The month in review: Melbourne
By Herron Todd White
Inner city suburbs such as Port Melbourne, St Kilda, South Yarra, Richmond, Carlton and Fitzroy are worth watching to see if they maintain the capital growth shown over the past few years. In particular, established apartments offering functional floor plans and superior living areas are expected to grow due to their attractiveness compared to new off the plan stock. With the continuing development of large apartment complexes outside the Melbourne CBD, these apartments are usually marketed for lower than off the plan apartments and often provide a superior product.
The Melbourne apartment market however is one that should be treated with caution as the threat of oversupply looms large, with the RBA warning that the rush of apartments scheduled for completion in the next couple of years will constrain price growth and also impact rents. There is also the increased risk of off the plan apartments not settling upon completion.
The inner north western apartment market should be treated with caution due to the large amount of supply particularly in the suburbs of North Melbourne, West Melbourne, Travancore and Parkville. This concern may be contributing to softening values. While North Melbourne had unit capital growth of 5.2%, there was negative capital growth in unit prices in West Melbourne of -19% (CoreLogic, 2017). It will be interesting to watch the performance of this submarket over the year ahead as more supply is released on to the market.
Through 2016 we saw substantial growth in property prices throughout Melbourne’s south eastern corridor and the trend is expected to continue leading into 2017.
Suburbs such as Seaford and Carrum saw median house prices grow 5.8% and 8.3% respectively in 2016, with Seaford’s median house price increasing an impressive 17.2% in the September 2016 quarter alone. The area is popular with younger families and retired couples especially, due to its close proximity to the Frankston rail line, Frankston Freeway and Peninsula Link whilst also being well serviced with local amenities, shopping precincts, schools and beaches. With the appeal of the region anticipated to continue, it is expected that property prices will also continue to rise well into 2017.
The adjoining suburb of Frankston North is also expected to continue its momentum into 2017. The suburb was originally one of the largest housing commission precincts in Australia and many of the original brick veneer dwellings still exist. Low median house prices and larger land sizes have made this area popular with first home buyers and even investors looking to demolish and subdivide. Whilst the suburb has struggled to shake its stigma as being a rough area, its popularity is certainly on the rise. Median house prices grew 8.8% in the September 2016 quarter and although the growth in Frankston North isn’t as substantial when compared to its neighbouring suburbs, it has been steady in the past and is expected to continue into 2017.
We expect there to be steady activity and growth within the outer eastern suburbs, however, it is possible that uncertainty in the market caused by international political decisions may result in activity being marginally subdued in comparison to 2016.
We expect that downsizers will continue to cash in on larger blocks as the supply of development sites reduces, particularly in areas such as Croydon, Mooroolbark and Kilsyth. Ringwood North is perhaps another suburb worth watching due to its proximity to Eastlink and Eastland shopping centre, as well as access to good schools. The suburb continues to increase in popularity among up-sizers and families.
Larger blocks with subdivisional potential in the outer eastern suburbs tend to be considerably more affordable than blocks on the outskirts of the middle eastern suburbs such as Ringwood East. Additionally homes located in the far outer eastern suburbs such as Coldstream still represent good value, especially for those not required to be close to transport links or the rail network. Croydon South is also a suburb that tends to be relatively affordable and is therefore also a suburb that is likely to experience higher than average growth this year as first home buyers rush to take advantage of the record low interest rates.
Apartments in suburbs such as Croydon and Mooroolbark tend to be relatively affordable but buyers should be cautious about the quality of finish on many of these newly constructed buildings. However, it could be argued that the majority of these apartments are built for the investor market and therefore affordability would tend to be the overriding factor rather than quality. We believe that the resale value of these apartments may be adversely impacted in the future as a result of the below standard quality of fittings and fixtures.
In Melbourne’s north we should see continued good growth in suburbs such as Hadfield and Fawkner and we expect this trend to continue due to their proximity to the CBD (approximately 15 kilometres) and being serviced by two train stations. Another major reason we expect these suburbs to perform well is due to the unaffordability in suburbs in the inner north such as Brunswick, Northcote and Thornbury. Currently the median house price for Hadfield is $650,000 and for Fawkner it is $614,000.
Mernda is a suburb worth watching in 2017. Although the outer north east suburb only experienced moderate growth (6.5%) in 2016, the introduction of a railway extension from the South Morang station should result in further growth.
In 2016 we saw a large increase in demand for properties in Sunshine, 11 kilometres west of Melbourne’s CBD. The median house price grew $172,000 or 25.5% to $847,500 from the start of the year to December 2016. It will be interesting to watch if this price growth spills over into surrounding suburbs such as Sunshine North over the next 12 months. With a median house price in Sunshine North of $654,500 and $613,250 in Ardeer (CoreLogic, February 2017) these price points are well below that of the hotspot of Sunshine and it will be worth observing if this gap closes during 2017.
Further west, the new Caroline Springs V-Line train station and line duplication between Melton and Deer Park is opening in February 2017. Serving Caroline Springs as well as the adjoining suburbs of Burnside, Plumpton, Taylors Lakes and Hillside, this is a major infrastructure boost to this western growth corridor of Melbourne and is highly anticipated. It is expected to be used by 1,500 people per day rising to 4,800 per day in 2020 (PTV, 2016).
The outer western suburbs such as Wyndham Vale, Werribee, Tarneit and Truganina still provide affordable entry in to the current property market.
The median sale price in December 2016 for Wyndham Vale was $416,000, Werribee was $455,000, Tarneit was $530,000 and Truganina was $478,000 (CoreLogic, 2017). Development is occurring at a rapid pace in this area and there are many large estates at various stages of construction. The population of Truganina is forecast to double to 40,000 by 2036 while that of Tarneit will almost triple to 89,417 in the same period (Wyndham City Council, 2017).
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