Buyers gain in Melbourne as economic worries mount

Increased buyer activity at the start of the year brought a surprise halt to Melbourne’s recent price slide, but analysts expect it to remain a buyer’s market as continuing concerns about the Victorian economy loom large.

Melbourne’s median house price rose 1.6% over the first three months of 2012, according to Australian Property Monitors, marking a rare positive turn for a market that has largely been on a steady decline for more than a year.

The April Residex data showed an improvement in the unit market, with the median rising by 0.46%.

But APM economist Andrew Wilson expects reality to settle back in for what has become a tough Melbourne market. “We’ve had some increased buyer activity over the last couple of quarters, but mainly because it came from such a low base,” he says. “Although the Melbourne market has been encouraging so far this year, this may prove to be short-lived if the Victorian economic performance continues to deteriorate. We’re not only seeing a shakeout in the top end of the market but we are also seeing a softness from the bottom end of the market as well as the middle of the market.”

An issue of supply

Angie Zigomanis of forecasting firm BIS Shrapnel says Melbourne’s unit market appears to be especially worrisome, as years of record construction mean a flood of new units hit the market just as demand continues to ebb.

But both analysts point to brighter spots in regional Victoria that have continued to perform well despite the ongoing gloom in the state capital.

“Regional Victoria has been quite reasonable especially through that north western belt including Ballarat and Bendigo,” says Wilson.

“It is a robust niche market that showed reasonable growth last year.

“However, if the Melbourne market remains weak I’d expect that weakness to start to move out regionally and this will be a factor that will have a lot to do with unemployment and reduced job opportunities.”

Not all bad news

While Victoria’s economy has increasingly found itself on the slow lane of the nation’s two-speed economy as the state’s manufacturing and retail sectors continue to suffer at the hands of a strong Aussie dollar, Access Economics says there are still some key bright spots.

Big infrastructure spending such as the $5.3bn Regional Rail Link project linking West Werribee to Melbourne’s Southern Cross Station and other transport projects including the $1.3bn Peninsula Link, due to be completed in 2013, will continue to support the local economy.

While mining towns such as Gladstone and Port Hedland continue to hog the limelight in terms of infrastructure investments, Victoria also receives an impressive amount of government and private investments including the:

  • $980m Western Ring Road expansion
  •  $404m duplication of Western Highway between Ballarat and Stawell
  •  $417m upgrade of the Eastern water treatment plant at Carrum
  •  $220m upgrade of the main sewers at Melbourne