Greville Pabst on The Property Couch Podcast: Why Melbourne may be Australia's Best Value Market

588 | Is THIS Australia's 'Best Value' Property Market? - Chat with Greville Pabst

Greville: People don't feel confident enough to go and put their property on the market.

Ben: We are in uncertain times. Bond markets are responding. We're now starting to see the share market — we're losing hundreds of billions of dollars.

Shane: They have an actual plan for population growth in Geelong.

Ben: Welcome, couches, to another exciting episode. Today we're double-clicking on the Victorian and Melbourne property markets. To do that with me, I've got my couch crew. Brand new to the couch, I've got Shane Pope. Welcome, mate.

Shane: Appreciate it. Thank you.

Ben: We'll learn a little bit more about you. And I also have the legendary Greville Pabst joining us. Welcome, mate.

Greville: Thank you, Ben.

Ben: If you don't know who Greville Pabst is, you really don't know property experts in this country. Greville has been around for decades. He's the founder of WBP Group, a property valuation advisory group. He also has a vendor and buyers advocacy and property management business under his own name, Greville Pabst — so make sure you check that out.

If you've been listening to the show for a reasonably long period of time, you'll also know Greville was on episode 182, where we talked about everything you need to know about how to value your property. That's a timeless episode from one of the greats in the property market. So we're thrilled to have you along for today's discussion.

Both of you gents are obviously in the Melbourne buyers advocacy scene — you're out there in the field doing that type of thing — so there's a lot for us to cover off today.

Housekeeping: Q&A Callout + Free Audiobook Deadline

Before we do, a little bit of housekeeping. Next week we've got a Q&A episode, so if you've got any questions you want answered, I'm excited to bring the couch crew on to answer those for you. You get a free Start and Build course if you send us in those questions. Remember SpeakPipe for audio questions, or you can write to us as well.

And a final reminder: the $3K a Week audiobook is about to be pulled off the airwaves. You only have until March 18th to listen to all those episodes before we remove them from the podcast feed.

Also, some big developing news has obviously been the conflict in the Middle East, so before we finish today's show we're going to talk about how that may impact the property market. But let's get started.

Why Melbourne Has Underperformed for a Decade

Ben: I want to talk about the Melbourne market in general. It has been an underperformer really for the last five to eight years. Greville, I'll start with you — what has been your read on why the Melbourne market has been underperforming over that time period?

Greville: I think there's not just one thing, Ben. It's quite a number of things. In Melbourne particularly, COVID had a more profound effect than in the other states.

And I don't think it's the last five to eight years. I think Melbourne's underperformed for the last ten years. If you compare it with Sydney, Brisbane, Adelaide — Melbourne has underperformed.

In fact, in Australia we've had a property boom over the last eight to ten years, and unfortunately Victoria has missed that boat. We have completely missed this cycle. Now, that may be a good thing, it may be a bad thing. But as we come into what I think is ahead — perhaps some difficult times, you mentioned the Middle East — I think property is going to correct in the next few years, and that may safeguard Victoria, because it won't fall as much, I don't think, as the other states, because it hasn't gone up as much as the other states.

Ben: Less to lose.

Greville: Yeah. So that's something to think about. There's always a silver lining when you look at things.

Investor Exodus: Policy, Land Tax & Rental Reforms

Ben: You're right. When you're playing in the decades, those types of things right themselves. But we've got to study why the Melbourne market has done what it's done, because the reality is that the so-called economic conditions in Melbourne have been favourable — with the government spending and the Big Build and so forth. But that hasn't translated to what I would call private demand. It's all been pretty much government spending that's propped up the economy here.

And then we've seen countless numbers of adjustments to policy. I'm on record multiple times as saying that the Victorian government is anti-property and anti-property investor.

Greville: You feel it in their behaviour.

Ben: Their words sometimes don't say that, but everything they have done in the last ten years has hurt. Obviously the 133 reforms when it comes to the tenancy acts. Now the minimum standards, the energy efficiency stuff. It's just one after the other — the latest acts, I think, were the straw that broke the camel's back. That's when we started to see the mass exodus of longer-term investors.

Greville: And look, taxes aren't necessarily the thing that stops it. If you've got capital growth, people forget about taxes. When you have no capital growth and you've got taxes, people then walk with their feet.

Ben: And that's what's happening.

