By Herron Todd White
We are already at the halfway point of 2019 and gee hasn’t the time flown?
Overall, the market has been weathering a downturn but it hasn’t been all doom and gloom as first predicted. Statistics have revealed that fewer auctions are being conducted, there are longer days on market and there is an increase in supply to some suburbs.
This is expected within a softening market thanks to tighter lending criteria and the negativity portrayed in the media about the burst of the property bubble. So now that we are six months into 2019, let’s give a wrap up of what’s happened so far against our predictions and see how the market is tracking.
North Property Updates
In our February edition of the Month in Review, we stated that inner northern suburbs would be the hardest hit with declining property prices whereas the outer north would plateau. Economists agreed, stating that property prices for the northeast and north-west were set to decline (as shown below). Six months into the year, it is clear that prices have declined for both the inner and outer north.
The outer northern suburbs of Craigieburn, Mickleham and Kalkallo reached their peak property prices in early to mid-2018 and have slowly been declining ever since. Craigieburn’s urban sprawl previously known as providing a good return on investment for off the plan purchase of land is now being reversed. A 448 square metre block of land back in early 2018 would be sold for $400,000 however now in mid- 2019 the same product would sell for $340,000 to $350,000.
Purchasing this land off the plan in 2016 and selling in 2018 would provide a solid $70,000 to $100,000 capital gain, whereas purchasing more recently in late 2017 to early 2018, the land would be lucky to break even and is expected to sell at a loss. The oversupply of land releases alongside the lack of land purchases due to tightened lending criteria has been the main charge behind the drop in land value.
Melbourne’s inner northern suburbs, for example, Carlton, Collingwood, Brunswick and Northcote, have also been hit hard by declining property prices. Median prices have fallen $30,000 to $50,000 for these suburbs since the start of 2019 and are projected to decline further (source: REIV, 2019). Properties holding their prices are A grade, sizeable family-oriented homes that have a prime position, superior floor plans and are in prime or renovated condition. Secondary properties that do not have these qualities are struggling to sell and are seeing extended time on the market compared to 2018.
There is an evident stock decrease for these suburbs which is contributing to the price decline. In the week of 23 March 2019, there were 674 auctions listed compared to 1,783 for the same week in 2018 (source: Digital Finance Analytics, 2019). With stock levels being low and bank lending criteria tightened, homeowners are choosing to stay in their current dwellings and choosing to renovate rather than risk attempting to upgrade to a superior property for which they may not get their finance approved by the bank.
Pascoe Vale has had the most surprising turn since the start of 2019. For a market that has been developer driven for the past two years, it now has completely reversed. Multiple permits granted for three-to-six townhouse developments are unable to proceed as developers struggle for finance.
A prime example is 40 Austin Crescent, Pascoe Vale. Comprising a four-townhouse development with approved permits, it has been on the market for 203 days with little interest due to the inherent risk of finance availability. Pascoe Vale has been development shy this year and if lenders do not reduce their strict criteria, townhouse developments in Pascoe Vale may be very limited going forward.
Speak with a Pascoe Vale Mortgage Broker today.
South East Property Updates
Over the past six months, there has been a continuing slow decline in the south-eastern property market. Values have continued to drop and it is likely the market is yet to bottom.
For the inner suburbs such as Bentleigh East and Hampton, there are still a vast amount of townhouse developments popping up despite the large fall in prices over the past year. These higher value suburbs are often hardest hit in declining markets.
On the peninsula, estate agents are getting creative with their sales tactics. This was evident in a sale via auction on 4 May 2019 at 16 Jetty Road, Dromana. The real estate agent employed an unusual tactic to ensure the best result. He announced the owner’s reserve price prior to the auction, which resulted in the auction lasting only 60 seconds, with the winning bid being the $1.25 million reserve (source: realestate.com. au). The purchaser was from the eastern suburbs, suggesting a sea-change or perhaps an intention to use the property as a holiday home.
Vacant land has not fared well over the past twelve months as there is an oversupply and purchasers are struggling to obtain finance. Many developers are offering incentives such as offering to pay building deposits. In contrast, the unit market has remained resilient in the outer south-east and the peninsula. This is largely due to units being at the lower end of the market and appealing to investors and first home buyers.
On the peninsula, there are a few properties which are managing to buck the trend. 8 Mills Beach Close, Mornington sold for $200,000 more than its 2017 purchase price and sold within two weeks of being placed on the market for $1.575 million. The purchaser resided in Shepparton and purchased the property for a sea-change (source: www.realestate.com.au).
A recent report named the suburbs that banks consider to be the riskiest in terms of lending (based on unsuccessful loan applications). The majority of high-risk suburbs were located in the outer south-east being: Clyde North, Clyde, Cranbourne, Botanic Ridge, Tooradin, Blind Bight and Warneet. This can potentially lead to the banks selling up the properties or vendors being forced to accept a lower offer to avoid becoming bankrupt.
Speak with a Mornington Mortgage Broker today.
East Property Updates
While the property market started 2019 on a positive note with more interest from buyers, auction clearance rates rising and banks chasing more business, another hurdle has been put in our way.
While the current slump in property values resembles those in 2008 during the global financial crisis, this time around, our economy is sound with interest rates at an all-time low.
In terms of the best growth suburbs to invest in Melbourne, real estate agent John Costanzo believes there is still plenty of value to be had in Ringwood and Croydon.
Another pick is Wantirna. While Wantirna South’s median entered the $1 million club in 2018, its sister suburb Wantirna is inevitably next in line. With a median house price of $960,600, it offers excellent transport links, schools and proximity to Westfield Knox Shopping Centre, which will undergo a long-awaited major redevelopment from November 2019.
Investors should start thinking about suburbs where infrastructure upgrades, particularly with links to transport, could put them at the top of the next boom.
Buyers are still being cautious and with tighter lending conditions still in place, it’s likely the eastern Melbourne market will tread water in the latter half of 2019, although this will vary depending on local market conditions and demand. Only time will tell.
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.