By Herron Todd White
April 2020

There are a variety of drivers that can influence the behaviours and choices of purchasers looking to buy a property in Melbourne. Whether it’s investors, individuals or families, drivers can range from interest rates, changes in policies and demographics to global events and crises that could either positively or negatively impact the overall Melbourne residential property market. This month, we will take a look at how these drivers can affect the different regions of Melbourne.

Melbourne CBD Property Update

Local drivers for the residential market in the Melbourne CBD include the influence of the educational sector, population growth, local and international migration as well as local employment. The performance of the property market in the CBD is a result of the demand for rental properties in this area and the attractive yields that come with it. This is due to the strong migration and appeal of Melbourne to higher education students coming from other states and countries as well as workers relocating to be closer to the business district. This creates a high demand for apartments in the city, which makes it attractive for long term investors.

Drivers impacting the residential property market are also quickly changing in light of the recent events this year, such as the Australian bushfires and the global pandemic of the Coronavirus. We have since seen cuts to the interest rate by the Reserve Bank of Australia to a historic low of 0.5 percent and economic stimulus packages to be announced with the aim of boosting the economy and easing the financial fallout of these events.

Notwithstanding the COVID-19 crisis, with the recent announcement of a lowered cash rate, there may be an increased interest for those seeking to buy their first home as applicants will be in a better position to refinance their current mortgage so they are able to make lower repayments each month and less interest over the life of the home loan.

South East Property Update

Combined with low interest rates, government policies and incentives along with the affordable house and land packages currently on the market, individuals and families who currently have home loans or are looking to get a home loan have the upper hand as the current market conditions are more favourable towards them.

The main local drivers that influence the property market in Melbourne’s south-east are overseas and interstate migration, affordable housing and infrastructure spending.

Suburbs located within the City of Casey and Cardinia regions located in the outer south-eastern regions of Melbourne have become popular hotspots over the past few years for young families, first home buyers and newly settling migrants looking to buy or build their first home. This is typically popular in the newer developing estates where individuals and families are able to customise their homes to cater for their individual needs with the aim of having a family friendly lifestyle.

Suburbs such as Officer, Clyde and Botanic Ridge are located within the outer south-eastern region of Melbourne where it is most commonly zoned as an urban growth zone. The urban growth zones are part of the government’s long term strategic plan of urbanisation and densification for Melbourne’s future designated growth areas. Growth of a community also comes with growth in infrastructure. A local driver such as infrastructure would often be an attractive factor to many as many individuals would be working nearby or would require roads and public transport to travel to work.

Inner and Outer East Property Update

The volatility of world equity markets can heavily affect property prices and the general market trends we see in property cycles. World recessions such as the Global Financial Crisis, the current global COVID-19 pandemic and domestic natural disasters such as the bushfires that ravaged this country in 2019 and 2020 can have significant economic consequences, especially in the property markets. One of the major emotional influences that crises have on decision-making is that they create uncertainty in an investor’s mind. Periods of prosperity create confidence and willingness to invest due to the abundance of resources and the ability to create and expand upon what we already have, while crises seem to force individuals to retreat and protect what they own as a natural human response to fear and uncertainty.

In the last year, the wider Melbourne property market has been showing significant signs of growth, prosperity and high clearance rates at auctions, especially in the last quarter of 2019 and early in 2020. Until now, there has been talk about the property market developing momentum, with the interest cuts we saw the RBA make last year and the easing in credit conditions after a lengthy period of speculation following the banking Royal Commission. At present, the property market faces a period of uncertainty as the world is coming to grips with the growing concerns over the Coronavirus. The function of most normal businesses and social practices is halting as the world is battling the virus. This has and will continue to have an impact on the property market.

I foresee a limited availability in supply of houses and apartments in the coming months, limiting the opportunity for new home buyers and investors to purchase property. As the government increases restrictions on public gatherings and businesses are likely to work remotely, we will see a decrease in inspections and auctions. This will have a dramatic effect on the marketability of properties. While the government is enforcing restrictions on businesses, public events and individuals to carry out daily activities, we will see the market recede. The ideal outcome is that amidst the growing concerns of the virus spreading, vendors and buyers continue to engage in selling and buying properties to continue economic growth. This will keep the economy from flatlining as experts foresee in other industries that are built on face to face contact such as the education, tourism and hospitality sectors.

