Melbourne June 2018

The month in review: Melbourne

By Herron Todd White
June 2018

The demand for Melbourne property is expected to remain stable, even with the predicted rate rise this year. According to Your Investment Property’s Market Report May 2018, the slow pace has been attributed to both offshore and local investors pulling back due to tighter lending from banks, changes in negative gearing and depreciation and buyers having fewer incentives to buy off the plan. Whilst negative gearing remains available to landlords, rules are being tightened around what can be claimed, specifically related to travel expenses and depreciation deductions.

In December 2014, the Australian Prudential Regulation Authority (APRA), Australia’s banking regulator, restricted banks to lending not more than 10% on investor lending. Banks tightened their policies and property prices started to slow due to more scrutiny on interest-only loans or buying for investment purposes. The recent APRA announcement indicating a lifting of this restriction (26 April 2018) is likely to have a delayed impact on the market as banks slowly adjust.

The Melbourne property market has been one of the most consistent performers over the past few years. There are signs of the market flattening with a decline of 0.4% in growth in the month of April 2018. According to Michael Yardney of Propertyupdate. com.au, Melbourne’s property prices are forecast to drop by approximately 3% this year, cushioned to some extent by strong population growth (source: Propertyupdate.com.au, Yardney, M. May 2018). For the first quarter of 2018, REIV recorded a Melbourne median house price of $855,000 and unit price of $607,000.

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Source: REIV, Mar 2018

The eastern suburbs continue to be stable in locations such as Nunawading, Mitcham and Blackburn, as they appear to have an oversupply of apartments situated close to railway stations and other forms of public transport. REIV Top Growth Suburbs for December 2017 to March 2018 records Wheelers Hill increasing at 10.60% and Endeavor Hills with 8% for the quarter. Certain pockets in the outer east are still achieving double-digit growth.

According to realestate.com.au’s Property Outlook report (source: News.com.au, Carbines, S. April 2018.), Warrandyte is one of Australia’s top 10 suburbs in demand, located only 24 kilometres northeast of the Melbourne CBD. It offers large parcels of land with green leafy parks, Yarra River access and availability of a majority of the local produce grown in the area. The outer south-eastern suburbs continue to attract first home buyers and families looking for affordable living near amenities and public transport, whilst still being a commutable distance to Melbourne’s CBD. With many new land releases in Officer, Pakenham, Clyde and Clyde North, buyers are able to purchase vacant blocks of land at a reasonable price and customise the home to meet their needs.

We expect the inner suburban 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. The pipeline continues to shrink and limited new submissions are being made as the large wave of off the plan apartment complexes comes to completion in mid-2018.

The Eastern Suburbs continue to be stable in locations such as Nunawading, Mitcham and Blackburn, as they appear to have an oversupply of apartments situated close to railway stations and other forms of public transport. REIV Top Growth Suburbs for December 2017- March 2018 records Wheelers Hill increasing at 10.60% and Endeavor Hills with 8.00% for the quarter. Certain pockets in the outer east are still achieving double digit growth.

According to realestate.com.au’s Property Outlook report (News.com.au, Carbines, S. April 2018.), Warrandyte is one of Australia’s top 10 suburbs in demand, only located 24 kilometres north east from Melbourne CBD, it offers large parcels of land with green leafy parks, the Yarra River together with a majority of the local produce grown in the area.

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The outer South Eastern Suburbs continue to attract first home buyers and families looking for affordable living near amenities and public transport, whilst still being a commutable distance to Melbourne’s CBD. With many new land releases in Officer, Pakenham, Clyde and Clyde North, buyers are able to purchase vacant blocks of land at a reasonable price and customise the home to meet their needs.

The Peninsula continues to be a strong performer, with many property owners looking to purchase an investment property or holiday house. According to the REIV, the December 2017 to March 2018 quarter list of top growth suburbs names many peninsula suburbs including Mount Martha, Mount Eliza and Dromana, which was the third fastest growing suburb at 18.6%.

