Melbourne December 2017

The month in review: Melbourne

By Herron Todd White
December 2017

This year has been another strong year for Melbourne with continued population growth exceeding previous expectations and development continuing, largely concentrated in the inner ring. Development in the outer ring suburbs has also progressed quite significantly in an effort to tackle the affordability issue within already established suburbs.

The Melbourne residential property price index rose 3% from the March 2017 quarter to the June 2017 quarter, a continuing upward trend in 2017, however the market appears to have flattened considerably in the September quarter of 2017 from the boom period experienced in recent years.

Melbourne property price

The market within the inner ring of Melbourne (up to ten kilometres from the CBD) continued to grow exponentially with several new developments coming to completion in 2017 and over 1,600 new apartments being added to Melbourne’s CBD so far in 2017. As we stipulated towards the beginning of the year, vacancy rates have continued to tighten to 1.8% as the demand for inner city living has remained strong and rental growth has increased, up to almost 2% in the second quarter of 2017. The warnings of an oversupply of strata units at the start of the year have been quelled to some degree, with Melbourne’s strong population growth continuing to meet the supply of new off the plan apartments. Sale volumes in the latter half of the year have slowed in line with investment demand and tougher lender policies, as well as regulations for investors which have affected the supply of new apartment towers, as preconstruction purchase requirements are unable to be met by some developers.

At the start of the year we commented on low interest rates driving the property market, though recently more prudent lending to investors in the market has seen a significant flattening in most property classes. The strong foreign investment in the CBD apartment market has continued throughout the year with legislation recently introduced in an effort to subdue foreign investment in Melbourne’s highly contested market. However, the effects of these new legislative requirements will be seen further into 2018.

We have also seen a moderate growth in northern middle ring suburbs, both in established suburbs such as Craigieburn and newer surrounding suburbs such as Mickleham and Kalkallo. These suburbs are still mainly attracting young couples and families and recently arrived migrants looking for affordable yet spacious housing options, with 3- and 4-bedroom detached dwellings being the most common. The reported median price for houses in Craigieburn in the third quarter of 2017 is $540,000, a 22.7% rise year on year (source: REIV).

Inner northern suburbs such as Brunswick and Northcote continue to be popular with young professionals, childless couples and cashed up families, but are also increasingly attractive to downsizers and empty nesters, who are willing to move from larger estates to townhouses and boutique apartments closer to the city. Median house prices in Brunswick have reportedly increased by 21%, reaching $1.27 million, while units have relatively stayed at the same price level. Meanwhile, in Northcote both houses and unit prices have risen by approximately 3% (source: REIV).

Melbourne median price

The outer south-east market performed strongly throughout 2017 with significant price growth observed over the past 12 months. This has been evident in both new estates and established areas. This rate of growth is considered to be stronger than most people would have anticipated. The driver is seen to be a combination of low interest rates, strong population growth and affordability in comparison to the inner and middle established areas. This affordability has led to an increase in demand from buyers priced out of older established areas. The key drivers include the proximity to schools, parks and shopping centres, road linkages and employment centres along with the attraction for buyers of owning a new or as new home.

The land market of outer south-eastern Melbourne including land within new estates such as Delaray and Berwick Waters (Clyde North) demonstrates perhaps the strongest price growth within the study area. The recent land transactions recorded show price growth of 45% to 49% over a 14 month period (source: Realestate, 2017).

Melbourne Clyde

The outer eastern suburbs of Melbourne experienced moderate growth throughout 2017 with people opting for bigger blocks rather than proximity to the CBD. Croydon Hills was in the top four average visits per year (source: Realestate.com) with home buyers being pushed further and further out in 2017. At the start of the year, Ringwood was touted as a suburb to watch and has experienced considerable financial growth and appeal throughout 2017, with an increase of 4.9% on median sale prices in the area. Ringwood North has seen growth of 9.5% throughout 2017 as the median sale price in the area as of August was $935,000. The rapid increase in price in these outer suburbs is starting to force buyers towards lower grade off the plan apartments in the outer east. At the start of the year we speculated on the poor quality of apartments being erected in the outer east, which is an investor driven market, which could potentially affect resale value.

Melbourne’s inner western suburbs have remained relatively stable throughout 2017.

At the start of the year we suggested neighbouring suburbs to Sunshine would be worth watching and while they haven’t met the median prices of Sunshine and Sunshine North, they have still had considerable capital growth. The Sunshine median house price in December 2016 was $847,500 for a 4-bedroom house and grew to $886,500 in late 2017, a 4.6% increase. Sunshine North and Ardeer had median house prices in December 2016 of $654,500 and $613,250 for a 4-bedroom house and grew to $687,500 and $659,000 in late 2017, a 5.04% and 7.46% increase respectively.

As anticipated, the western growth corridor of Melbourne has continued to be one of the predominant areas of both population and development growth in 2017. Both the northwestern suburbs such as Melton and Rockbank and the western suburbs such as Tarneit, Truganina and Wyndham Vale have been popular with young migrant families and first home buyers. At the start of 2017, the speculation that growth would continue in the outer western suburbs has held and we are continuing to see development occurring at a rapid pace with new estates and land releases in existing estates coming onto the market regularly.

The prestige residential market in the cities of Boroondara and Stonnington experienced continual growth from February. This was evidenced by strong auction results in February and March combined with a sprinkling of auction results well in excess of expectations. Lack of stock was the main contributing factor for these high results.

The market appeared to level out in May. Many valuation reports started adopting higher market risk ratings to cater for this. Anecdotally, agents were reporting a decrease in the number of attendees at open for inspections and auctions. We have the opinion that the prestige market had plateaued which appeared to coincide with a withdrawal of national and international Asian buyers. In July, the Chinese government introduced more stringent conditions on their nationals taking money out of the country.

Over the winter months, prices continued to stabilise. There was concern that the spring market, which traditionally experiences an increase in volume of sales, would put downward pressure on prices. This did not eventuate. There have been some record volumes of sales occurring in this time and prices for land and A-grade properties, such as 16 Stanley Grove Canterbury which sold for $5.908 million in November, continue to drive market prices up.

Stats/figures:

  • Toorak values suggest they could be approaching their peak. A highly sought after address at 1 Heymount Close, Toorak on over 2,000 square metres of land sold in May for $17.6 million. It was suggested that the purchaser bought to demolish and rebuild in the medium to long-term, so the sale represented mostly land value.
  • 75 Leura Grove, Hawthorn East sold in May 2016 for $3.02 million. 69 Leura Grove sold in November 2017 for $3.4 million. The properties were similar sized allotments and both sales are considered land value.

Melbourne Median Sale Price

Graph shows Balwyn North median house price continues an upward trend from Q1 this year (source: REIV).

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