Melbourne property market more appealing due to superior value for money and good reputation: McGrath
Melbourne and Sydney have long been the engine rooms of Australia’s property market, with Sydney traditionally leading the way, according to McGrath’s latest report.
But the southern capital is looking more appealing than ever before due to its superior value for money and glowing reputation as the world’s most liveable city for the past six years, the agency suggests.
The McGrath reported noted Melbourne’s relative affordability is contributing to record high net interstate migration, as well as strong net overseas migration, making it Australia’s fastest growing capital city with an average of 1,760 people moving in per week in FY2015, according to the ABS.
Although Sydney outshone its southern cousin in the boom with 64% growth in home values compared to 44% since 2012, Melbourne arguably offers greater prospects for growth in the future.
It’s median house price is $287,000 cheaper and a projected population surge from 4.61 million in 2016 to 7.91 million in 2053 will see it overtake Sydney as the most populous city in Australia.
Melbourne’s median house price rose by a modest 8.6% in FY2016 to $608,000, with the median apartment price up 2.5% to $485,000.
However, some areas experienced much stronger price growth due to a lack of supply in 2016.
According to CoreLogic RP Data, Melbourne’s top 10 suburbs for house price growth in FY2016 all experienced more than 25% gains in value.
The dominant buyers in Melbourne today are upsizing families, most of whom are targeting the catchment zones of top performing public schools to avoid private school fees.
This trend is so strong that new REIV research shows there is now a significant price difference between homes located within top catchments and those that border them.
In Parkville, homes within the catchment for University High have a median house price of $1,395,000 compared to $799,000 for homes that are 1 km outside the zone.
Similarly, homes in the catchment for McKinnon Secondary College have a $305,000 premium over those outside the zone.
With interest rates continuing at record lows, young buyers are stretching their budgets to get into premium areas.
They’re targeting small inner ring cottages with a bit of character and paying well over reserve to secure a piece of prime land while they can.
Some vendors are leveraging strong selling conditions to upgrade to larger homes in more affordable areas with change to spare.
For example, vendors in Doncaster, Mitcham, Blackburn and Box Hill are selling in the early $1 millions and buying in Croydon for $800,000-$900,000.
Given Melbourne’s tight supply and rising prices, we are seeing the ripple effect in many areas.
It advised uyers priced out of the highly desirable Bayside area are purchasing next door in Bentleigh and McKinnon, leading to several sales above $2 million this year – a price level not thought possible just a few years ago.
APRA restrictions have impacted investor demand but we are still receiving enquiries from Sydney, Perth, Brisbane and ex-Melbourne locals living overseas.
Many investors have now put Sydney into the ‘too hard box’ due to affordability and switched focus to Melbourne.
The southern capital has long been the favoured destination of off shore Chinese buyers but demand has softened this year following changes to lending criteria for foreigners and forced sales of properties purchased in breach of Foreign Investment Review Board regulations.
Despite this, Melbourne’s prestige market remains strong with a new house price record for the city set in Toorak at $24.1 million and Victoria’s highest residential sale ever occurring in South Yarra with the exchange of three homes in one line for $33 million – both this year.
Sales above $25 million are expected for the penthouses in South Yarra’s glamorous Capitol Grand development, which would break the national apartment record.
Melbourne is facing an oversupply of apartments, which currently represent 49% of stock for sale compared to 42% a year ago and 29% in 2011.
CoreLogic RP Data figures show a pipeline of 80,500 new apartments due for completion over the next two years when only 61,500 apartments (old and new) are usually sold over this timeframe.
This presents a great opportunity for owner-occupiers with a long term view but they need to choose wisely.
John McGrath’s top picks:
1. Windsor
A hidden gem neighbouring Prahran, Windsor was once considered the grungy end of Chapel Street but now the hipster crowd is moving in.
"We see great potential for this trendy pocket, which has easy access to trains and shops and is conveniently close to the CBD," the report stated.
Change is on its way with a noticeable uplift in buyer demand over the past 12-18 months. This suburb is full of mid-century homes on big blocks with plenty of potential for knockdown/re-builds and development. Downsizers are capitalising on a 10-15% jump in land values over the past few years and selling to young families and developers.
Wheelers Hill has a median house price that is $250,000 less than its neighbours of Glen Waverley and Mount Waverley, yet it is only 5-10 minutes away. Buyers are increasingly looking for better value here and we anticipate solid price growth as a result.
4. Northcote
Just 6 km north of the CBD, Northcote has undergone major change and is now a destination suburb for young professionals and families. High Street village offers many restaurants and the tram runs straight through to the city with a train station also close by. Local schools including Northcote High and Santa Maria College are increasingly popular.
5. Abbotsford
This inner city precinct less than 3km from Melbourne’s CBD has been though significant gentrification over the past decade. With an abundance of leisure and lifestyle amenities, it also has cycling and running routes alongside the Yarra River. Young professionals and families enjoy its walkability and accessibility well serviced by trams and trains, while cashed up downsizers are now discovering this gem.