laugh when my properties in Rockhampton and Cairns almost trippled in the last 5 years. In hindsight you would be laughing too if anyone had told you that prop in those areas could fetch more than $750k, but they did and still going up.
The odds from the eyes of a person living in Karingal or the odds as we (investors) see it having invested successfully in half a dozen different locations around Australia buying dozens of properties..?
I had another laugh when I picked 2 houses for $290k (both) sitting next to each other in Frankston North 18 months ago on 1600 sqm which I can put in the market for $480k without plans and $500k + with plans and sell within 24 hours...! The laugh factor increases as I get the plans approved (in the council at the moment) to put 6 townhouses there and have the development CF neutral from day one.
The way I see it, investors from outside the area think Frankston looks cheap & are happy to pay $320k for a property which may otherwise be worth $280k.
If a property sells for $320k amongst stiff competition from buyers, then the property is worth $320k and not $280k. The market determines the value of property, not a resident living in that area. What you believe the property is worth does not matter since sophisticated investors base their decisions in acquiring millions of dollars worth of property in an area by using their brain cells more effectively in determining the true worth of an area. The good thing analysing an area from outside in is that it allows us to benchmark an area against other growth areas and then take the decision to actively buy in a certain area based on the specific merits that area offers.
I would be surprised if sales have not fallen through after bank val's.
What makes you think the values will drop...? Did you believe that Bentleigh and Highett which had worse reputation 10 years ago than Frankston could reach a median value which is almost 2.5 times higher than that of Frankston..?
Again, you are looking at Frankston with the goggles of a local and not as an investor - Investors have a different criteria in assessing an area than a local looking at buying a couple of prop in their neighborhood.
I think investors are inflating the market and I really hope that nothing causes them to bail in large numbers over the next few years. I admit that I have done very well with my Frankston properties and believe me, I hope the boom keeps going & going.... But right now I am waiting before investing any more $ here.
Again, a very vague, subjective and unforunately ill formed opinion. Investors go for value that an area offers in the bigger scheme of things and then compare that value proposition to the next best alternative. In other words, they do their due dilligence whilst comparing the potential of an area. HTW (largest valuers) in their Feb edition has Frankston with the best propsects of capital growth since in their opinion it still offers a very (very) low entry point for a beachside suburb in midst of a big change and with a new $3.8 billion tollway connecting it with the rest of Melbourne.
Another thing to remember is that with 40,000+ dwellings there is not exactly a dearth of supply in Frankston, nor is there a dearth of rental properties.
Well, sorry to say.. but here is another fundamentally flawed argument. Just because an area is large does not mean the supply is large relevant to demand. Frankston has 40,000 OCCUPIED dwellings which means that owner occupiers are simply not going to forfeit their homes as the values are going up..! Just beacuse a suburb is large has no significance whatsoever to the debate of its investment potential. If anything, it works towards the argument that with such critical mass of population, the chances are that it will attract larger commercial/ development acticity.
Development has increased in the past 5 yrs and believe me, there's no supply shortage on the near horizon.
Frankston has no vacant land.... Do a search on Frankston and you will be lucky to find more than 6 blocks of land (almost all as a result of sub-division and not new land). Competition is for land and there is no more land available in Frankston for new dwellings, hence for development potential Frankston rates as one of the best potential areas in my dictionary.
I have put up my rents in inner Melb by $90-$100 week in the past year -
And what are the values of those properties (just so we compare apples with apples and not an apple with an Orangutan)
I have increased my Frankston yields at a higher proportion ( not actual $$) than I could in any of my inner Melbourne properties. Excluding my development stock, my frankston rental returns are well over 6.5% (which is an excellent yield for any investor in the current climate).
but not in Frankston (sadly!).
Just increase your rents in frankston or talk to an agent to do that for you
Remember that as property investors we are in the Rental Business.
As property investors, we are in the business of buying properties with returns above the median return of that area waiting to ride off any short term fluctuations (managing cash flow well) and then realising the capital gains that will follow. I am not in rental business.. If that is my business, then I would surely have gone broke a long time ago but fortunately I keep on reaping the CG rewards on and on again.
As much as I LOVE Frankston (moved here from the inner eastern suburbs), there is a reason that prices & rents are low.
And the reason is that people with their own biased goggles were/are unable to realise the true worth of that area. Frankston I reiterate has the highest activity of any other (non-auction dominated suburb in Australia currently indicating huge demand) and has the most going for it that will change the area and its associated perceptions forever.
There are many low income earners here who can only afford $200 (often much less) in rent.
So was the case with Seaford, Carrum, Chelsea, Bentleigh, Moorabbin, Altona... but it didnt affect the values sky rocketing in those areas. I have renters paying $440/w for my Nolan St property and I have 6 tenancies in Frankston paying in excess of $250/week. 2 in Frank Nth paying under $200pw each whilst one in Karingal on Wangarra Rd paying $380 pw.
It's an area which would be hit hard should economic indicators take a nosedive. From what I'm seeing, rents are not increasing anything like they are in the inner suburbs but house prices certainly are.
Another "motherhood statement" . This happened with my inner suburb properties. They have all increased dramatically in the last 2 years but rents have increased fractionally. This is the classic case of the value appreciation process. Values shoot up first with rents lagging far behind. It also happend with my portfolio in Rockhampton and Cairns with values jumping 280% across those and rents going up by 70% or thereabouts.
OK, I'm ready for the flaming;
I am glad you were ready.. I dont feel so guilty now..
but even though I am ordinarily the Eternal Optimist I had to give another point of view. Just be careful before getting swept up in the Frankston Frenzy.
Just be careful that you dont get swept under your mental barrier of what Frankston has to offer and where the values are heading - Frankston is going great and I have every reason to believe that it will be a stand out leader in CG for this year and next year compared to any other outer suburb of Melbourne and also most middle ring suburbs.
Harris
