The Smartline Report – June Edition

The month in review: Melbourne

By Herron Todd White
June 2015

The Melbourne residential property market is performing well across the board and is described by many property analysts as hot. Units do not seem to be reaching the same levels of growth in some areas, however this can be explained by an oversupply in the market. The overall positivity within the residential market in Melbourne can be attributed to many macroeconomic drivers including the low interest rates, increased foreign investment, population growth and job security. A specific market sale that typifies the positivity of the Melbourne residential property market occurred on 22 April 2015 when 55 Waltham Street, Flemington was sold at auction. This property set a suburban record, selling for $2.9 million. The two level, double fronted,
Victorian dwelling hosting 286 square metres of living area, comprises 4-bedrooms, 3-bathrooms, swimming pool and a separate studio. The property is situated on an above average 974 square metres of land within the heart of Flemington.

Foreign investment is one of the drivers in the current Melbourne market. Chinese buyers are especially active and heavily involved in the eastern suburban, prestige and off the plan property markets. The suburbs being impacted heavily are Doncaster, Balwyn and Templestowe. It is the financial backing of some of these foreign investors that is keeping local buyers out of the market.

Chinese investors are competing against one another and are battling it out to enter any of these markets at above market level costs. This impacts the consistency of sale prices, making it particularly difficult to determine what the true market levels in some areas are. Foreign investment has encouraged greater inner city high-rise development, which has subsequently exposed a glut in supply of off-the-plan apartments. This is evident particularly within inner city suburbs such as Southbank and Melbourne’s CBD.

Population growth is another major contributor to the property market performing well. Victoria’s current annual growth rate is 1.77%. This growth is typically occurring on the outskirts of Melbourne in newer suburbs such as Craigieburn, Point Cook and Mernda.

Consider the suburbs of Northcote, Essendon and Carnegie as examples to gauge current market performance. The price point for all three suburbs is medium to high. The main demographic is quite
similar, the majority being professional couples, some with children and generally in the medium to high income earnings bracket.

Housing in Northcote is excelling. Median house prices rose 4.2% for the quarter to reflect a median sale price of $943,000. Units are remaining flat or even declining slightly. The median sale price declined 1.81% for the quarter to $487,500.

Northcote’s popularity can be attributed to many factors such as being seven kilometres from the CBD and access to extensive public transport, Northcote Shopping Plaza and High Street retail strip. The high demand for housing in this area has forced entry level prices to rise. Last year entry level buyers could afford partially updated properties in Northcote.

The increase in value has forced them into buying houses in original condition. Another trend in the Northcote housing market is investors and owner occupiers starting to pay more for unrenovated original properties, preferring to do the renovation themselves rather than buying an already updated property. A sale of note is 41 Union Street, Northcote which sold for $1,003,000 on 28 February 2015.

This property is a single fronted Victorian gutted shell, meaning the purchaser is buying the skeleton of the property and is happy to renovate and extend themselves. Therefore this price is very close to land value, reflecting a rate of $2,500 per square metre, proving that the gap between original and updated house prices in Northcote is closing as purchasers pay a premium for un-renovated dwellings. Essendon is another suburb that is performing remarkably well.

Both housing and apartment markets are strong.

House values are steadily increasing at a yearly rate of 9.25% to a $915,000 median price. Units also rose 5.39% for the year to a median of $459,500. The Essendon DFO shopping centre, Buckley Street shopping strip and train line are contributors to the popularity of this suburb.

Essendon has shown a higher rate of interstate investors within the suburb alongside strong local investment. This is due to many factors including its further distance from the CBD and moderate level of boutique low rise / low density apartments in contrast to Northcote’s higher density apartment market. You are far more likely to see local agencies (e.g. Pennisi Real Estate, Raine&Horne) on the contract than the development firm behind the marketing campaign.

Another suburb we have found interesting to watch this financial year has been Carnegie situated within the City of Glen Eira. This suburb has reflected an impressive 7.19% capital growth for the year in the residential housing market. We saw the highest median sales prices over the past three years at $1,277,500 in March 2015. We predict this is due to the suburb’s increased popularity due to the strong investment in retail outlets such as Officeworks, Spotlight and the all-round convenience of Carnegie Central. Carnegie also has five major parklands throughout the four kilometre radius of the suburb reflecting close to 7% of the total suburban land area according to CoreLogic RPData.

Overall, we have witnessed strong and positive market performance throughout 2015 providing hope for continued growth for the next six months. Foreign investment has been particularly strong in the Melbourne CBD and inner city suburbs, impacting the consistency of apartment sales within these areas as we struggle to find off-the-plan sales meeting the current market range. This investment is predicted to continue strongly over the next year especially while the RBA cash rate remains low at 2%.

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


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