Melbourne May 2017

The month in review: Melbourne

By Herron Todd White
May 2017

Inner-City
The apartment market for Inner-city Melbourne has started to soften in the first quarter of 2017. According to Real Estate Institute of Victoria (REIV) reports, most inner-city suburbs have seen drops in median unit prices since last quarter, with Docklands median unit prices falling by 2.3%, Southbank experiencing a 1.8% drop, and South Yarra seeing a 0.7% decline.

There is growing concern regarding the oversupply of inner-city apartments, which has been well documented by the media in addition to being recognised by the RBA, who has issued warnings that current high levels of supply may constrain growth in prices and rents in some market segments. It is anticipated that the recent implementation of tighter lending policies on both foreign purchasers and investors will cause the apartment market to further soften in addition to increasing settlement risk for developers.

Prestige
The current state of the prestige market is still strong. The demand for property is outweighing the supply of properties for sale. The most in-demand properties are those with large land holdings or properties that can be redeveloped or knocked down without any planning restrictions. Other key factors are the continuing low interest rate environment, proximity to the CBD and population growth.

The strong prestige market is highlighted in suburbs such as Kew, Balwyn North, and Malvern. As of March 2017, the median house prices for these suburbs were $2.165 million, $1.925 million and $3.01 million respectively, with a quarterly change of 11%, 11.2% and 24.6%.

Highlighting the current state of the market, on the 25 February 2017, 17 Spring Road, Malvern sold for $5.075 million. The auction lasted 60 seconds with a total of seventeen bids. The reserve was $4.3 million.

The key factors that could result in the prestige market slowing down are an increase in interest rates, a bearish equities market, and overall loss of confidence in the market.

South-East
The current state of the outer-south-eastern market would be described as slowly strengthening. With continued population growth, current low interest rates, as well as readily available land, residents are looking to newly developing suburbs such as Clyde, Officer, and Pakenham for relatively affordable land or established homes. This is especially true for first home buyers and young families who are looking for a dwelling as opposed to a smaller inner-city apartment or townhouse with limited backyard.

This area is described as a growth corridor, with prices for new residential land noticeably increasing over the past 12 months as detailed in the graph below. With the government’s commitment to infrastructure and investment in the region including public transport, shopping precincts and major roads, the popularity of the area is expected to continue.

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The main factor that could potentially have an effect on property prices within this region would be interest rates. Being that the area is made up of young families and first home buyers, a rise in interest rates may discourage buyers from getting into the property market, which could slow the rise in property demand and as such have an impact on property prices.

However, with continued growth in our population, demand for property within the region is expected to remain, with performance expected to be slow but steady.

Northern suburbs
Inner-northern suburbs of Melbourne continue to perform well, with strong results continuing at all price points. Growth within the detached dwelling sector continues to outperform their unit counterparts, driven by strong underlying land values, infrastructure, and proximity to employment and amenities. The outer-northern suburbs of Craigieburn, Mickleham and Kalkallo are also considered to be performing well at all price points, primarily driven by factors associated with affordability, infrastructure, and population growth.

These markets are considered to be tracking well, with strong demand and relatively limited availability of new titled allotments being made available. We have noted, however, that a substantial increase in supply could lead the market in a new direction.

Generally speaking, the outer-northern suburbs would benefit most from an increase in infrastructure investment given the lack of pre-existing infrastructure to support the already growing population.

Both the inner-northern and outer northern suburbs would likely see a slowdown if there was a significant change in lending criteria or interest rates. Outer-northern suburbs, however, are at higher risk of being impacted by a decrease in overall demand as they are more sensitive to rising rates.

Outer-east
The current market within the middle and outer-east is very strong and rising. In particular, the strong market is evident in the middle-eastern suburbs of Nunawading, Mitcham, Glen Waverley, and Mount Waverley. Within the outer-eastern suburbs, the market is also strong in Ringwood, Ringwood East, and Croydon. Within both areas family homes of 3- to 4-bedrooms are in high demand.

The high demand for the outer-eastern locations has been caused by buyers being priced out of the inner-middle-eastern suburbs and then deciding to purchase within the middle-outer-eastern suburbs. The rising prices are caused by the lack of supply and high demand, with buyers looking for more affordable family housing.

Demand for the middle-eastern suburbs has been caused by the school precincts such as Mount Waverley and Glen Waverley as well as good transport links to the Melbourne CBD. The high demand has also caused the market to continue to rise in price.

At this point in time, we do not forecast the market to decline as the demand is too strong. However, if a major change in the economic climate was to occur it is possible the market would decrease. An example of the rising prices within the outer-eastern suburbs was the sale at 30 Caroline Street, Ringwood. It sold on the 4 March 2017 for $950,000.

The last sale of the property occurred in December 2013 for $572,500. This sale illustrates the high price increases that have occurred within the past four years.

Western suburbs
The current state of the market within the inner-western suburbs for established dwellings remains very strong, with record prices experienced, in particular suburbs such as Kensington, Ascot Vale, and Newport. However, like much of Melbourne, the apartment market has stalled with the addition of a large quantity of new stock over recent years. In particular apartments built within the past ten years are feeling downward pressure as new, modern buildings are more attractive to buyers and tenants.

The middle-western suburbs have seen a shift in buyer profile with a large number of smaller developers looking to purchase existing dwellings on larger lots to develop into new townhouses and villas. This has seen increase in demand through established suburbs such as Altona, St Albans, and Sunshine, with strong results; however, we’ve seen a premium paid by developers (to that of owner-occupiers) in some instances, pricing out owner-occupiers. Demand still remains strong for good-quality housing as pricing pressure is felt closer to the CBD, which becomes ‘unprofitable’ for developers due to the added value of the improvements.

The first-home buyer market remains buoyant with continuing demand for new properties. With changes being made on 1 July 2017 to the First Home Owners Grant and stamp duty, the Victorian State Government has announced that stamp duty will be abolished for first-home buyers purchasing a home with a dutiable value of no more than $600,000. Eligible first-home buyers of new homes in metropolitan Melbourne will continue to receive $10,000 and regional first-home buyers will be entitled to an increased grant of $20,000. With these incentives from the Victorian State Government, the house-and-land market is expected to remain stable in the outer-western suburbs such as Werribee, Wyndham Vale, Point Cook, Tarneit, and Truganina.

 

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