Melbourne in the housing spotlight: Are there any spring 2013 hotspots?
Expectations that the Melbourne property market will enter a period of sustained downturn after being one of the strongest performing capital city housing markets, post-GFC, have not come to fruition.
The most recent RP Data-Rismark report to the end of July has Melbourne dwelling values up 6.8% since the housing market bottomed out in May last year.
While concerns remain for certain sectors of the market, such as the oversupplied Docklands apartment market and house and land estates on the fringe, the overall trend appears upwards.
Housing trends:
Indeed the market is performing better than most predicted, though the extent of the improvement depends on where you source your data.
The most recent report released by Australian Property Monitors (APM) has the Melbourne median house price up 5% over the June quarter to $554,000 and 6.1% year-on-year.
Unit prices have grown more modestly, up 3.7% over the June quarter and 4.2% year-on-year to a median price of $412,000.
Putting this into context, both sectors of the residential market have already far exceeded APM’s own forecast of between zero and 3% for Melbourne over the entire calendar year.
The Real Estate Institute of Victoria recorded a 2.4% increase in Melbourne house prices over the June quarter to $562,000 – 8.4% up on the same quarter last year with unit prices up 2.8% and 5.7% respectively to $464,500.
July figures from RP Data- Rismark (one month ahead of the other providers) has Melbourne house values up 2.5% over the July quarter to $530,000, and up 4.4% over the previous 12 months with units up a more modest 1.2% for the quarter and 3.1% year-on-year with a median value of $435,000.
Removing the dissonance in the data due to different methodologies the clear trend is of an upward momentum in the Melbourne housing market.
Commenting on the APM figures, senior economist Andrew Wilson says of the Melbourne housing market that it “continues to benefit from low interest rates and restored confidence, with solid buyer activity continuing this year”.
“Sales activity continues to be generally spread between price sectors and regions, with investor activity also on the rise."
“An increase in first-home buyer activity was generated by the recent changes to the state government grant, which expired for the purchase of established properties at the end of June, bringing forward significant demand."
Other property data also points a strong market with the auction clearance rate in June at 69% compared with 55% a year ago, and the average discount to secure a sale falling from 7.7% to 6.6% over the past 12 months to June.
RP Data records that it takes 44 days for a Melbourne house to sell and 51 days for a unit to sell – a little bit longer than Sydney (33 days and 31 days respectively) but quicker than it takes to sell a house or unit Brisbane, Adelaide, Perth, Hobart or Darwin.
Other figures also suggest a modest upswing with 4% home loan growth over the first five months of the year to owner occupiers, above the national average of 2.5%, according to seasonally adjusted ABS data.
But putting this into context, NSW recorded a 13% rise in housing finance from January to May while Queensland managed 9.1%.
The most recent dwelling approvals data recorded a 24% fall over June, though this may be due in part to changes in first-home buyer grants favouring those buying new homes only from July 1 - though the overall longer term trend is a declining one for units with Melbourne coming off its peak apartment development phase in areas like Docklands, the city and Southbank.
Hotspotting.com.au’s Terry Ryder says the figures coming out of Melbourne are “no indication” of a real estate boom but that the market is rising at a steady and sustainable pace.
Economic trends:
Broader factors – economic growth unemployment, population growth, retail spending - all impact on demand or appetite for residential property.
In this regard, Victoria is performing adequately on some measures while poorly on others.
Importantly, the state’s population – a key driver of housing demand - is expanding by 1.8% per annum in line with the national average.
Victoria’s unemployment rate increased from 5.4% in May to 5.8% in June, just above the national figure of 5.7% and above that of NSW (5.4%) and Western Australia (4.6%) but lower than Queensland (6.4%), South Australia (6%) and Tasmania (8.9).
Annual retail sales growth is weak, up 0.8% in Victoria compared with 2.9% nationally while the Victorian economy is only expanding at 0.9% per year compared with 3.7% national GDP growth.
Putting this all together suggests there are some factors positively impacting on demand for housing and others reducing demand – supporting a moderately improving scenario.
Hits and misses:
Property market analyst Catherine Cashmore calls Melbourne an “unbalanced market” noting that the biggest gains in price have been recorded in the inner and middle regions of the city – principally, the auction-dominated terrains – with the outer suburbs remaining stable.
“It’s not quite the rampant atmosphere experienced in 2007 during which the lending frenzy leading up to the GFC was pushing excessive amounts of easy credit into the market. Prices are still well below their peak and results patchy,” she says.
Cashmore believes a number of economic and social factors have combined to push it well and truly into a sellers' domain.
Figures compiled by APM show that growth in the Melbourne market has been far from uniform with growth ranging from just 1.9% in the far south east to 9.3% in the over the past financial year.
Other strongly performing regions of Melbourne were the inner city (7.3%), west (7.2%) and inner east (6%).
Weaker returns were in the inner south east (3.5%) and north (3.7%)
However, the idea pushed by many market commentators and estate agents that investing in the inner city offers the best prospects for growth is not true, according to Terry Ryder.
He points out that most of the top performing suburbs over the past 10 years are outer Melbourne suburbs led by Waterways (median house price of $695,000 up 11.8% per annum) and Narre Warren North (median price of $763,000 up 9.3%) while the weakest markets were Docklands (median of $618,000 up 2.3%), Parkville ($606,000, up 2.4%) and East Melbourne ($655,000, up 3.1%).
Should you avoid buying an inner city apartment?
Terry Ryder cautions against investing in an apartment in Docklands, Southbank or in the city due to an oversupply of new apartments, which he says is only going to get worse.
The vacancy rate in Docklands stands at 7.6%, it’s 8.9% in Southbank and 6.5% in the CBD compared with a Melbourne-wide vacancy rate of 2.9% according to SQM Research data.
Ryder says there are currently 300 apartment projects being marketed in these locations with 35,000 units planned.
“Developers are offering free marina berths, stamp duty rebates, furniture packages to entice buyers,” he says.
Similarly views are held by valuers at Herron Todd White, who in their latest monthly review write that “evidence continues to emerge of an over-supply of units in the development pipeline, particularly in the metro area.
“A large proportion of the demand is coming from overseas. Most foreign buyers are only able to buy off-the-plan, so when it comes to selling your market pool has shrunk considerably.”
So where are the hotspots in Melbourne?
Ryder suggests more affordable locations further out from the city with growing populations, good transport connections to the city and with good employment opportunities.
His recommendations include Frankston, an affordable Bayside suburb with a median house price of around $330,000 and units at $260,000. The suburb has rail links to the CBD as well a good motor link connections following the opening of the Peninsula Link. Property prices are rising by around 7% per annum.
He also picks the Epping precinct including Lalor, South Morang, Thomastown and Craigieburn due to their affordability, railway and motor links and job opportunities.
Another good option is Berwick, which has lower vacancy rates, average growth in house prices of 6.5% per annum and with Casey Hospital, Monash University and TAFE campus providing good employment prospects.
“Steer clear of the inner city apartment market and concentrate on affordable housing markets in the middle and outer ring suburbs,” says Ryder.
Picture of Melbourne courtesy of eGuide Travel.