Just like Sydney, the heat has come off the Melbourne market, but experts say there’s still enough heat and momentum for growth to occur
Melbourne has raced past Sydney (again), with median dwelling prices surging 2.4% in September, compared to a flat 0.1% growth for Sydney, according to the September CoreLogic RP Data results.
The gap widened during the September quarter when Melbourne median values surged 7.4% against Sydney’s 4.6%.
But the real story is not about how Melbourne has outperformed Sydney; it’s about how both markets are now losing steam compared to their autumn performance.
Andrew Wilson, senior economist at Domain, explains that the signs are clear that the market is slowing down.
“The auction clearance rate is easing back below 70% compared to around 80% to 90% in May. The growth in the Melbourne market is not as extreme any more,” he says. “There’s no doubt that Melbourne peaked in autumn. While price growth is slow, it’s still a seller’s market.”
Wilson notes that the lower interest rate environment and the strong performance of the middle- to upper-end suburbs are driving the price growth in Melbourne. However, he expects prices to moderate amid very high auction listings this spring selling season.
Rents remain flat
Despite the solid price growth, median rents for houses flatlined during the past year, with just a 2.6% increase to $390, according to the latest rental report from Domain. Melbourne unit rents also remained steady over the quarter, sitting at the peak level of $370 – 1.4% higher than in the September quarter of 2014.
“With rental prices significantly below those of Sydney, Melbourne is definitely a more tenant-friendly city,” says Wilson. “More recently, there has been a bit of relief for tenants, although they’ve still had to find more money than they did at the same time last year.
“The flat median rental price result is surprising and goes against the increased supply of property in Melbourne. That said, it’s still a more affordable option than most of the other Australian capital cities,” he says.
While house price growth is expected to slow next year, Propell National Valuers is still forecasting at least 5% growth for Melbourne houses. It’s a different story for apartments, however; the company is expecting apartment prices to slow to 2% growth next year. This reflects the building wave that is going on with apartments in inner-city suburbs, which is limiting price growth.
“The prospects for Melbourne remain good next year,” says Linda Phillips, head of research at Propell.
Sweet spots
For investors looking for opportunity in Melbourne, Phillips believes the investment sweet spot lies between 10km and 12km from the city.
“This is where suburbs have access to the city and are almost as convenient as inner-city suburbs, yet prices are much lower,” she says. “The exception is the premium suburbs around Balwyn, Kew and Toorak, which are around 11km from the city and responsible for the higher median price at that distance.”
At this distance, there are 20 suburbs that offer houses at a median price or less and are the next in line for attention from buyers who cannot afford to be closer to the city, according to Phillips.
“Five of these are to the north of the city, but not so far out that they are affected by the closure of the car industry, yet close enough to benefit from redevelopment and gentrification. These include Coburg North, Hadfield, Fawkner, Reservoir and Heidelberg West,” she says.
The suburbs currently have a high level of sales activity relative to their size, showing a liquid market with high demand. Yet price growth has been below average, from 5.9% in Heidelberg West through to 9.8% in Hadfield.
Phillips also picked Avondale Heights to the west of the city because it’s not as exposed to the industrial areas near Sunshine and Sunshine North. It’s conveniently located south of Essendon Airport and has good access to the city. Its median house price remains affordable at $575,500, but house price growth has been quite low at 5.6%. With 130 sales in the past year, Phillips points out that there is a high level of demand for properties and the suburb is poised to enjoy continuing growth in the future.
SUBURB TO WATCH
Avondale Heights: High demand fuels surge in value
Located within 10km from the Melbourne CBD, Avondale Heights has seen property values surge over the past 12 months. Median house values jumped 8.4% to $612,500, according to OnTheHouse.com.au.
Despite its relatively small size of 5sqm, Avondale Heights has a lot of features to entice cash-rich homebuyers. These include 16 parks, covering nearly a quarter of the area, as well as its proximity to the Maribyrnong River and diverse amenities.
There are also a broad selection of quality schools and transport options in the suburb. Some pockets even enjoy a good view of the Melbourne CBD.
Avondale Heights offers a range of housing options, from old, renovator-ready 1960s homes to million-dollar homes. Investors looking to renovate will find a large number of older homes on big blocks.
It’s little surprise then that a growing number of people are moving into the area, which further strengthens the demand for housing. According to the ABS, there were 10,995 people living in the suburb in 2011. In general, Avondale Heights residents are professionals and the majority (79%) own their homes.
Among the most popular streets in Avondale Heights are Templewood Crescent, Oakley Drive and Dole Street.