Units and apartments are becoming more prevalent in the south-eastern suburbs as the price of land increases and developers look to cash in and take advantage of changing zoning regulations encouraging development near activity centres. The price growth for units has increased substantially in popular hot spots such as Brighton East, Bentleigh, Cheltenham and Highett. These suburbs are sought after due to their proximity to both beaches and train stations and established infrastructure. Clayton is still a strong performer due to its close proximity to Monash University. Because of this, many overseas investors purchase newly built apartments in this area so that their children are able to attend university in Australia.

With many inner city suburbs increasing in value, owners look to use their increased equity to purchase cheaper investment properties, which will continue to drive up prices on the Peninsula as many houses can be let out over the summer with sizeable rental returns thanks to the likes of shortterm accommodation websites such as Airbnb and Stayz. The growth in the south-eastern suburbs will be at a much slower pace as many purchasers are being priced out of the residential dwelling market. Apartments and units in these suburbs will continue to show strong growth due to being an affordable option within a half hour drive to the CBD.

Inner West Melbourne market remains steady, with a growing quantum of apartments. A change in the market has shifted to Moonee Ponds with the biggest apartment development currently underway, Mason Square, comprising 1200 apartments within four towers, by Cayden Developments. The development is due to open Stage 1 from June 2018. Larger residential developments are slowly changing profile Middle Melbourne.

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The Middle Ring Western Suburbs’ property market remains moderate as developer interest for compact, potential developments sites as the area has shown significant population growth, in particular the Brimbank municipality. Housing affordability is still prevalent with the rise in unit developments, and the upcoming presence of apartment developments emerging in the suburbs of Sunshine and Sunshine West. REIV states that the median unit price in Sunshine is $500,000 contributing to 9.2% of the market from the March 2018 Quarter. This is showing a shift to forecast higher density growth and is expected to hold for the second have for 2018.

The Outer Western Suburbs of Melton, Hoppers Crossing, Werribee and Wyndham Vale have shown significant increases in volume due in part to a rise in first home owners to entering the market from July 2017, when stamp duty was abolished by the State Government for first home purchasers under $600,000. The new construction market still going strong and is expected to continue, due in part to further incentives from the Victorian State Government with the First Home Owners Grant of $10,000.

We foresee the Outer North Suburbs to continue its expansion through the assistance of new major developing estates bringing in increased housing developments within Craigieburn, Mickleham and Kalkallo. As construction enhances housing supply in the outer North, it is still evenly matched with current housing sales in surrounding northern suburbs. Median house price growth has increased from the December 2017 quarter in areas such as Sunbury and Doreen which have increased by 6.5% and 4.6% respectively (REIV). Although median house prices for the outer north are overall level, auction clearance rates are below expected market parameters. As the market continues to explore slightly higher housing prices, we do not expect the outer north to vastly increase for June 2018.

Inner North Suburbs have shown a steady plateau in market conditions even though people are still willing to pay more for closer proximity housing near Melbourne’s CBD rather than heading further out for less expensive trade-off. There has been substantial growth within median house prices for sought after suburb Northcote which has landed a 19.30% increase in median house price from the December 2017 quarter (REIV). The previous quarter has shown growth in median housing unit prices in Carlton and Pascoe Vale being 16.20% and 2.10% respectively. Although this growth is not the case for most of the inner northern suburbs as the market explores a period of moderation.

Affordability constraints, reduced activity from local and foreign investors, along with a general cooling in the market, are other factors that have contributed to the recent softening in the market. With dwelling values now falling or rising at a slower rate than rent, gross rental yields are generally tracking higher. In the lowest yield markets, Melbourne dwelling rents have lifted from their record lows, but remain well below the long run average.

As Melbourne’s population continues to rapidly grow to and surpass 5 million this year, the suburbs in the Outer West and Outer North will continue to accommodate for new immigrants and first home buyers, but also continue to challenge the local, state and federal governments for sustainable infrastructure.

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