Melbourne buyers have the luxury of being fussy, as development projects take the city to the brink of oversupply
The Melbourne market is starting to resemble an ideal situation for buyers, thanks to myriad quality discounted properties to choose from and the option to think long and hard about purchases.
“Victoria has been the opposite end of the spectrum from NSW in some senses over the last few years,” says Paul Braddick, head of property research at ANZ. “It is the one state that has actually been producing adequate housing and arguably, over the last 18 months or so, has been overproducing.”
The ready supply of property has seen a notable increase in Melbourne’s vacancy rate, which is up from 1.5% 18 months ago, to 2.4% now, according to Braddick.
“You wouldn’t say it’s excess supply, but that listing means you don’t have the same upward momentum in rents that you’re seeing in Sydney,” he says.
“In terms of specific areas of the market, the one that everyone’s concerned about is the inner-city apartment sector, because the vacancy rates there have lifted quite significantly. There has been a lot of supply come on in the last 12-18 months again, as well as a substantial pipeline of new projects that are either under construction or committee and are going to be delivered into the market in the next two to three years. The extent of that supply will test the demand for that type of product in that location, the 0-4km ring from the city.”
Foreign influence fades
Braddick believes Melbourne prices have over-performed in recent years, due to certain stimulus measures in the wake of the GFC. In particular, he believes a nationwide relaxation of restrictions on foreign investors proved particularly influential to Melbourne property movements.
“In the wake of the GFC, the government was seeing house prices tank in the US, Spain, Ireland and so on,” he says. “So they basically opened up the Foreign Investment Review Board’s (FIRB) rules, so offshore investors, and as it turns out particularly Asian investors, were able to buy land and property.”
Ordinarily, in the interest of keeping Australian investments affordable and a decent percentage of ownership on home soil, the FIRB will refuse applications by foreign investors to buy certain assets. With property, they are often allowed to buy units, but not land and property.
“The risk [of relaxing FIRB rules] and actually what you saw happen, is that prices are pushed through the roof,” says Braddick. “You get very wealthy foreign businessmen, able to bid way above what you or I are able to afford.
“However, for the 12 months after the GFC, it was almost open slather and there were a lot of Asian buyers. The offshore interest was focused predominantly on the bigger capitals such as Melbourne and Sydney, largely because mainland Chinese people probably didn’t know as much about [other Australian capitals].”
Braddick believes the gloss of the foreign investment boom in Melbourne is now fading, due to FIRB restrictions being put back in place and the removal of stimulus such as the first home buyers’ boost.
Scattered optimism
The greater Melbourne market has performed erratically in the early stages of the year, according to Cate Bakos from Empower Wealth.
“We’ve started with a fair amount of optimism, but not across the board,” she says. “There are parts of the Melbourne market that are certainly harder on vendors and there are other parts, where you’d look at sales results from auctions and not even understand that we’ve come through any market slowdown.”
Bakos agrees that the apartment market has been struggling the most over the past 12 months.
“A sign of a bit of a downturn is when investors decide they’re not seeing the returns or capital growth they want and then sell, thinking either the market could be getting worse or that they should put their money into another asset,” she says. “A lot of investors have sold their properties and we have had a glut of apartments in some areas. That’s always a good buying opportunity for anyone who does want to get into the inner band, the 5–10km doughnut around the south-east of the city.”
Bakos believes that quality family-oriented markets are currently providing the most buyer competition.
“Good family homes in established areas are really hard to buy competitively. You’ve got to put up a fight to get them and pay a little more,” she says. “Suburbs with nearby high schools, such as Glen Iris, Camberwell, Ashburton and Malvern East have been really strong.”
Bakos believes investors looking for quality bargains should keep an eye out for imbalances in specific suburbs or markets.
“Last December, there were a lot of single-fronted, renovated period properties on the market in Seddon and Yarraville in the inner west and more than normal in the $600– $700,000 price band,” she says. “That created good buying conditions for that sort of stock. They’re usually the properties that are highly popular in those areas and sell like hotcakes.”