Greville: Landlords are exiting this state. Landlords are exiting in droves. I see it every weekend. When I go to an auction, the investors aren't there. It's the owner-occupier buying these.

You go to those beautiful little streets in South Yarra — Millswyn Street, Rockley Road. They're typical investment streets. You'd expect investors to be buying those two-bedroom and three-bedroom flats. They're not. It's owner-occupiers buying them for $700,000.

Ben: Is that what you're also seeing, Shane, in terms of what's out there?

Shane: Yeah, I do. With the team that I work with, we have investor purchasers and they themselves are buying the owner-occupier stuff. I'm getting a lot more opportunity of late — in the last year — than I had any recollection of getting in the years before that, in the other areas of property I worked in.

So yeah, we are seeing it at the coalface. I'm up against mums and dads, and sometimes kids with mums and dads. But what I'm finding on the back of that is it's becoming a little bit easier this year, post-Christmas as the market started, to forecast a sales result and have some confidence we're actually going to win it. We know what our budgets will do. Whereas in some of the auctions I was going to last year, investors had unlimited pockets. It was hard to get homes in the owner-occupier space that I'm working in.

Ben: There's just not the depth. That's the thing — there's not the depth of buyers. If agents have got one buyer, they're lucky.

Shane: And at this price point — anything under $800,000 within 12 km of the city is hot property. Once we start getting into mum and dad have a child and you need three bedrooms and you're happy to be 15 km from the city, there's more choice and there's more stock coming on now. We're seeing that at the coalface since probably the back end of January.

At the start of January there was still very little stock, and those first few auctions were really hot with some great sales results for vendors. But now there's more choice, and a lot of the backlog of buyers from last year feel satisfied.

Ben's Moonee Ponds Auction Story: A Two-Bedroom Surprise

Ben: I did a two-bedder in Moonee Ponds, an auction. It was a sort of period replica — brick, 240-odd square metres of dirt, double garage, right of way — but still a two-bedder. We were looking at it for an investor client who was an astute, longer-term investor.

I had $1.35 million; they were obviously trying to get it around $1.3 million. Our stretch was to $1.35 million. There was a reasonable crowd — 40, 45, 50 people. This is going back to sort of mid-February. I had to do the auction for one of our team members whose sister was getting married, so I said, "I'll stand up, I'll dust the cobwebs off and go and do some bidding." So I did.

Greville: How did your shoulder go? Was it okay?

Ben: Yeah, it was okay. I stood next to the auctioneer as I do, used all my tactics, called the auctioneer by their name.

So the reality is we started at $1.2 million. It was a nice start, moved along. There were four or five first home buyers; they got knocked out about $1.25 million, $1.28 million. And then — okay, who's left? I had a couple of investor bidders and a buyer's agent come in at around $1.3 million, $1.32 million.

I'm sitting there and it's still going pretty strong, and I'm sitting back. It was really a surprise to me, because I'm thinking, right, we're up to six bidders so far. And then all of a sudden I'm at sort of my top peak, I've got my buyer on the phone because they're interstate, and I'm thinking it's away from us — $1.35 million, that we've got one last bid at. No, we stuck to our guns. And then all of a sudden I had two new bidders come in.

Greville: Oh, wow. That's pretty unusual.

Ben: It is unusual at the moment. I hadn't seen this for a while. What it was: the lady who won the property was sort of in her mid-60s. It was obviously a downsize for her. She was with her two adult children. Maybe had lost her husband recently and didn't need the bigger home.

Greville: And that was the property. I suspect she would have paid cash. But everything has to be right about that property at that price point. If it's an apartment, it's got to have a large balcony. It has to have an outdoor space. It has to have a good floor plan. It has to have a good size. Car park. All that sort of stuff.

Ben: Things you can't change.

Greville: It has to be perfect.

Ben: But for this buyer here it was perfect for her. It ended up dropping on the hammer at $1.39 million. So it pushed, and I'm like, "Whoa."

Greville: For a two-bedroom.

Ben: For a two-bedroom. And again, as I said — nothing to do. Neat and tidy, probably built in the '80s, maybe early '90s. No restumping, nothing for her to do. Other than just come in, live, be close to her boys.

