Buyers need to be selective in the Melbourne property market: Terry Ryder

Melbourne, the focus of this week’s Property Observer webinar, is the major city where buyers need to be most selective.

As is often the case in big-city markets, the growth is not evenly spread throughout the metropolitan area, there are also pockets of serious over-supply that wise buyers would avoid.  

The generalised situation for Melbourne is that there is solid growth in prices this year.

Disregarding the bullish (that’s bullish, not bull$#*+) data spewing forth from the Real Estate Institute of Victoria, both Australian Property Monitors and RP Data record moderate growth in median prices for both houses and apartments in the June Quarter and for the 12 months to June.  

Both research sources report a 4.2% rise in the Melbourne apartment market for the past year.  

APM says the median house price has grown 6% in 12 months, after a 2.7% increase in the June Quarter, but there are considerable differences across the various sub-markets in the city.  

According to APM, the highest annual growth has been experienced in the outer east precinct of Melbourne, up 9.3%. The area is predominantly a mix of bottom-end suburbs and middle-priced suburbs.  

The western suburbs, mostly the cheaper end of the market, have recorded annual growth of 7.2%, as has the inner-city housing market.  

The areas described by APM as inner east, north-east and north have all done fairly well also, with annual growth in 4-6% range.  

The inner south-east, which contains most of Melbourne’s million-dollar suburbs, has been a moderate performer only, with a 3.5% rise over 12 months.  

These figures, describing median price increases in the past year, generally (but not totally) correlate with my figures for long-term growth across Melbourne.  

Figures for the average annual growth in median prices over the past 10 years show that lower-end suburbs and middle-range suburbs have delivered the best performance.

The top five suburbs across the Melbourne metropolitan area for long-term growth rates are all outer suburbs in the more affordable prices ranges. All have average annual growth rates better than 8.5%.  

The list of the top 20 performers is dominated by suburbs in the outer east and outer south-east regions of Melbourne. Only one million-dollar suburb makes that list – and that is Balwyn, which has been consistently the best performer among the prestige suburbs in recent times.  

The list of poorest performers features many inner-city suburbs.  Six of the eight worst suburbs are in the inner-city areas, most of them with growth rates below 3.5% per year.  

The millionaire suburbs generally have been middle-of-the-pack performers. Balwyn has been the best of them, with an 8% growth rate. Most of the suburbs with median prices above $1 million have growth rates in the 6-7% range – far from disastrous, but well short of the city’s best.  

The worst of them is the most expensive. Toorak, with a median house price above $2 million, has a long-term growth rate of just 5.6%.

Compare that to more affordable suburbs from the outer reaches of the city, like Narre Warren, Kinglake, Yarra Junction and Springvale, which all have growth rates around 9% per year.  

None of this correlates with the song sheet of many property “professionals”, who sing the praises of the “prime” suburbs as places with superior growth. Nowhere in big-city Australia is the chorus about buying in the better suburbs louder than in Melbourne.  

And nowhere are they more out of tune with the research data than in Melbourne.  

But there’s one part of the Melbourne market buyers should avoid more than the inner south-east – and that is the inner-city apartment market.  

There are already high vacancies – including 7% in Docklands and 9% in Southbank – but vast new supply is under construction. Around 300 new projects with 35,000 units are currently being marketed. Developers cannot find local buyers without extravagant incentives and giveaways so they’re selling much of their new product to unsuspecting foreign buyers.  

Steer clear of this market and concentrate on affordable housing markets in the middle and outer ring suburbs.

 Terry Ryder is the founder of hotspotting.com.au and you can contact him at ryder@hotspotting.com.au or twitter.com/hotspotting.

If you missed the July 31 webinar, you can also sign up to recieve Terry's slides  on the Melbourne property market.