Melbourne February 2018

The month in review: Melbourne

By Herron Todd White
February 2018

This year is set to be another busy one for Melbourne’s residential property market, which is expected to remain generally stable across most market segments. While we expect to see some market softening, there will be some suburbs still experiencing median price growth, albeit at a slower pace than previous years. Population growth in Melbourne is expected to continue to be a major driving factor, with Melbourne set to overtake Sydney as the nation’s biggest city by 2036 if the current trends continue. In the 2016-2017 financial year, Melbourne’s population grew by 126,175 people and for the 15th consecutive year, showed the largest growth rate for an Australian capital city (source: Australian Bureau of Statistics).

Residential estates in the outer suburbs (25 plus kilometres from Melbourne’s Central Business District) in the north, south-east and west are continuing to expand, with house and land packages remaining a popular choice for first home buyers and families. In the middle ring suburbs located within 10 to 25 kilometres of the CBD, such as Keilor East, Preston, Box Hill, Clayton and Bentleigh, we are seeing redevelopment of older dwellings on large sites into multiple townhouses and small scale apartment complexes. In the inner city, apartment buildings are in various stages of completion and concerns remain around off the plan apartment purchases.

Inner Suburbs

We expect the inner suburban ring property market to stabilise throughout 2018 in suburbs such as Port Melbourne, South Melbourne and South Yarra. We expect Melbourne’s inner city apartment sector to flatten and potentially face a slight decline due to the wave of off the plan apartment complexes coming to completion in the early part of 2018, as there are concerns that supply will outstrip demand in some areas.

The price gap between housing and apartment markets is expected to become increasingly larger, with many younger first home buyers looking to the apartment market as a more affordable option.

High rise apartments should be treated with caution, as the off the plan apartment market seems to be heavily reliant on a strong interstate or overseas purchaser and prices are heavily driven by these purchasers.

Northern Suburbs

The outer northern suburbs are viewed as a relatively affordable option for owner occupiers and renters alike. These suburbs have experienced steady price growth over the past 18 months for detached houses, townhouses and vacant land. There are a number of new developments scheduled to be released throughout the year to satisfy demand for more affordable housing options. We expect a continued and stable price growth throughout 2018.

The outer northern suburb of Mernda, located approximately 27 kilometres north-east of Melbourne’s CBD will continue to be worth watching in 2018. According to REIV, median house prices in Mernda have increased by 31% in the past two years, with a median of $590,000 in the December quarter. We expect to see further growth and development of Mernda and surrounding suburbs, due in part to their increased accessibility as a result of the railway line extension.

We have also seen a steady increase in median house prices in developing suburbs, such as Mickleham with a 40% increase from the December quarter of 2016 (REIV), and we expect these suburbs to keep a steady growing pace throughout this calendar year. While infrastructure within these suburbs is still developing, they are located within close proximity of established residential suburbs such as Craigieburn, providing residents with a compromise between convenience and affordability.

Melbourne’s middle and inner northern suburbs have remained strong throughout 2017, experiencing a slower growth rate compared to the outer ring, but greater capital gains. For the past two years, price growth has led to high vendor expectations which may be moderated in 2018. We believe that new legislation around foreign investment as well as tighter lending policies introduced in July 2017 have led to lower clearance rates, especially for the apartment market, which may put downward pressure on prices in 2018. As a result, vendors may see extended marketing periods, especially for secondary stock.

South Eastern Suburbs

As with the outer northern suburbs, new land estates in the outer south-east experienced high price growth and strong demand throughout 2017. Our expectation for 2018 is that these estates will continue to be in strong demand, however price growth is likely to be at a much slower rate. These markets are quite sensitive to any changes in economic conditions and should interest rates rise or economic conditions decline, it is likely to slow the market considerably.

Pakenham will be one of the suburbs to watch in 2018. Pakenham is located approximately 56 kilometres south-east of the Melbourne CBD within the Cardinia Local Government Area. According to the REIV, median house prices in Pakenham have increased by 27% over the past year and reached a median of $520,000 in the December 2017 quarter.

We will be observing the performance of developing suburbs such as Clyde North, Cranbourne East and Officer over the coming year as new land releases and subdivision projects become available on the property market.

We expect there to be steady activity and growth within the inner south-eastern suburbs. These suburbs performed well in the past and are expected to continue to grow in 2018. Throughout 2017 we saw a continuing trend of redevelopment. The outer bay side suburbs of Melbourne such as Chelsea, Carrum and Seaford are popular areas for investors and developers to look for the property that has potential to be subdivided and redeveloped. This sub market appeals to potential buyers due to its bay side location, proximity to amenities and competitive price.

North Eastern Suburbs

Outer suburbs such as Bayswater, Kilsyth and Mooroolbark are continuing to supply affordable living for first home owners whilst being accessible to necessary amenities. These suburbs are either supplying new townhouses on smaller allotments or older weatherboard and brick veneer homes that younger generations seek to improve through gentrification. Furthermore, dual occupancies with 400 square metre blocks appear to be particularly desirable to the younger generation as it provides the privacy and open space they seek for their new families.

The middle east Melbourne suburbs of Ringwood, Heathmont and Mitcham have exhausted their supplies of potential redevelopment sites and are approaching values of over $1 million. Locations such as Nunawading and Blackburn appear to have an oversupply of apartments situated close to railway stations and other forms of public transport.

Throughout 2018, we predict that the proposed development of the old Lilydale Quarry and the David Mitchell Estate will progress steadily through the planning and implementation stages. The property located on the corner of Hull Road and Melba Avenue is proposed to include a multi-lot subdivision (approximately 200 lots), releasing a new range of available properties varying from vacant land to townhouses, with allotment sizes varying from less than 400 square metres to over 600 square metres upon completion.

Western Suburbs

The inner north-western apartment market should be treated with caution due to the large amount of supply coming on stream, particularly in the suburbs of North Melbourne, West Melbourne, Travancore and Parkville. This concern may be contributing to softening values. While Parkville had unit capital growth of 1.5%, there was negative capital growth in unit prices in North Melbourne of 0.7% (REIV). We will be watching the performance of this sub market over the coming year as more supply is released on to the market.

The middle ring western suburbs of Albion and Ardeer will be interesting to watch in 2018. In 2017, median prices for a 4-bedroom house increased by almost 27% to $658,750 and by 32% to $595,000 respectively (REIV). Although less popular than the neighbouring suburbs of Sunshine and Sunshine North, the proximity to the city, relatively low median price and local amenities make these suburbs ones to watch in 2018.

The outer western suburbs of Kurunjang, Melton, Wyndham Vale, Werribee and Tarneit all ranked in the REIV’s most affordable suburbs in December 2017. As with previous years, affordability will be a driving factor of demand in the outer western suburbs as Melbourne’s investors and owner-occupiers continue to grapple with affordability and shortage of supply. These suburbs are dominated by first home buyers and families looking for larger living space and amenities close by. We expect this rapid growth to continue in 2018 with demand remaining high and a number of new estates to come onto the market with land pre sales.

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