So there are those types of outliers. But to your point, the inner east of Melbourne has really been challenged — those beautiful streets in those areas where the two-bedroom semis and all those types of things, where we were getting $1.3s, $1.4s in some good markets. We haven't been getting those. Flemington, those types of things: $1.1 million, $1.2 million for those types of properties. If you get a little bit more land mass and you've also got some right-of-ways, we're getting that.

But I'll tell you where it is competitive: it's the sub-$650,000 market for brick and tile out wide.

Greville: If you can find it.

Ben: If you can find it. And the interstate investor is sniffing out those opportunities. They are there. They're not there at the moment above that sort of $850,000–$900,000 range — you're getting a few.

Greville: If you're a vendor, you're happy.

Ben: They're so far over. You're exactly right.

Greville: I'm seeing that in my valuation business. It's a real win-win.

Shane: Some of them are getting knocked back on their finance. Some of the guys went out to some auctions recently, particularly out in the west — we're seeing it. You can be day six or seven of a campaign once you've crossed the bridge and driven half an hour over the West Gate, and they'll have six or seven unconditional cash offers above the range. And they're all buyers agents, and nearly all of them are interstate purchasers. And three or four of them have not even seen the property.

They just — some of them cowboys — ring up and say, "Can you send me a video? That'll do." Send it to the client, ask for a contract. It is wild.

Greville: The video from the selling agent? How dangerous is that? That's just so unprofessional.

Shane: I spoke about that at the end of last year.

Ben: If your buyer's agent is doing that, fire them immediately.

Auction Clearance Rates & What They Reveal About Market Confidence

Greville: Getting back to market conditions — I think if you look at what the agents are doing, that tells a bit of the story as well. There doesn't seem to still be the confidence to go to auction. We're seeing more and more sales going private. Selling before auction.

Ben: That's the big one.

Greville: EOI is still there. And that tells a story, because that tells you the level of confidence in the market.

Ben: Well, we started with auction clearance rates in the 70s. Just before the long weekend we had a pretty sizable number — 1,200 or so coming in — and we pushed out a late 60s, a 68 or a 69, with a final of around 64, 65. That tells me we've got a balanced market. But it doesn't tell me that — when we start seeing consistencies in the mid-70s and finishing around that, once we get all of the data coming in, we're finishing in the 70s — we've got a moving market. That becomes very much a seller's market. Right now it does still feel like it's delicately balanced.

Again, some pockets are doing better than others. There's always that markets-within-markets story.

Greville: What percentage is going to auction now?

Ben: Auction numbers are still pretty high. They're still pretty robust.

Greville: Of total sales.

Ben: Good point. It used to be about —

Greville: 30, 40%.

Ben: Yeah, and it was largely in towards Melbourne, obviously. It was the ripple effect that sort of happened. And to your point, the agents know when they've got multiple buyers — they'll take it to auction. So when you're talking about suburbs like, I don't know, Watsonia, Bundoora, those types of northern suburbs, if they're going predominantly by auction, then you know you've got a good market.

We're not seeing that spread out as far. We're certainly still seeing the inner and middle rings — say 5 km to the city, and then 7 to 8 km from the city — they're still predominantly going to auction from what we're seeing. But it's that sort of 10 to 15 km as the crow flies where they're making judgement calls around expressions of interest and those types of things. On the freestanding houses there seem to be still more options, but then it's the townhouses, then it's the villa units, then it's the apartments.

Greville: I agree. It's a slower thing.

Ben: Now, the trend on days on market and stock on market: we're seeing stock on market, from a long-term perspective, still being below the five-to-ten-year average in terms of that turnover. We have seen the seasonality spike, where we've got around 16% more new stock on market in the last four weeks, but overall we're still down around 1% below the stock levels of where we were this time last year.

So that's why I'm saying — if we think really short-term, it's quite delicately poised. Which brings me to my next question.

Greville: That's because of the uncertainty and the fear in the market.

Ben: The sentiment.

Greville: People don't feel confident enough to go and put their property on the market. So that's why these stock levels — unless they have to, they're not going to. The stock we're seeing is investors offloading because they can't afford it. Forced sales. But other people, they're holding.

Ben: The opportunity sales are disappearing.

A-Grade vs B-Grade Property in a Softer Market

Ben: Let me double-click on that as well. Usually the really great properties — those with huge owner-occupier appeal — they can sell in any market, right? Because they're the prize.

Greville: Buyers always want them.

