By Herron Todd White
As we roll into a new decade, there are a few telltale signs to indicate that 2020 is already shaping up to be a busy year for the residential property market across all areas and regions of Melbourne. The first half of 2020 should see suburbs across Melbourne make a strong recovery due to a combination of factors being:
- Interest rates at a historic low of 0.75 percent after three rate cuts in 2019;
- Easing lending serviceability boosting borrowing capacity;
- Increased stock levels due to seller confidence;
- House prices on the rise due to increased buyer sentiment;
- More first home buyers entering the market due to first homeowner incentives such as the First Homeowners Grant and First Home Loan Deposit Scheme.
Melbourne CBD Property Updates
Over the past few years, we have witnessed an influx in supply of new apartments in the CBD area. 2020 should see demand for Melbourne apartments remain steady as approvals for new residential developments hit a peak in 2017 and have since slowed down. Most of these developments have been high density and located in the northern grid of the CBD. A slowdown in the residential development sector could slow the apartment supply, resulting in a boost in demand for rental properties due to strong migration and appeal of Melbourne to international and interstate higher education students and workers relocating closer to the business district, which has continually encouraged strong rental growth and helped maintain current rental returns for these CBD and inner city apartments.
One of the biggest struggles in the market is settlement for off-the-plan apartments. It is proving a significant challenge for developers with many of the major lenders tightening or altering their lending policies to foreign investors or contracts subject to the Foreign Investment Review Board resulting in longer than normal settlement periods and further exacerbating settlement risk.
New developments within city fringe suburbs such as South Yarra, Richmond, St Kilda, Abbotsford and Collingwood are contributing to this concern of oversupply. Demand will need to remain strong if supply is to be matched over the medium term.
Outer South East Property Updates
Starting off the new year with the right market conditions, there are a handful of locations that have indicated strong growth potential this year in the southeastern regions of Melbourne.
One of the suburbs to look out for is Officer. Located approximately 50 kilometres south-east of the central business district and situated between Pakenham and Berwick, Officer has become one of the fastest growing suburbs in the outer south-eastern growth corridor. Officer stands to be one of the best suburbs to invest in for 2020, where the median house price is $549,000 and the gross yield is 3.8 percent.
With affordable house and land packages combined with low interest rates, government incentives and looser loan serviceability tests, these new estates are perfect for those looking to purchase their first home or migrating families who are looking to make Melbourne their home for the first time.
Inner and Outer North Property Updates
The property market has shone in the past seven years showing extraordinary growth in property prices in the northern suburbs. Last year’s property market results ended on a high note as we saw the fastest turnaround in history, with improving prices and clearance rates leading into the new year of 2020. With property values rising, sellers are expected to cautiously return to the market, increasing stock levels.
So, what do we know moving forward into 2020? We can be assured that the Reserve Bank’s main focus will be to decrease unemployment rates and to increase wages, which will likely result in interest rates falling further throughout the year, making it even more affordable to enter the market. This trend could see an upside in developing areas such as Craigieburn, Kalkallo and Mickleham, which may prove to be the only truly affordable option for the inner and outer northern suburbs.
By offering properties at affordable prices, these areas may still be the choice for migrating families moving to Melbourne or country Victorians wanting to move closer to Melbourne.
Areas in the desirable suburbs of the inner north such as Abbotsford, Carlton and Richmond should expect to see moderate to low stock on the market. Blue chip properties that tick all the boxes will continue to perform in 2020. Low vacancy rates will also be evident in these areas with vacant dwellings being snapped up either by investors or renters.
Inner and Outer East Property Updates
The property market in Melbourne’s inner and outer eastern suburbs corrected firmly and growth in the second half of 2019 continued trending upwards with clearance rates at auctions growing, average days on the market declining and median house prices in Hawthorn, Balwyn and Box Hill areas correcting after suffering a major decline from the end of 2018 to July 2019.
With a surge in property prices in the inner and outer eastern suburbs in the last two quarters of 2019, the year of 2020 looks to be prosperous for the property market scene in Melbourne. Areas of growth to keep an eye on will be Box Hill, Glen Waverley, Ringwood and Ferntree Gully.
The result of the federal election was expected to negatively impact the property market but ultimately this did not come to fruition. Stability within the eastern suburbs region firmed once more and is set to continue. While the chance of seeing a boom period in 2020 is limited, the increase in auction rates and median house price growth is a good indicator for what will be a positive year for property owners in Melbourne.
Inner and Outer West Property Updates
West Property experts have forecast that Australia’s property market is set to jump as a nation, with Melbourne and Sydney in particular set to lead the way. Both cities are expected to see double-digit annual gains and with Melbourne’s west being the fastest developing region, 2020 is looking bright in this area.
This scenario is one where interest rates remain low, the economy improves and bank regulator APRA does not intervene with lending restrictions to slow down a runaway housing market in Australia’s two biggest cities.
Price rises could be even stronger if the Reserve Bank does cut interest rates again, as is currently forecast by most economists and priced in by financial markets
Melbourne’s west offers some of the most affordable housing opportunities Melbourne has to offer. It has been estimated that Melbourne is 27 per cent overvalued relative to its economic conditions (SQM Research), therefore affordable Melbourne outer region suburbs have been highly sought after in recent times.
Experts have stated that 2020 will be more about steady growth rather than boom. With the new year in full swing, there will be more stock coming onto the market. Clearance rates are currently strong and we may see a slight increase in prices as people come into the market, which should result in nice steady growth in 2020.
Those considering buying closer to the city should look in western Melbourne, including Footscray, Sunshine and Truganina.
In terms of the best suburbs in which to invest in 2020, Melton located in Melbourne’s north-west currently has the most promising figures. The median house price is an affordable $385,000 with a gross yield of 4.3 percent and the median unit price is $315,000 with a yield of 4.8 percent.
Speak with a Melbourne Mortgage Broker today.
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.