The month in review: Melbourne
By Herron Todd White
September, 2009
In an effort to provide expert knowledge on this subject
we have taken a snapshot of a portion of Melbourne
suburban sales activity and concentrated our efforts in the
municipality of Boroondara, considering the municipality
has the highest aggregate value of residential property
in Melbourne, though does not containing the highest
valued individual residential holdings.
Boroondara is situated on the eastern edge of inner
suburban Melbourne, leading out from the Yarra River, sitting in between the Eastern and Monash Freeways.
Housing tenure comprising owner occupied properties is
approximately 65% of all residential stock.
Within Boroondara we have selected the following
suburbs to focus on: Hawthorn, Hawthorn East, Kew,
Camberwell, Canterbury and Balwyn and commented on
the state of the residential market at the present within
particular value parameters. Less than $500,000; $500,000
- $1,000,000; and $1,000,000+ and also their performance
during the first quarters of 2007, 2008 and 2009.
Certainly the very low housing interest rates have
contributed to increased market activity within all sectors,
as appears common across Australia. The assistance to
first home owners has not only caused a spike in the
interest of those properties under $500,000 but has had
a carry over affect into the next value sectors, though not
with the same impact. Many of those who sold out of the
lower end of the market have transferred into the next
value sector.
In some instances money has been moved from the share
market back into this lower end property. Within the
targeted suburbs of Boroondara there has been significant
interest from overseas buyers for several years, however
with the easing of foreign ownership regulations we have
seen an upsurge in predominantly Chinese purchasers.
Boroondara has the highest concentration of private
Schools in Australia and some highly recognised State
facilities, both secondary and tertiary. It is now not
unusual for the majority of interested parties at an auction
or open inspection to be of overseas origin.
The reasons are basically a safer economic environment,
excellent educational facilities and the real potential
of gaining permanent residency, more than generous
concessions to foreign investors by our Government.
The Chinese government media recently branded the
Australian Government and its people “Sinophobic”. I
would suggest that is more “Sinofriendly”, particularly in
relation to allowing up to 50% of all properties sold in our
target suburbs to be owned by foreign nationals to the
detriment of the traditional purchasers.
While some of the purchases are within market value
tolerances, most are at the top end and above, this
effectively excluding local purchasers. The level playing
field no longer exists. I believe that a similar situation
occurred in parts of Sydney.
It’s a bit like playing AFL and kicking into the wind for
4 quarters. The chance of a favourable outcome for the
local purchaser is significantly reduced. (I wonder what
Gordon Ramsay would say about this?).
Real Estate investment in these particular suburbs could
be considered to be gilt edged over a relatively short
period of time.
We keep being told: Location, Location, Location.
On reflecting to our past first quarter results within the
designated value levels, median residential values and
overall variation are shown in the chart below:
It would appear that the only sector that has withstood
the storm to March 2009 has been the lower end of the
market.
First quarter results by numbers of sales transacted show
an even spread over the value sectors when we include
all the sales above $2,000,000 within our $1 - $2 million
group, our highest value sector.
For the first quarter of 2007 all appears well and the
market, while strengthening through 2006 to this point,
still has much improvement as it makes its way towards
the end of 2007.
Given generally the higher valued property that exists
within the suburbs in this snapshot, those in both groups
under the $1,000,000 threshold are almost selling at the
same numbers as the first quarter of 2007.
There is however a spike of some 45% in the $1,000,000+
sector in 2008, due both the socio economic standing of
our suburbs under review and the carry-over effect and
brisk trading at the end of 2007. Many of the properties
sold in the first quarter of 2008 were probably locked into
sales and marketing agreement towards the end of 2007.
People realised that the prices being achieved were too
good to be true and wanted some of the action.
This was short lived however as the upper end contracted
by a massive 52% through the first quarter of 2009. The
Global Financial Crisis embedded itself in the economy
and outlook.
The two sectors of less than $1,000,000 continue on with
little deviation in numbers from 2007 to 2009. Probably
due to the lower number of properties at the lower value
level within our suburbs.
In contrast to this, the current market statistics indicate
the residential market has bounced back and this will
probably continue to occur while interest rates stay low.
Buyers are re-entering the market in force, with
Melbourne’s clearance rates at an all time high, of around
80%. The government’s stimulus package appears to
have worked in part, with renewed confidence in the
stock market pointing to general business and consumer
confidence.
The litmus test for the market will be after September
30th when the First Home Owners Grant grinds to a halt.
The October/December quarter, traditionally a strong
period for real estate sales activity will be watched by
many property professionals.
Of course there is only one way the interest rates can
move and the quantum will impact on the future state
of the market.
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