Melbourne July 2017

The month in review: Melbourne

By Herron Todd White
July 2017

Middle to outer eastern suburbs
Within the middle to outer eastern suburbs, $500,000 will not enable purchase of a dwelling, however there are some areas where 2-bedroom units or apartments are affordable. In Boronia the median unit sale price in March 2017 was $496,944 (RP Data) which is expected to achieve a rental return of $333 per week reflecting a yield of approximately 3.48%. Similarly, the median unit sale price in Bayswater in March 2017 was $467,000 (RP Data) which is expected to achieve a rental return of $330 per week reflecting a yield of approximately 3.67%.

If buyers desire to be closer to the Melbourne CBD, apartments provide a more affordable option in suburbs such as Mitcham, Forest Hill and Blackburn. For example, 410/394-398 Middleborough Road, Blackburn sold on 27 April 2017 for $492,000. The apartment comprises 2-bedrooms, 2-bathrooms and two basement car parking spaces.

If the market keeps firming, soon buyers with a budget of $500,000 might be priced out of the 2-bedroom unit or apartment market, however 1-bedroom apartments would still provide an alternative.

Last year, 2-bedroom dwellings were under $500,000 in Boronia and Mooroolbark, however currently the median price for a 2-bedroom house in Boronia is $572,750 (realestate.com) and $526,000 in Mooroolbark (realestate.com), so buyers with a budget of $500,000 can no longer afford these properties.

Inner city
Melbourne continues to be the fastest growing capital city in Australia, driven by migration from both interstate, regional and overseas areas which in turn creates higher demand.

The Melbourne CBD and inner city suburbs residential market has remained steady throughout the year, with rental returns generally ranging between 3% and 6%. At an entry point of $500,000 you will not be able to purchase a detached dwelling, terrace or townhouse, however, 1-bedroom or compact 2-bedroom apartments with a car space may be available.

In response to the growing demand, Melbourne city planners have been green-lighting new medium rise and high-rise residential developments. Many new apartment buildings are nearing completion and many more are currently being built or are approved for construction, adding growing concerns of apartment oversupply which has been covered extensively in previous reports.

In response, the Australian Government set even stricter lending policies in the 2017/2018 Federal Budget for overseas buyers in an attempt to reduce pressure on housing affordability. These include a cap on foreign ownership in new developments set at 50%, changes to Capital Gains Tax rules for foreign investors and an annual charge if the property is not occupied or available for rent for at least six months of the year.

We are yet to see whether these measures will have an effect on housing affordability in Melbourne’s inner city suburbs as the changes only come into effect on 1 July 2017, but they do add to the already uncertain apartment market in the city centre.

South eastern suburbs
The outer south eastern region is referred to as a growth corridor and property prices have seen steady growth, as evidenced by the graph below. With new subdivisions constantly popping up in the area, there is no shortage of land available for development and whilst those looking to invest in the area will need to sacrifice their proximity to the city, $500,000 will still take you quite far.

Suburbs such as Cranbourne, Cranbourne East, Cranbourne West and Clyde North all have affordable housing options and a $500,000 budget in these suburbs can easily get a recently constructed 4-bedroom, 2-bathroom dwelling with a double lock up garage on an allotment of approximately 500 square metres. This option is seen to be most appealing to first home buyers and young families who are searching for more space at an affordable price point.

Whilst a large portion of the region is still developing, government investment in the area is certainly evident with planning for new schools, major roads and public transport all in the pipeline.

Western suburbs
With a large selection of new estates surfacing throughout the western suburbs in the past year, we have seen that areas such as Tarneit, Wyndham Vale and Werribee continue to provide owners with the opportunity to purchase a block of land and build their own homes within the $500,000 mark. However, in comparison to a year ago, although building costs have remained relatively steady, land prices have increased slightly. As a result, in comparison to 2016, the purchaser’s buying power has decreased marginally.

Point Cook is one suburb where at the beginning of 2016, average property prices were under the half million dollar mark at $465,000, but increased demand resulted in the average price of $545,000 by the end of the year. Truganina is another suburb which appears to be approaching the $500,000 mark, with average prices of $430,000 noted at the end of 2016.

Within the inner western suburb of Footscray, $500,000 would still enable investors to comfortably purchase either a 1-bedroom or 2-bedroom apartment for $285,000 and $410,000 respectively. The overabundance of development which continues in the suburb has resulted in downward pressure on prices for new apartments. However, with rental yields still being a respectable 4.5% to 4.7% and the growing popularity of the suburb due to new amenities and proximity to the city, the suburb continues to be a popular choice for investors.

Naturally, Braybrook which neighbours Footscray has also experienced significant growth over the past 12 months. At the beginning of 2016, a 2-bedroom unit could be purchased for on average $466,000, however by the end of 2016 this had jumped significantly to an average of $630,000. However, given that rental yields for such properties are just over 2%, many investors would prefer the lower capital outlay and higher returns demonstrated by the apartments in Footscray.

Northern suburbs
The upward trend of median house and unit prices continues to limit the overall availability of properties under $500,000. Detached dwellings in the inner suburbs of Brunswick, Coburg, Northcote and Preston continue to be an almost impossible purchase as median house prices have risen to $1,271,000, $1,000,000, $1,462,000 and $1,000,000 respectively (March 2017), however the supply of new apartments within these inner suburban locations has led to apartments being an overall affordable option to secure with half a million dollars.

Both newly built and older established apartments can be purchased for $500,000 or less with proximity to the CBD being a major factor. Typically, a purchaser with $500,000 looking to secure a new 1-bedroom, 1-bathroom apartment with one car space would need to look as far out as Coburg as the median unit price in Brunswick has risen to $530,000 (March 2017). Looking at slightly older stock, there are a number of options available allowing for 2-bedroom, 1-bathroom configurations in a larger number of locations. Car parking within new developments has become a significant consideration with spaces being available independently from the dwelling at asking prices of $50,000 observed.

Median Unit Prices:
Brunswick – $530,000
Preston – $512,000 Glenroy – $487,500

The outer northern suburbs of Roxburgh Park, Craigieburn and Wollert have experienced slower growth over the past twelve months and there are still a number of established detached dwellings available for under $500,000. The median house price in these areas is still $500,000 or less, however dwellings in this lower price bracket are considered to represent lesser quality. If purchasers are prepared to wait for land, there are a number of new housing estates within Craigieburn, Mickleham and Greenvale which provide the opportunity for purchasers to secure house and land for under $500,000.

During the past twelve months there were a number of areas within the northern suburbs of Melbourne which experienced significant growth. As the median house price for detached dwellings within the inner suburbs such as Essendon, Northcote and Moonee Ponds exceeds $1,400,000 (March 2017), there are fewer options to purchase dwellings under $500,000. It is apparent that well located properties serviced by public transport and within close proximity to public amenities continue to demand higher prices and are experiencing stronger growth.

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