Melbourne most consistent market– for now
People continue to pour into Melbourne, but concerns that supply may outstrip demand linger.
“Melbourne has been the most consistently performing property market over the last decade and is likely to retain that title in 2017,” says Michael Yardney, CEO of Metropole Property Strategists.
“However, the markets will remain fragmented, with the current oversupply of new apartments creating a glut that will limit capital and rental growth in this segment of the market for a number of years.” Melbourne’s economic strength sustains the property market’s consistency by creating jobs and therefore enticing migrants. In fact, based on the current rate, Victoria’s population is expected to increase by almost 1.5 million in the next decade.
However, even with the influx of demand, the rental market is not looking so good for investors.
“Overall, rental vacancy rates remain low and rentals are slowly rising, but not as fast as house prices, so yields for investors are falling,” Yardney says.
Nonetheless, housing market performance should improve further in the second half of 2017 with the increased government incentives for first home buyers, which boost borrowing capacity. As these buyers snap up established properties, upgraders seeking new properies can soak up supply.
The stamp duty policy in Victoria for first home buyers has also been robustly overhauled, with first-timers now able to access free or deeply discounted stamp duty on homes priced under $750,000.
Unit market becomes volatile Mixed messages are being received regarding Melbourne’s property market, but the negativity is ultimately attributed to the apartment sector. As things stand, inner Melbourne appears to be gearing up to face oversupply, which will affect growth rates.
Inner Melbourne, Southbank and Docklands have been highlighted by ABS as the most at-risk suburbs, given that they are the sites of nearly half the 35,560 units to be released onto the market in the next couple of years.
Two factors that could deter interest include strict lending conditions and the ‘blacklisting’ of risky suburbs like inner Melbourne. In the latter case, buyers need to make a deposit of at least 20–30% in order to secure a unit. Meanwhile, the stricter lending rules primarily affect overseas investors and are a result of the RBA’s fear that apartment prices will plummet. Thus, investors ought to pay careful attention to the cons when looking into inner Melbourne’s unit market.
By contrast, the house market reports low levels of supply in the inner city. Investors are therefore guaranteed good medium- and long-term returns.
Regional areas attract attention
While houses are reporting greater growth, units may be able to generate higher returns on investment. Villa units and two-bedroom apartments can go for roughly $500,000 in inner-northern Melbourne, specifically Brunswick, Northcote and Coburg.
Consistently performing suburbs in the inner city include Port Melbourne, St Kilda, South Yarra and Richmond, where established apartments are expected to be particularly popular compared to new, off-the-plan units. However, Herron Todd White notes that this market could be risky for buyers since oversupply is a real possibility in the near future, given the large number of apartments scheduled for completion.
Herron Todd White highlights the inner-northwestern area of Melbourne as being especially sensitive to this problem. West Melbourne, Travancore and Parkville are danger zones, which have seen falling prices.
By contrast, properties in the southeastern corridor are recording considerable growth following 2016’s surge. In the outer-eastern ring, the property market has been steady, although its growth in 2017 may be gentler than 2016’s. Herron Todd White predicts that downsizers will concentrate on large blocks in Croydon, Mooroolbark and Kilsyth, especially those with potential for subdivision. They will also be far cheaper than those in the middle-eastern suburbs.
SUBURB TO WATCH
Altona: Prime location near city and sea
Home of the popular Altona Beach, the suburb of Altona is making waves as a strong, growing suburb near the CBD.
Both the house and unit markets recorded price increases in the past 12 months, continuing a trend observed in the past five years. However, houses performed considerably better than units, at 13.6% growth, bringing the median price to over $850,000.
Altona is a large suburb that includes both a residential side and an industrial pocket which generates many employment opportunities. Commuters have their pick of three railway stations, as well as buses and a weekday shuttle service. There are also many primary and secondary schools.
Aside from the beach, the Hobsons Bay Coastal Trail is another nature-based attraction for cyclists. There are several parks and gardens as well. Melbourne Ballpark is situated just west of the suburb.
