Melbourne September 2017

The month in review: Melbourne

By Herron Todd White
September 2017

Inner City

Home ownership rates in Melbourne and the surrounding inner suburbs continue to fall simultaneously with house prices continuing to grow, forcing couples and prospective home buyers to settle for renting rather than ownership. The family home is continually changing and being redefined in Melbourne, with only 10% of households overall being made up of couples with children and only 20- 25% within the suburbs of Richmond, Prahran, South Melbourne as home buyers looking to start a family are being pushed further out to accommodate their budgets.

We are seeing the Millennials choosing to rent for the lifestyle of being close to Melbourne’s Central Business District (CBD) and other amenities, rather than investing in home ownership. The rental rate within Melbourne is 63% and the inner suburbs average 50% to 55% of households being renters. First home owners within the hub of Melbourne are young couples (32%) and single households (24%) who aren’t in need of large areas of land, but prefer to be nearby work and also enjoy the benefits of the night life of Melbourne. The home buyer frenzy has flattened, with the lowest sales per month in recent years being recorded in April this year (1,511) as activity continues to subdue. House prices within Melbourne continue to stay strong with recorded growth of 10.1% in the median house price since the beginning of 2017.

South Eastern Suburbs

Interest for housing opportunities in the southeastern suburbs continues to strengthen. Clyde North, Botanic Ridge, Cranbourne East and Officer have been experiencing a housing boom since 2016 as the south-east region grows year on year.

The typical buyer in the area is a young family consisting of two adults and children (ABS, 2016). Typically they are first home buyers who take advantage of the stump duty saving opportunity by purchasing a property under $600,000. They are large inside space seekers (i.e. the number of bedrooms, living areas, etc. is their established and important preference). The second and third group of buyers are downsizers from established large homes and investors who enter the market because of the relatively low property price range (below median) and prospective capital growth coupled with moderate rental returns.

The Australian dream notably transforms over time as the south-east Melbourne corridor continues to densify. A quarter acre block becomes a developer’s opportunity rather than an average solo homeowner prospect.

Eastern Suburbs

Home ownership has been touted as the great Australian dream for decades, but the definition of a home is changing.

Within the middle eastern suburbs such as Glen Waverley, Vermont and Wantirna, purchase of a family dwelling is considered out of scope for first home buyers, with the entry level valued at above $1 million. There appears to be an equal distribution throughout these suburbs between investors and established owner-occupier families. Families who have settled into these suburbs are not tending to move to other municipalities, but more so they are either re-developing a new family home on their land, or relocating nearby. Further to this, the recent activity between APRA and the major financial institutions has seen a slight decrease in investor activity. This is creating an almost even market between investors and established owner-occupiers.

Within Ringwood there is a strong investor market in comparison to adjoining suburbs of Ringwood North, Ringwood East and Park Orchards where there is a strong owner-occupier market. These suburbs identify with a large growth in apartments whereby they are either purchased by first home owners or investors to then lease. Similarly, Croydon and Croydon North are comprised of mainly first home owners and families, with a smaller emphasis on investor activity in apartment purchases.

The outer eastern suburbs are seeing a lot of investment activity within Ferntree Gully, Kilsyth and certainly Boronia, making it difficult for first home owners to compete in these suburbs. The supply for investors appears to be fuelled by the older generation down sizing and moving closer to the city.

Similarly, further east into Belgrave, Upwey and the Mount Dandenong Ranges, the same supply is being created with baby boomers moving towards the city however, these properties are being purchased by a younger generation. These properties are more affordable, at approximately $600,000 to $650,000, appealing to young families who prefer a larger property over a closer location to the CBD. In addition to this, younger families are also purchasing in and around Chirnside Park and Lilydale due to the increase of newer properties available.

Northern Suburbs

Melbourne’s northern suburbs continue to offer various options for prospective home owners from empty nesters looking to move from larger eastern properties and downsize and settle in the inner northern suburbs to families who are able to upgrade to accommodate growing families. Larger 3- and 4-bedroom detached dwellings continue to be in high demand in Melbourne’s outer north.

While median sale prices for detached houses in the metro Melbourne area are currently at $822,000 according to REIV, outer northern suburbs such as Craigieburn and Mickleham are more affordable with median house prices of $495,000 and $515,000 respectively.

Whilst detached housing remains a preferred property type for potential home owners, the steady property market increase in Victoria limits the ability of some first home buyers to afford detached housing. This makes more affordable villa units and townhouses in the outer northern suburbs further from the city centre popular choices, with median unit prices of $365,000 and $333,000 in Craigieburn and Sunbury respectively (REIV).

Downsizers who decide to move to Melbourne’s inner northern suburbs are usually represented by babyboomers and empty nesters who choose to swap their large (and thus hard to maintain) houses in the suburbs for smaller units and boutique developments catering to owner-occupiers who wish to be closer to the Melbourne city centre in order to enjoy a more active life style. Typically, downsizers choose Melbourne’s inner and middle ring suburbs, such as Hawthorn to move into. Property prices are not the main driver within this market, as downsizers are looking for better infrastructure and quality of the developments.

Western Suburbs

Family buyers are active in the inner suburbs of Seddon and Yarraville, approximately six and eight kilometres west of Melbourne’s CBD respectively. Families are lured by the intact streetscapes, period housing, public transport, schools, access to the city, cafes and shopping that these suburbs offer. As of June 2017 the median price for Seddon was $917,000 and the median for Yarraville was $1,101,000 (REIV, 2017) which typically would put these suburbs out of reach of first home buyers. However, relative to other eastern suburbs a similar distance from the Melbourne CBD, the lower price points of Seddon and Yarraville mean they are attractive for family buyers.

Further out, the suburb of Deer Park has seen its median house price rise by 17% to $590,000 in the June 2017 quarter (REIV, 2017). Deer Park provides good transport and infrastructure and offers first home buyers larger land sizes and family properties with a median price that is just under the $600,000 stamp duty threshold. Surrounding suburbs such as Cairnlea and Ardeer are also popular with first home and family buyers. St Albans’ median unit price increased by 22% to 22.2% in the June 2017 quarter (REIV June 2017).

The house and land market in outer western suburbs such as Wyndham Vale, Tarneit and Truganina and north-western suburbs such as Melton, Thornhill Park, Brookfield and Harkness is remaining buoyant as first home buyers and families continue to seek out affordable housing. The changes introduced on 1 July 2017 to the First Home Owners Grant and stamp duty are expected to keep this demand constant as the majority of purchasers in this area aim to spend under $600,000 on their house and land to avoid paying stamp duty.

The predominant property type purchased in these suburbs is new house and land packages as there is new stock coming onto the market frequently and the savings offered to first home buyers coupled with the ability to personalise the dwelling being great incentives. There are a small quantity of townhouse developments within Point Cook, Tarneit and Truganina however the majority of purchasers favour detached dwellings, particularly young families as many want a backyard or a larger style house to accommodate their family.

Investors form a smaller portion of the purchaser profile in the outer suburbs as there is less demand in these areas in comparison with inner suburbs such as Footscray, Moonee Ponds and Essendon.

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