Ben: You're right. But to your point, when we're in a softer or sluggish market, it's the B- and C-type properties that we're seeing get turned over. And some of those are potentially from investors and landlords who are tapping out. So that stock isn't as prime as some of the stuff that we would normally see when the market turns. Is that a fair assessment?

Shane: Yeah. Seeing some of the buyer behaviour change as well from late last year to early this year. We were heading to auctions and forecasting a minimum of seven, but up to 12% on average, over the top of the quote range. And to be fair, largely through no fault of the agents — if the market was really in that kind of condition, they weren't able to advertise them that high, but it was just getting run on through competition.

And then, anecdotally, I've got a client who's buying out in the south-eastern suburbs right near the water in Mentone. The auction range is $1.35 million to $1.45 million and they've gone in with an unconditional offer in week two of $1.4 million. And then we're just seeing the agents scramble around to try and find if that will do it, and they'll try and get it done.

That heat that was there is gone, and a lot of the buyers are saying, "Well, that's what I'm prepared to pay and I can't borrow any more now." My borrowing capacity is set. So prices in that family market up to $1.5 million feel like, maybe not peaked, but certainly slowing.

Ben: It's where the first home buyers fall off, isn't it?

Crypto Wealth, the “Brighton Effect” & Buyer Behaviour

Greville: Yeah, it is. But talking about — basically that Brighton market has been decimated. I spoke to my Brighton agent the other day and he said he's hearing from people — and I hadn't even thought about it — that crypto, the drop in crypto, has apparently affected the Brighton market.

Ben: Well, that's the wealth effect.

Greville: That's the wealth effect.

Ben: When the share market's done really well, traditionally you'll also see Melbourne and Sydney property prices do great. So if you've had a good year on the stock markets — but if everyone's loaded up on crypto...

Shane: And that's a Brighton set, right? It's new money.

Ben: [laughs] Good point. It is the Brighton side.

And I think that's a fair observation. They've come in on the tails of the money that they so-called made, the paper profits. And now crypto's down — it was down 40-odd percent. I was looking at it this morning; Bitcoin at the time of recording was sitting at about $98,000. It's kicked up a little bit. I think that's off the back of the bond markets and what's happening on the oil price, which we'll get to.

What Could Trigger Melbourne's Next Growth Cycle

Ben: I want to pick up on the point you made before, Greville, about owner-occupier buyers. I think you're right in the sense that there is a floor in the market right now — it's not toppy because of investor demand. We're seeing property prices find their equilibrium based on the fact that we've got predominantly owner-occupier buyers. And they're traditionally not forced sellers or impatient in terms of their attitudes. I think that bodes well for any further correction in the market.

Which leads me into the next question: what's going to trigger a revival? Because we know that change will come. We know that where Melbourne sits in terms of its price to value compared to Sydney, compared to Brisbane, Adelaide, Perth, it's at its worst level that we've seen it. You and I have been doing this for 30, 40 years — it's at its worst level in all of that period of time. Regression to the mean suggests that at some point it's going to get back to that level. What does it need to see some of that activity happening and some of that capital growth start to arrive?

Greville: You're right — affordability is a key driver. That will be the catalyst. And we're already starting to see it. You're seeing interstate buyers starting to come. They're saying that Melbourne is cheap, and it is cheap. For God's sake, it's going to be the most popular city in Australia very soon.

The infrastructure, with this Big Build — the infrastructure is off the charts.

Ben: Probably the best of any of the capital cities now.

Greville: The best. The road network and train network. It's an incredible city.

Ben: Look, I'm very judgemental on this government in terms of their waste and how they've delivered this infrastructure. But to your point, it bodes well for future productivity. It bodes well for the infrastructure you need to grow for the next 20 or 30 years. So that is true.

I think you're right in the sense that my biggest worry still remains the debt — in terms of having to pay that level of debt off, and what the tax scenario is going to look like here. Because what we have seen is that through taking out 30% of that buyer market — let's say you've taken 15 to 20% of the buyer market out in the investor market — that's left you with around 10 to 15% of investors who might, at the end of the day, be judged as smart investors, because they're playing the decades game, not playing the trading game. So they're potentially going to come in at fair value.

And they're going to see — it might take two or three more years. That's what I said in my broad outlook that I recorded a couple of weeks ago. I said Melbourne looks like it'll be the best performing market over the next decade to 15 years, purely off the back that it's been the worst performing market.

