Consistency defines the Melbourne property market’s performance, despite apartment oversupply concerns and measures to discourage investor activity
With its strong economy, Melbourne remains one of the steadiest markets in the country.
“It has been the most consistently performing property market over the last two decades and is likely retain that title in 2017, when again we’re likely to see the Melbourne property market outperform most other capital cities,” says Michael Yardney, CEO of Metropole Property Strategists.
“Strong population growth of around 2% per annum and a strong economy creating around 72,786 jobs, most of them full-time jobs, [representing] almost half the new jobs in the country, have underpinned the Melbourne property market.”
An active auction market with high clearance rates also highlights the popularity of Melbourne. However, as in Sydney, tightening restrictions on investor lending are putting the brakes on demand.
“In terms of the value of lending to investors, New South Wales and Victoria account for a substantial majority of overall lending. This is partly a function of higher housing costs,” explained Cameron Kusher, research analyst at CoreLogic.
“We anticipate that investor demand will continue to slow over the coming months. We’re seeing lenders reprice mortgage rates for investors and we are yet to see the full impact of the policy changes designed to slow the level of interest-only lending.”
Melbourne investors are heavily reliant on capital growth prospects, since rental returns are extremely low. Thus, if the rate of capital gains slows, this could dissuade investors.
Apartment oversupply limits housing demand
There are several drivers of growth in Melbourne, however. For instance, the levels of both net overseas migration and net interstate migration are high. The resulting population growth has been able to absorb much of the new supply pouring into the apartment market, moderating decline.
On the flip side, there is a dearth of stock in the detached housing market. BIS Oxford Economics’ Residential Property Prospects 2017 to 2020 report indicates that the median house price in Melbourne is set to be higher in 2020 than it is in 2017. However, many may end up choosing to rent instead of buy as a result of falling rental rates in the now-competitive market.
“The dual effect of the emergence of an oversupply and further APRA directives that will reduce bank lending to investors will increasingly dampen the price outlook in Melbourne,” comments Angie Zigomanis, senior manager at BIS Oxford Economics.
“Pressure on prices is expected to be most concentrated in the apartment sector, although there is nevertheless likely to be an impact on house prices as well.”
SUBURB TO WATCH
East Geelong: Units struggle in recreation hub
The home of Geelong’s premier regional park, East Geelong is a recreational centre for the region.
While mainly residential, East Geelong’s amenities include a golf course and gardens. The Geelong CBD is less than 10 minutes away, giving residents access to major shopping hubs like the Market Square Shopping Centre. The waterfront campus of Deakin University is situated in this CBD as well, and there is a thriving arts scene.
The house market in this area has been performing admirably, with a trend of positive growth over the past five years. However, apartments are having trouble catching on, as prices took a 6.1% dip in the past year.
