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Melbourne July 2018
The month in review: Melbourne
By Herron Todd White
The Melbourne residential property market has shown a steady increase in values over the past 12 months and while the market witnessed a softening in 2018, Melbourne’s nation leading population growth is expected to underpin continued growth at perhaps a more moderate pace.
With the RBA’s decision to restrict lending to investors and revelations from the Banking Royal Commission resulting in further tightening from the big four banks to all lenders, finance for residential development has been more difficult to come by, thereby potentially constraining growth and supply.
However there remain significant opportunities for growth in residential development in both inner (apartments) and outer (houses) Melbourne with non-bank and off-shore lenders in some cases filling the breach along with self-financed developers.
Melbourne CBD and inner-city suburbs The Melbourne CBD and inner-city suburbs residential market remained relatively steady over the 2017/18 financial year with rental returns ranging from 3% to 6% and apartment values rising 7.9% to record a median of $506,000 (Corelogic, June 2018).
An amount of $500,000 now buys a 1-bedroom, 1-bathroom, 1-car space city apartment or a 2-bedroom, 1-bathroom apartment. The apartment living area will vary generally between 50 and 60 square metres which reflects $7,500 to $8,500 per square metre.
In the competition for buyers, developers are now offering incentives such as allocated refrigerated wine storage, cinema rooms, BBQ facilities, gyms and swimming pools.
The average days on market for apartments is 98 days. This has not changed from last year. Apartment approvals marginally increased while medium density and detached housing approvals grew substantially. This is reflective of a recent shift towards medium density development as developers become increasingly wary of potential oversupply within the inner-city market.
While there had been an increase in values over the previous 12 months in the eastern suburbs there are now signs of a slowing in the market with an overall decline in prices as well as a decline in supply. Days on the market now average about four weeks and weekly rents average $330 to $380.
This time last year the median unit price in Bayswater was $467,000 (HTW, June 2017) with a rental return of $330 and rental yield of 3.67%. Today they are achieving a median of $506,000 (RP Data) with a rental return of $350 per week reflecting a yield of approximately 3.6%.
For $500,000, purchasers will now find a modern 2-bedroom, 2-bathroom, 1-car space apartment in Box Hill, Wantirna South or Ringwood, or an older 2-bedroom, 1-bathroom, 1-lock up garage villa unit in suburbs such as Ringwood, Croydon, Bayswater, Boronia and Kilsyth.
The majority of purchasers are first home buyers with units generally more popular than apartments.
Inner Northern Suburbs
Values in the inner north vary from suburb to suburb with median house prices in Coburg and Carlton increasing from June 2017 by $22,000 and $75,000 respectively and values in Collingwood continuing to plateau, while surrounding suburbs such as Fitzroy and Brunswick have seen an overall decrease in values due to unit properties being the major influence on the market (REIV).
Generally, $500,000 will buy a new 1- or 2-bedroom unit with 1- or 2-bedroom post-war units with larger floor plans reflecting stronger values. Current rental levels on properties of this calibre would likely yield a 2% to 2.5% return.
Poorly located properties situated on a bare minimum 100 square metre site are achieving prices in the range of $800,000 to $850,000.
Outer Northern Suburbs
The outer northern suburbs continue to expand with multiple estates releasing new house and land packages. The median house price continues to rise. Areas such as Mernda, Broadmeadows, Craigieburn, Sunbury and Mickleham all showed substantial growth over the past 12 months.
A price of $500,000 would buy a semi-detached 3-bedroom house in the northern part of this region (Craigieburn, Mickleham, Kalkallo) while similar sized properties located closer to the inner northern fringe are fetching a minimum $600,000 to $800,000.
With the continued growth of housing estates, properties closer to future transport links, community services, schools, shopping and proposed or existing infrastructure developments are commanding higher values. Rental returns currently stand at 3% to 4% for the best located properties.
Outer South East
The outer south-eastern suburbs are continuing to flourish, with new land releases occurring monthly. Cranbourne East, Cranbourne West, Clyde, Clyde North, Pakenham and Officer have all seen a huge growth in housing development.
These suburbs offer suburban family living within an hour’s drive of the CBD. House and land packages are becoming more common and present as an affordable option for many first home buyers looking to get into the market.
A detached family home in Clyde North consisting of 4-bedrooms, 2-bathrooms and double lock-up garage can still be purchased as a house and land package for around $500,000, while an existing dwelling can be acquired for around $550,000, a slight increase from this time last year. The graph below displays sold prices in Clyde North over the previous 12 months.
A slight decrease in lot sizes perhaps reflects developers seeking to optimise profit. A recent trend aimed at capturing the market for retirees seeking a low maintenance property has seen off-the-plan townhouses with adjoining party walls achieving prices at around the $400,000 mark.
The State Government’s recently announced $236.8 million investment in land to accommodate 14 new schools in the city’s booming locations, including Clyde North, Pakenham and Cranbourne West, has been driven by population growth and the growing demand from first home buyers and young families to buy in the region.
Outer Western Suburbs
The outer western suburbs, including Rockbank, Melton, Point Cook, Tarneit, Truganina, Werribee and Wyndham Vale, have a high number of new housing estates with plentiful land supply and relatively low values compared to established inner suburbs.
In these new estates, $500,000 can buy up to 700 square metres of land, a smaller block of land (around 300 square metres) with a small dwelling or a small existing dwelling, according to the suburb and location, quality and reputation of the estate.
Point Cook is considered one of the more expensive suburbs as far as new housing estates go in the outer west, represented by its median, 3-bedroom house price of $580,000.
Inner North West
Due to the relatively high land values in this area, entry to the property market with only $500,000 may prove difficult. Purchasers on this budget may need to look at strata properties.
The sale of 7G/71 Henry Street, Kensington, a circa 2012, 2-bedroom, 1-bathroom apartment with 65 square metres of living area, achieved $500,000 in December. Other than these smaller apartments, $500,000 in the area will likely only secure smaller parcels of land sub 300 square metres.
Values for existing 2-bedroom, 2-bathroom apartments from Essendon down to Kensington and Maribyrnong down to Yarraville have experienced steady capital growth over the past 12 months.
Mid to Outer Western suburbs Established suburbs in the mid to outer west, including Deer Park, Derrimut and Cairnlea, offer a larger supply of established freehold dwellings and land available to a purchaser limited to $500,000. Typical properties for this amount consist of older 3-bedroom dwellings on around 500 square metres of land or newer dwellings on roughly 300 square metres of land. These assets present as a good option for first home buyers and offer good capital growth as detailed by the consistent increases shown in the graph below.
Ultimately, location remains the most influential factor when determining values within the Melbourne metropolitan property market with closer proximity to services, particularly transport, shopping and schools, and the CBD, being the key drivers of demand and price growth.
The outer suburbs currently offer the best opportunities to obtain a detached 2- to 3-bedroom dwelling for a price of around $500,000, whereas the inner suburbs offer a purchaser a 1- to 2- or potentially a 2- to 3-bedroom unit in a poorer performing location.
Generally, median house and unit values showed steady growth over the 12 months to June 2018, however recent sales evidence suggests a slowdown with the potential for a slight decline in some regions in the short to medium term.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.