Greville: Yes.

Ben: But the fundamentals — it's still the second biggest city. It still has the population and immigration story, and that demand story of needing housing. So whether that's rental or whether that's to live in.

Greville: So if you can afford the hold, it's probably the city to be in.

Ben: We'll look back to this episode in 15 years and we'll be proven right, right? This is the bottom of the market, and we'll say in 15 years' time Melbourne will outperform the rest of the country.

Look, it still needs to be — the economy still needs to be well managed. At the end of the day it does feel like we've got an economy that's not pro-business. Work from home, and looking after the workers — you need that investment. You need that foreign investment and the local business investment. If we don't get that, we do run a risk of Melbourne losing that momentum, and if there are no jobs here, people will leave. So that's my only concern.

Everything else stacks up. Every fundamental stacks up to me. The multiculturalism stacks up for me. Everything about the attractive livability of Melbourne stacks up in that sense.

Greville: Well, it's a great city.

Ben: We'll get on top of the crime and the few other things as well. If you're living in another state and you're looking at what's happening down here with the youth crime, those types of things I think can be addressed with firmer government direction around that sort of area. But every other fundamental says that this is still a knowledge centre and it's the second biggest engine room, second biggest economy in the country.

And not just by a small amount. If anyone wants to go and do their research, just type in "gross state product" and have a look at Queensland versus Victoria versus New South Wales versus WA. It is New South Wales, and then significantly closer to that is Victoria. And then there's just a massive gap.

Greville: It's just daylight.

Ben: Daylight between Queensland and WA. That said, they are in good positions. They've got good state governments, they've got good levels of debt. Queensland's got a population boom going on.

Greville: Everyone's moving there.

Ben: They've got a vibe going, they've got good confidence. But the property prices there feel toppy.

Greville: And I've always said Australia, with the population that it has — when it gets to 35 million people, we can only have two international cities. Melbourne and Sydney. Now, Brisbane, Adelaide, all that, they're going to have their spikes. But with a population of our size, we can only have two international cities. Just like Canada — Vancouver, Toronto. In Australia it's going to be about Sydney and Melbourne.

Ben: A lot of people also don't realise, when they look at the American market — and I haven't done this data for probably about five or six years now, so I may be slightly wrong — there are only six or seven cities in America that are bigger than Melbourne. A lot of people get this perception that Melbourne is a mega city.

Greville: And it's been once the world's most liveable on several occasions.

Ben: It's actually a brilliant city on the world scale.

Greville: Correct.

Ben: In terms of mega-city scale size — and I'll do a future podcast where we'll talk about the powers of mega cities and the flywheels that they create — we're talking about a city with a population that's just outside the top 100 biggest cities in the world.

So even though Australia at 35 million, we've got a really small population for our land mass. And there's lots of liveability around what that particular story looks like.

Is there any other observation we want to make on Melbourne before we move to looking at some of the regional markets?

Opportunities in the Prestige Property Market

Shane: I really enjoy buying property over two and a half million at the moment. Absolutely. We found a property about October last year, and the vendor valued it at three. The agent agreed, and given where it was and what it offered, I think they were right. It is a three-million-dollar property. The problem they had was that there was only one buyer who agreed with them. And then the next bunch of buyers were all at 2.5.

So I just said to my client, "Well, we'll wait." And we did. We found it in the October, looked at it in November, and we inspected it five times. And then we bought it for $2.65 million.

Ben: Doesn't buy much in Melbourne, though, does it, $2.5 million?

Shane: No, it was about half an hour out. But yeah, that pricing over $2.5 million, it just came back.

Ben: And what are you seeing — you're obviously one of the best independent buyers agents in the state — what are you seeing at that prestige level? Are you seeing much activity happening there as well?

Greville: It's pretty tough at that top end. It's slow. There's not a lot of urgency.

Ben: And I find it to be a buyer's market.

Greville: There are some really good quality properties on the market.

Ben: I don't disagree with that. I think people, upon reflection, will look back in 10 or 15 years' time and say, "Gee, we should have maybe bitten the bullet and grabbed that prime piece of real estate, that prime bit of land." At the moment, yes, I'm looking around for land — anything above 800, 900 square metres is going to be prime real estate.

