Affordability driving buyers to Melbourne fringes: HTW

Affordability driving buyers to Melbourne fringes: HTW

Prateek ChatterjeeDecember 7, 2020

Melbourne was approaching the peak of market for houses while being at the top for units in valuation firm Herron Todd White's April 2016 property clock, a simple broad brush means of indicating where property prices are and where they are headed to.

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The report also talks about Melbourne's fringes and their affordability compared with the inner city.

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Outer East

Within the outer-east, fringe suburbs can be considered to be Kilsyth, Boronia, Mooroolbark and Bayswater North. Affordability is certainly one of the main factors driving a movement of purchasers from the inner-eastern suburbs to those on the fringes.

The average price for property aggregated through Ringwood, Ringwood East, Mitcham and Wantirna for the December 2015 quarter was $858,250.

By comparison, the neighbouring fringe suburbs averaged 43.8% lower at $596,750 (source: REIV). The difference can partially be explained by the availability of good quality schools within the inner- eastern suburbs which has traditionally attracted more families and increased competition, thereby increasing average prices. While the middle eastern suburbs provide convenience in terms of access to the city and amenities, the resulting properties tend to be smaller. On the other hand, properties in the fringe suburbs tend to be on larger lots of land and offer purchasers further opportunities and scope for future development.

Although the fringe suburbs may appear to offer good value for money, capital growth rates show that these suburbs may not represent a good short term investment. Bayswater and Boronia for example recorded capital growth of only 1.6% and 2.3% respectively in the 12 months to March 2016. By comparison, in the same period, Ringwood grew by 7.6%, while Wantirna South grew by 9.8%. However, from an investment point of view, rental demand for properties in the fringe suburbs has been high which has resulted in respectable yields of over 4%.

In the long term, it would seem reasonable to expect the price gap between the middle eastern suburbs and the fringe suburbs to narrow as developers consider the abundance of large lots available in the fringe suburbs and therefore attract more potential purchasers who may have previously excluded such suburbs from their search criteria.

Examples of sales in fringe suburbs

138 Liverpool Road, Kilsyth – sold for $515,200 on 10 March 2016 (land area 432 square metres, 4-bedrooms, 1-bathroom, 1-carport)

6 Freedman Avenue, Boronia – sold for $570,000 on 3 March 2016 (land area 930 square metres, 3-bedrooms, 1-bathroom, 1-car garage)

Outer North

The fringe dwellers of Melbourne’s north are in suburbs such as Greenvale, Craigieburn, Mernda and Doreen. These suburbs are situated within Melbourne’s outer ring. When looking at affordability in the north of Melbourne, middle suburbs such as Northcote, Brunswick, Thornbury and Preston are all having an impact.

Quarterly median house prices in the inner north:

Northcote-$1,106,250 • Brunswick-$925,000 • Thornbury-$1,017,000 • Preston-$812,000

An increasing amount of home buyers are looking for more affordable properties in the north. Compare these median prices in the inner north to that in the outer ring of Melbourne.

Quarterly median house prices in the outer north:

• Greenvale:$655,000 • Craigieburn:$420,000 • Mernda:$455,000 • Doreen:$480,000

Some of these outer north suburbs have experienced good growth in median prices in recent times. Greenvale had a quarterly change of 17.8%, and Mernda showed a change of 9.7%. Home buyers or investors need to be aware however that median prices are not always a true re ection of the growth of a suburb. Greenvale for example has recorded some high priced sales in recent times, which affects the median price.

1 Lamark Court, Greenvale – sold for $1.285 million on 23 October 2015 (land area 4,094 square metres, 4-bedrooms, 3-bathrooms, 4-car garage)

Weekly rent for three-bedroom houses in Craigieburn is $330, with a yield of 4.8%. Mernda is $333, with a yield of 4.6% and Doreen is $350, with a yield of 4.4%.

With a great amount of new housing development occurring in the outer north of Melbourne, it can be said that the oversupply will keep prices stable or even see them decrease in the short term.

The outer north is more a long term proposition. The area will become more favourable with an increase in infrastructure such as public transport, schools and town centres.

Outer West

The western fringe suburbs of Melbourne have been increasing in popularity as more buyers make the decision to live or invest outside of the inner and middle metropolitan areas. There is an appeal for home owners buying bigger lots and building larger homes for their money. It isn’t just those getting in at the low end but buyers who take the opportunity to have a bigger home often with higher-end finishes and fittings in comparison to what they could buy with the same amount of money in the inner and middle metro suburbs. We are seeing steady and in some cases increasing demand for suburbs such as Tarneit and Wyndham Vale in the outer south-west along with Plumpton, Rockbank and Melton in the outer north-west.

With the Melbourne population projected to almost double from its current 4.4 million to eight million by 2051, the development of fringe suburbs will need to continue in order to provide sufficient housing for Melbourne residents.

A number of factors are at play for buyers choosing to enter the market in fringe suburbs, the biggest being affordability. Based on Real Estate Institute of Victoria (REIV) statistics, the metro Melbourne December 2015 quarter median house price was $718,000 and the median unit price was $537,500. In comparison, for the same period Tarneit median house price was $415,000, Wyndham Vale was $365,000 and Melton was $257,000. With median house prices in the outer suburbs being less than the median unit price in metro Melbourne, it is not surprising that so many are purchasing in fringe suburbs. As both owner-occupiers and investors are hunting for affordable options and better capital growth opportunities, looking further away from the city is becoming a common trend. Overall, the outer suburb median house price for the December 2015 quarter increased 2.9% to $559,000 and the median unit price rose to $425,000.

These outer fringe suburbs are self-sufficient with amenities, schools and transport. While services and infrastructure has been lagging in outer suburbs compared to inner and middle metro areas, the Government has made this a priority due to the increased volumes of people moving to these areas and committed to updating the planning blueprint and allocating funds for community facilities in late 2015 with a focus on co-ordinating the economic and social infrastructure required.

Those looking to invest are looking to the fringe suburbs in the hopes of finding a bargain that can return strong rental yields. Realestate.com.au advises the median rental return for Melton is $270 a week which equates to a 5.5% yield. Plumpton has a median rental yield of 6.7% and a median weekly rent of $385. Tarneit provides a lower rental yield with a median of $340 per week and 4.4%.

Although there is demand for existing dwellings in some of the more established suburbs such as Wyndham Vale, Tarneit and Melton there is also strong demand for the new estates throughout the western fringe. With the large volume of englobo land in the west, it is a trend that can continue as long as there is demand. A large majority of these new estates is being planned and developed with various facilities or conveniences to enhance the lifestyle of residents including shops, cafes, schools, day care and sports and recreation amenities. The appeal of the strict design guidelines and presentation of the estates is considered attractive as it helps to create a pleasing and cohesive aesthetic. While some buyers may see it as a detraction to live in a uniform estate, others see it as a positive and prefer the consistency. The appeal of building a new home is continuing to be popular and in part driven by the restrictions on overseas buyers to invest in new dwellings.