Lenders use many measures to reduce their risk when lending funds for residential purposes. One of those measures is to identify risky suburbs and reduce the lending they offer to those areas, this can range from not lending at all to reducing the loan to value rations (LVR’s). NAB has recently released their restricted postcodes, which was reported on by The Age, and grouped them by the most risky – Group A, followed by – Group B. Both groups indicate risk however they see Group A as the highest risk.
From the Group A postcodes, only New South Wales and Victoria (major markets only) don’t have postcodes restricted. This shows the strengths of these markets and the underlying macro factors supporting the movement in prices. Victoria and New South Wales both have larger populations growing rapidly through large scale migration from overseas and interstate. Those large populations mean the property markets are less prone to shocks from a decline in certain industries, as we have seen with mining in Western Australia and to a lesser extent Queensland.
The Group B restricted postcodes mostly came from New South Wales (34 of the 43) due to the high capital growth they have seen in the last 24 month. Again Victoria was not highly featured, with only 5 suburbs out of a total of 83 restricted postcodes coming from the State. These suburbs are the usual suspects which Nyko Property has never recommended in our eight years of operation and will continue to steer clear of them. The Melbourne CBD, St Kilda Road, South Bank/South Wharf, Docklands and Abbotsford. Why are they riskier? Mostly because they are filled with investor purchasers, mainly from overseas, and are going through a huge construction boom (read oversupply) without the underlying demand from both tenants and local owner occupiers.
Melbournians love to live close to lifestyle locations, transport and their workplaces but have traditionally steered clear of the CBD and these surrounding suburbs. That NAB has so much confidences in Melbourne gives Nyko Property even more assurance that Melbourne is the best location for investment within Australia for the medium-long term. Further, within Melbourne the middle ring suburbs (5-20km) in key growth areas will perform best and hold the least risk.
Bill Nikolouzakis – Director