In the face of a struggling national property market, Melbourne continues to outperform Sydney

Melbourne dwelling values are still on a downward trend, but it remains in a better place than Sydney.

According to CoreLogic’s Hedonic Home Value Index for January 2019, Melbourne recorded a 7% fall in property prices over the 2018 calendar year, just behind Sydney (8.9% decrease). The decline has hit the top-quartile housing market especially strongly, with values in this market segment plummeting by 11.2%. By contrast, the lower-priced sectors are gaining momentum and reporting mild growth.

“The stronger performance across lower-value properties likely reflects both affordability challenges and lending policies focused on reducing exposure to borrowers with high debt-to-income ratios. These factors, as well as incentives for first home buyers in NSW and Victoria, are likely channelling market activity towards the lower range of dwelling values,” says Tim Lawless, CoreLogic’s head of research.

While rental yields across the country have been on the up in this period, Melbourne’s returns are still considerably below average, and it will take a while to see notable boosts in this area.

“Considering rental conditions remained relatively soft, a recovery in gross rental yields is likely to be a long and gradual process,” Lawless says.

Melbourne is still an investor’s dream

The correction period for Melbourne won’t come to an end while housing affordability remains a problem for buyers. Tim Lawless’s outlook for 2019 indicates that dwelling prices are still roughly eight times higher than typical household incomes. The rate of decline has been increasing along with housing supply, and population growth is starting to ease as well.

However, even with the negative growth trend, Melbourne continues to be a top prospect for investors. According to the Emerging Trends in Real Estate Asia Pacific 2019 report, published jointly by the Urban Land Institute and PricewaterhouseCoopers, Melbourne was chosen over both its peer Sydney and Singapore as the city with the most potential for investment and development in the Asia-Pacific.

The report notes that Melbourne’s tight office supply pipeline is a major factor, as it has caused vacancies to drop and could in turn inspire an increase in rents. Yields from commercial spaces are also high – a strong advantage given that Melbourne is becoming more affordable.

SUBURB SPOTLIGHT

MERNDA: House market records a drop

Correction is beginning to come to the suburb of Mernda in the Whittlesea LGA, where house prices fell for the first time since 2013.

In the year to December 2018, values slipped by 3.2%, generating a median price of $565,915. However, the unit market maintained its upward trajectory, recording 6.9% growth in the same period. Sellers have also generally been able to unload units without having to discount the asking price.

The weekly rental rates for both types of properties rose considerably – by 6.8% and 5.5% for houses and units respectively.

The suburb has undergone much development in recent years, and public transport has improved with the establishment of a local railway station.

Amenities: Commutes to Melbourne have been made easier by the Mernda railway station

Discount: The average vendor discount on unit sales is 0%, highlighting strong demand