Whether it's shares vs. property or any other asset class, a 'blue chip' investment is the best of the best.
In a way, 'blue chip' is an ironic term because it's borrowed from the risk-laden gambling industry. A casino's highest-value chips are typically blue.
But most investors would tell you a blue chip investment is no gamble.
Shares vs. property: What are blue chip investments?
Blue chip ASX shares are large, well-established and financially sound companies that deliver reliable earnings and dividends year after year. Investors have great confidence in these stocks for the long term.
Similarly, blue chip properties could be described as high-quality homes (of all types) in desirable markets with good fundamentals, such as strong population, jobs growth, and an attractive lifestyle.
In this article, we look at two shares vs. property investment options that are losing value right now.
Why is this interesting?
Because they're blue chip investments 'on sale' right now, which may make them a buying opportunity.
We're talking about BHP Group Ltd (ASX: BHP) shares and the Melbourne property market.
Why is the Melbourne property market so weak?
Melbourne is a vibrant, bustling international city with a large economy. It's our second biggest capital city and is set to overtake Sydney in just eight years, according to the Centre for Population.
The Melbourne and Sydney property markets have long travelled in unison. Home values have often grown at a similar pace and remained decoupled from the rest of the capitals.
But according to the latest monthly CoreLogic data, Melbourne property prices are weak. And this is made more interesting by the fact that home values in most other capitals are growing.
Over the 12 months to 31 August, the median house price in Melbourne declined by 1.1% to $929,715. The median apartment price fell 0.9% to $610,652.
On the surface, these are very small falls in one of Australia's most expensive property markets. It wouldn't be that notable if other markets weren't outperforming it so emphatically.
Melbourne is most directly comparable with Sydney, where the median house price rose by 5.7% to $1,471,992, and the apartment median rose by 3.3% to $859,050 over the past 12 months.
This pales in comparison to three of the smaller capital cities that have ripped higher over the period. Perth values are up 24.4%, Brisbane values are up 15%, and Adelaide prices are up 14.9%.
Home values in Sydney, Brisbane, Adelaide and Perth are at record highs. Meantime, Melbourne home values are 4.4% below their peak, set in March 2022.
So, in this context, the weakness in the Melbourne property market is very interesting.
In a recent article, CoreLogic research director, Tim Lawless, explains what's going on. Essentially, there have been some structural changes in the Melbourne property market that have caused price weakness.
Lawless said:
At the onset of COVID in March 2020, Sydney had the highest median dwelling value, followed by Melbourne, the ACT and Brisbane. Perth was ranked 7th in terms of median dwelling value, after Darwin with the lowest median, followed by Adelaide.
Fast forward to August 2024, and Melbourne's median dwelling value, at $776k is ranked sixth lowest across the eight capital cities, after Darwin ($504k) and Hobart ($655k).
The difference between Sydney and Melbourne's median dwelling value is now 52.1%, the largest differential between Australia's two largest capitals since June 1999.
4 factors weighing down Melbourne home values
There are supply and demand factors at play here.
Firstly, more homes have been built in Victoria over the past 10 years than any other state or territory. We are now seeing the impact of this, with supply currently higher than demand.
Melbourne has also densified more substantially than the mid-sized capital cities. This means Melbourne's median dwelling (all properties) price is skewed lower simply because it has more units.
Over the past 15 years, Melbourne's multi-unit sector has increased from 23% of all housing to 33%.
On the demand side, negative net interstate migration in Victoria during the pandemic continues today. This is impacting the demand for housing.
Investor activity is also lower due to new landlord taxes. CoreLogic says 31% of new property loans in Victoria went to investors in June, compared to the national average of 37.7%.
Looking ahead, Melbourne values could weaken further during the busy Spring season if demand does not lift in line with the usual seasonal bump in supply.
CoreLogic data shows the average uplift in listings during Spring in Melbourne is 26.7%. This compares to 20.3% in Sydney, 10.6% in Brisbane and 16.5% in Perth.
Why have BHP shares dropped 23% in 2024?
The BHP share price is currently $38.95, up 0.49% on Tuesday and down 23% in the year to date.
This is the biggest miner in the world by market capitalisation, and mining is one of Australia's most important industries. Yet the BHP share price has lost nearly a quarter of its value this year. Why?
A key reason is the fall in the price of iron ore. This has happened because the world's biggest importer of iron ore, China, is experiencing economic challenges, including a weak property sector. So, China isn't building as much infrastructure and housing and, therefore, doesn't need as much iron ore.
The iron ore price has weakened from above US$140 per tonne at the start of the year to US$91.61 per tonne today.
Like all mining companies, BHP is a price taker. That means its earnings (and dividends) will be directly impacted by global commodity values.
But BHP is also one of the world's lowest-cost producers. It has very high-quality assets and a diversified earnings base, given its significant operations in copper and metallurgical coal.
So, is the fallen BHP share price an attractive buying opportunity?
Arthur Garipoli of Seneca Financial Solutions thinks so. He reckons BHP shares have been oversold, and today's weaker price "provides an attractive entry level for the long term …".
Morgans has an add rating on BHP and a 12-month share price target of $48.30. This implies a potential upside of 24%.
Goldman Sachs is similarly bullish, with a buy rating and a $49.10 price target.
