While it may seem like an extreme comparison, analysts Propertyology believe market conditions in Melbourne now closely resemble those seen in Perth before the bottom dropped out of prices in 2014
“We’re not saying Perth now and Melbourne now are the same. What we’re saying is that signs that we saw in Perth say two years ago, we’re seeing something similar in Melbourne today,” Propertyology market analyst Simon Pressley said.
“The comparison is Melbourne’s manufacturing sector, we’re drawing a comparison with that to WA’s iron ore sector and both [cities] have a lot more supply of housing than demand requires. That’s where we see the similarity,” Pressley said.
Those concerns will likely result in price falls during 2017-18, though Pressley wouldn’t nominate a by how much.
“Based on the information in our report, Melbourne’s performance will be significantly lower than whatever is broadly happening in Australia in 2017,” he said.
Rather than just the inner city and its well documented apartment oversupply problems, Pressley said supply issues are spread all across Melbourne.
“We study building approval volumes and the actions of developers specific to Melbourne. There are 31 local government authorities that make Greater Melbourne and looking at what is built in Melbourne in a normal year and what has been approved in each of those 31 LGAs over the last two years, there has been a phenomenal increase,” he said.
“The population growth over that same two-year period has much tracked at the same rate as it has over the last five or 10 years. So demand is the same but supply is a lot more.”
According to the Propertyology research, Greater Melbourne has seen 107,381 new dwellings approved in the last two financial years, well in excess of the 35,226 approved per year in the decade to 2011.
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Source: Propertyology
Exacerbating those oversupply issues is the fact that they’re likely to come to the fore at the same time Melbourne’s economy takes a massive hit, as car manufacturing activities in the city cease.
“The car manufacturing industry is to Melbourne what coal is to Brisbane or iron ore is to Perth,” Pressley said.
“Unless you’re living under a rock you would’ve heard two years ago from Ford, Holden and Toyota that they’re closing
“[That’s] 98,000 jobs, indirectly and directly [lost] from the closure of three car manufacturing plants in just over 12 months… that comes from a study done by the University of Adelaide and we have no reason not to take that on face value.
“That’s massive. That’s 6% of every job in Melbourne.”
Pressley said Propertyology has been advising people to not invest in Melbourne for around the last two years, and while the Victorian capital may still be showing signs of strength it won’t last for long.
“A lot of people buy property on emotion and sentiment and what’s happening today because they don’t have the skills and knowledge to really understand what’s happening.
“Melbourne, with its vacancy rates and auction activity is solid and still buoyant. There’s still people missing out at auctions and others telling family and friends they were lucky because they got in last year and now they’re worth five grand more or 10 grand more.
“When that happens residents go ‘oh, I better get a piece of that’, and we think that’s unfortunate because there’s every likelihood that somebody buying a property in Melbourne today will be disappointed in two years from now.”