Greville: And I think you would have seen this — this is what people are doing. A lot of people are selling their investment properties and they're going out and they're buying the most expensive house they can, spending eight, ten million dollars, and putting all their money into their owner-occupied house.

They call that putting all their eggs in one basket. And particularly those who are 60, 65, 70, retirement. They're building their inheritance. And it is a smart strategy.

Shane: Yeah, and I'm seeing a lot of that. I've purchased a number of properties, late last year, for a couple of people that have done that. I bought one in Madura Road, Toorak, for someone that did that.

Ben: Whilst the government continues to rule out any changes to principal place of residence capital gains exemptions.

Greville: And how long for?

Ben: It's a political nightmare, but I've called it — they need to do something about that. If you want to have human mobility and you're going to keep ratcheting up stamp duty, stamp duty, stamp duty... We'll debate that another time. Because at some point in time, if I can buy an $8 million property and in 20 years' time sell it for $14, $15 million and make a clean six or seven million dollars tax-free, at some point that's going to be socially unacceptable.

I suspect we're going to start to see a small amount of our capital gain in our principal home being shaved off as our contribution to our forever-needed government spending money — to keep the "no one left behind" strategies that we're currently seeing in this country.

Greville: And we know people that accumulated eight, nine, ten of these properties, and then you think: is it a smart strategy, or is it better to go and put all that in one good asset? And then just shift that every few years.

Ben: Well, if you're doing the accumulation phase — obviously you can't do that when you're young. So you're talking about someone in their 30s. We've always said, Ross and I have always said, two to three good properties held over the long term gets you to your 65. But to your point, we've always said live off the passive income, and there's going to be people who will do transition-to-retirement planning and estate planning, and they might say to themselves, "You know what? They doubled in value or tripled in value. I'm going to now take the medicine."

Capital Gains Tax & Negative Gearing: What Buyers Are Hearing

Ben: Now let's see what happens with capital gains tax and negative gearing. Probably not a bad segue. Are you hearing anything on the ground around the potential changes to capital gains and negative gearing?

Shane: Not so much in my world, because I'm buying principal place of residence, so the only commentary I hear is "glad it's not us."

Ben: What about from your investor clients?

Greville: I think it's still a little bit early. I think people are a bit asleep to what's about to happen.

Ben: It will be very important if they're going to do it. We can't stop it. We've seen them say things about property and how they're going to help the market and all those people for 10 years, and their behaviour has been the opposite of that. What they've actually done is hurt it.

But you're right — from the rest of the team I hear that people are asleep on it. And depending on how the government puts it in place and how they get it across the line will determine how bad that impact is. Because nothing about what they're suggesting is going to be good for anyone that it affects.

Greville: There is a supply problem coming, isn't there?

Ben: It's here.

Greville: They just don't learn from history, do they? We look back at say 1993, back when Keating brought it in, and the effect it had on rents.

Ben: Didn't we have to have a recession then, though?

Greville: Well, we did. We were a banana republic. But we had vacancy rates back then higher than what they are now. And they caused rents to spike. So the same thing's going to happen, only worse.

Regional Victoria Outlook: Geelong, Ballarat & Bendigo

Ben: So you can combine that with the Middle East, but I'm going to go regional before we tap on that. Let's talk about regional markets. What are you seeing in terms of regional Victoria? Where do you lock in? What's the case for regional — over the property for sale in Shepparton?

Greville: [laughs] Here we go. It's been for sale for ages. It's actually over $2 million. It's got a bit of land — about 2,000 square metres. It's a beautiful mid-century style house. It's one of the best houses in Shepp. But $2 million in Shepp is a lot of money.

Ben: There's a small percentage of buyers.

Greville: So it's a hard one. We try to look at, I suppose, things targeted to the Melbourne market — country tree change. Maybe some local doctors in the country.

Ben: Makes sense. The weather up there is stunning. Once you get over the Great Divide it just changes everything from a lifestyle point of view.

Greville: But regionally, look — like I say to you, I've bought a number of properties in Geelong. I just think in terms of a price point. I've had clients that have said, "Look, I've got a million dollars, but I want to buy a house." And I think, "Well, I can't really buy you a good house in Melbourne for a million dollars."

Ben: Those days are gone.

Greville: But maybe we can go to Geelong. Maybe I can buy you a house in Geelong — in Newtown, maybe Belmont, maybe in Hamlyn Heights or something like that.

