Melbourne

The Smartline Report – February Edition

The month in review: Melbourne

By Herron Todd White
February 2015

There is a generally positive outlook for property market growth in 2015 as the RBA has kept interest rates at 2.5% for 16 months in a row and the inflation rate is 2.3%. What this means for investors is that the cost of borrowing money from mortgage lenders is relatively cheap, leading to greater investment and competition in the property market. According to RP Data, since the beginning of 2009 Melbourne property values have risen by approximately 45%.

Growth of approximately 10% in 2013 and strong growth levels in 2014 were recorded according to QBE. The RP Data Home Value Index results for September 2014 showed a negative growth figure of 0.8% for the month, however this did not hinder the quarterly growth from reaching 3.7% and 8.1% for the year. The QBE Australian Housing Outlook 2014-2017 states that the high number of new dwellings in the pipeline is likely to tip the market into oversupply from 2015/16, leading to a rise in vacancy rates and progressively weaker property growth.

According to REIV’s median house price index, September 2014 revealed a $649,000 median price for the city of Melbourne. Price growth was impacted by buyer demand especially within Melbourne’s middle suburbs as significant price increases were recorded. Coburg has proven to be a suburb of interest for 2015 as purchasers have been priced out of suburbs such as North Fitzroy, Northcote and Thornbury. A 16.7% rise for property in Coburg was recorded over 2014 as the median house price soared to $745,000, a $69,000 increase since 2013. Doncaster has shown recent improvement as its close proximity to schools, parks, transport and shopping led to solid capital growth of 11.9% over 2014. The growth in these areas reflects an increase in consumer confidence levels in the market, as low interest rates and population growth is proving to encourage buyer activity. As buyers were priced out of the higher priced suburbs, they sought more affordable options further out, but with infrastructure such as schools and shopping. Noble Park and Box Hill North have shown an increasing popularity in auction results in recent months as infrastructure plans to improve the appearance
and development of these suburbs is strongly encouraged by their local governments.

The median price for a 3-bedroom detached house in Seaford is $435,000 and $370,000 in Frankston.

The property prices in these two suburbs are considered to be relatively affordable. The rental and investment demand is strongly supported by close proximity to public transport and amenities as well as local employment opportunities. Seaford currently generates an annual growth of 5.89% and a rental yield of 4.06%. The annual growth and rental yield for Frankston are 5.2% and 4.5% respectively. Both suburbs offer promising future capital growth and rental yield owing to the expected population growth in the City of Frankston, their convenient locations and infrastructure.

The outlook for the Melbourne property market for 2015 appears positive in the short term, as interest levels are sustainable and encouraging greater investment in the market. A weak Australian dollar at US$0.79 encourages a greater level of foreign investment in the property market as the affordability of properties strengthens and interest on loans becomes more sustainable. Investors should be conscious of macro market risks such as rising unemployment, sluggish household income growth, affordability issues and cost of living pressures if interest levels fluctuate and population growth doesn’t slow down.

Modest growth is expected in housing prices, especially for property in prime locations and with a point of difference. The outer eastern suburbs are strongly attracting buyers due to their affordability.

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Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325