City Beat August 2023: Melbourne units outperform houses again as supply problems persist
Melbourne's unit market continued to see growth over July, however at a slightly slower pace than recorded in the two months prior.
CoreLogic's Monthly Hedonic Home Value Index found that value of Melbourne units grew by 0.4 per cent in July, following strong gains of one per cent in June and 0.9 per cent in May.
The July gains better the housing market for the second month in a row. House values grew by 0.3 per cent in July.
Unit values are now 2.2 per cent up over the rolling quarter, and 1.4 per cent year to date. The median value for units in Melbourne is now $602,000.
What's happening in the Melbourne off the plan apartment market?
The biggest news in July came from property advisory firm Charter Keck Cramer, who believe off the plan apartment prices could rise by as much as 25 per cent.
"There are a number of fundamental reasons that support the thesis that off the plan apartment value rates across the entire apartment market in Melbourne will simply have to recalibrate upwards over the next 12 months," Charter Keck Cramer's research report noted.
They cited booming immigration forecasts, a tight supply of apartments, and land and construction prices not likely to fall below pre-COVID levels.
Pace Development Group Sales & Marketing Director Ash Bramich says current sentiment has been largely influenced by buyers and developers too nervous to act, one by rising interest rates, and the other by feasibilities that just don’t stack up.
He adds however, for buyers with little to no borrowing required, the market has been fuelled by a shortage of stock, which has been reflected in many boutique projects in desirable suburbs selling very well, even at todays required square metre rates.
"Our lead generation for the yet to launch Fabricca in the always in demand Fitzroy has been overwhelming," Bramich says.
"Targeting downsizers, of whom the majority are locals, and those from the inner east who are selling their family homes between $3 million to $7 million are looking for curated projects by recognised developers."
Bramich says PACE are very bullish about the medium to longer term prospects of the market, so long as employment stays strong and immigration continues to flourish.
"As construction prices stabilise, experienced developers are re-entering the market, recognising that the supply and demand imbalance is too great to sit on the sidelines."
Read more: Pace take advantage of demand v supply in 2022 and kick off construction in Flemington and Coburg
PACASA Director Stefano Paciocco says the much publicised lack of supply won't be fixed in the near term, because there's currently a mismatch between what developers can pay for land to make a project viable, and vendor’s expectations of what the land is worth.
"If the mismatch continues, there will be even less supply than there is currently," Paciocco says.
It's the lack of supply of high-quality apartments, paired with a prime location and striking design, which has driven sales at PACASA's recently launched Richmond project, Park House.
Read more: Locals drive sales at PACASA's recently launched Richmond apartment development, Park House
"We’re seeing that those with a lot of equity in their homes, who have waited through the COVID period, are now eager to make their next purchase," Paciocco says.
"There’s a lack of availability of quality owner-occupier and downsizer stock across Melbourne’s inner-ring, which has driven sales at Park House.
"These buyers know there’s not a significant amount of new projects coming in the short-term because of the cost of both land and construction."
Carpe Co-Founder and Director Tim Campbell says the market is running at two different paces.
"While we’re still actively doing sales across our projects, buyers are definitely a lot more discerning," Campbell says.
"They’re asking a lot more questions over builders, finance, and construction timelines."
There doesn't seem to be an issue in prices being sought, Campbell said. The overarching decision factor is the confidence the development is going to go ahead.
Carpe take buyers through their recently completed Brighton townhouse project, which has been designed by the same architect and built by the same construction firm as their KEW project, The Walton, which is 50 per cent sold.
Read more: City Beat July 2023: Melbourne units outperform houses as growth soars