Shane: Grovedale, all those places. A million dollars will get you four beds, two baths, a bit of yard, in good condition, nothing to do for a little period of time. Those are the scenarios. Geelong is probably my hotspot for regional. Absolutely — a million dollars will get you a great house.

Greville: Even Geelong West, or the botanical gardens in East Geelong. It's beautiful around there.

Shane: And there's so much money going into the port over the next period of time as well. I think the next five years, it's destined to become a shipping city. They're going to need workers, they're going to need houses. They have an actual plan for population growth in Geelong to manage it through infrastructure spend. It's very clever.

So even now, we've seen Geelong over the last two years actually run pricing up pretty hard. So in my mind it's still got a way to go.

Ben: Geelong is definitely performing well. What about the more affordable, commutable markets? Are we seeing anything there? I've got a strong eye on Ballarat. I think Bendigo is not quite in that commutable belt, but you can understand why they're still — in terms of brick and tile and some of the older style weatherboard homes — representing reasonable value.

Shane: There's good value out there. I've got a client at the moment that we're trying to relocate to the Mornington Peninsula, and part of the move — their sale of the asset in Bendigo — it was daisy-chained. So the contract of sale was linked to their purchaser, but it was daisy-chained five times out in Bendigo.

Ben: Wow. So it's a circle of settlements.

Shane: Correct. So they sold, and it was subject to the next one, subject to the next one, subject to the next one, all the way back. And so they were all set up. Everyone's in agreement — it's actually great dealing out there. The agents all know each other. The valuers all know each other. The conveyancers all know each other. So everyone was on the phone getting this deal set up. And everyone assured us it was all going to happen. And then on the same day everyone got a phone call: settlement's booked, we know the date, it's all going to happen.

So it was really nice. That doesn't happen that easily when you're in the inner city, because of egos and disconnect and a lot of other different things. But it was nice doing that deal out there.

Greville: They're still country towns out there.

Ben: I think with Bendigo you need to be within 2 km of the CBD. Any further than that, otherwise it feels like farmland and no one wants to be there. So there's a scarcity.

Greville: And for me the hospital is the heart. The closer you are — because for me, with investment properties, it's all about the rental pool. If you're walking distance to the hospital, that's gold.

Ben: The nurses there. That's also your transient population, depending on how they do that work. There's a lot of turnover in that area, so the rental pool is big near that infrastructure.

Greville: The headquarters of Bendigo Bank — are they still there?

Ben: Yeah, I believe they are. Obviously Bendigo and Adelaide Bank did a merger, so I don't know whether the full exact team are still there.

We also bought a business in Ballarat, a mortgage broking business in Ballarat. Our team are flat out there at the moment, and that's owner-occupier at the moment. So what I like about that — my biggest worry about some of these enthusiastic buyers agents who are coming into markets is that there's no underlying demand from owner-occupiers. It's all being investor-driven growth. And that's when the tide goes out, that's when we know who's swimming naked.

Shane: What is your asset worth, and who will buy it?

Ben: When I know that this is underpinned by first-time buyers who can get into those markets, that bodes well for me. And I love the fact that, again, commutable, which gives you a little bit of an insurance policy.

Melton I think is going to also be an interesting one in terms of what's happening there. We're seeing Cranbourne and all that area down that way —

Greville: They've run, but they're running through these buyers agents who are interstate. And we're starting to see a spike in the number of rental vacancies in those areas, because they've come in and bought them.

Shane: Oh, I wouldn't touch it with a barge pole. And I don't know the fundamentals.

Ben: They're promising them 5% yields, and then they get the reality of it's going to be 3.2. And when people can't afford to hold them, that market potentially comes back a touch.

And that's a big problem in some of those areas. I think if you're doing your own research, the best way to do that is just look at the count of rental vacancies and measure that over time. If that's moving in a northerly direction, that's going to make it harder for them to be able to rent those properties.

And everyone's thinking, "Well, I've got all of this paper profit." But that's exactly what it is — it's only profit until you actually realise it. So we do expect that there might be some volatility in some of those outer suburb areas.

Greville: Things are moving, though, in Ballarat. Because of the affordability, they're really starting to turn over and sell pretty quickly.

Ben: Certainly on our radar. Normally that's part of the conversations we make.