Inner and Outer North Property Update

Changes in both monetary and fiscal policy tend to have a more direct impact on the property market in suburbs located in the outer north as purchasers in these areas are predominantly first home buyers and local investors, most of whom are strongly influenced by either changes in first home buyer grants or interest rate changes.

Some of the local drivers for the outer northern property market include the availability of more affordable housing and recent infrastructure expenditure. The commencement of the northern roads upgrade is a notable example of this and has helped to ease congestion in the area, improving buyer sentiment and proving to be a key local driver for demand.

Recent relaxation of lending since the banking Royal Commission has resulted in young families and first home buyers looking at more affordable dwellings that the outer north offers. The effect of this appears to have aided in maintaining demand for property in the area as prospective purchasers begin to extend their search further north.

New migrants to Melbourne opting to settle in the outer north also make up a significant portion of first home buyers.

Properties below the $600,000 price point appear to do well in the outer north market as there is high demand from first home buyers and investors. High specification dwellings in predominantly first home buyer suburbs tend to remain on the market longer than average and are less sought after.

West and Geelong Property Update

Melbourne’s west has been the nation’s strongest growing region over the past five years. Data shows that seven of the top ten best performing regions in Victoria are from the west.

Population growth and relative affordability are the main driving forces which have caused this strong growth throughout the west.

More businesses moving to the area has created many different employment opportunities. There is new infrastructure and new schools and transport options have increased and are improving. These things are only going to keep pushing people to these areas.

Two years ago, families were being beaten out by developers, but times have since changed and it is evident that family buyers have returned to the market. It was becoming unaffordable and now prices have dropped back to an affordable level and buyers are back.

Families and first home buyers are taking over the market. Young families are coming in and demanding more local schools and people are starting to view the area as affordable and one that has potential.

Affordability is obviously a huge factor driving people west. There is a lot of urban revitalisation happening in the inner west.

Housing quality in Melbourne’s west has also improved as there are some nice new homes that are lifting the value.

While there was a stigma attached to parts of the west, the schools, transport and new infrastructure on offer are great drawcards.

With this all said, it’s difficult to know what lies ahead for Melbourne’s property market in its entirety. It’s still too early to predict the full scale of the long term impact of the Coronavirus, given that the Australian outbreak is in its early stages, but there are two unknowns that could compound any fall in prices: unemployment and the prospect of a looming recession. Although the threat of Coronavirus is omnipresent, there’s reason to suggest the housing market could be relatively insulated, compared to financial markets.

Speak with a Geelong Mortgage Broker today.

Geelong Property Update

Geelong has entered 2020 with a solid foundation to make sustainable capital growth this year due to a number of market forces drawing people to the region.

The final CoreLogic Home Value Index for 2019 revealed a rising rate of growth over the past three months that had pushed the city’s median dwelling value to almost $560,000.

This rebound in Geelong’s property market was brought on by reduced mortgage rates easing borrower serviceability assessments, improved housing affordability and certainty around property tax laws.

Obviously due to its smaller scale than Melbourne, Geelong doesn’t showcase the same kind of employment rates that Melbourne does, however the potential is there. With the region growing fast, employment opportunities will continue to grow in just about every aspect.

With this, a number of new primary schools have been introduced to the ever developing surf coast regions such as Armstrong Creek and Warralily.

Geelong boasts a number of the factors that make an area stick out as a place with high growth potential. Some of these factors include large infrastructure projects currently underway, vacancy rates and rental yields that continue to increase and a population that is growing.

Like all of Australia, it is uncertain how the COVID-19 pandemic will actually affect the property market. A number of experts have put their views forward with some believing the market and its drivers will remain stable whilst others believe it will impact negatively.

Speak with a Melbourne Mortgage Broker today.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.