Market Report - Victoria (April 2008)

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Strong population growth and a lack of vacant rental properties has kept upwards pressure on property values and rents in Melbourne – and experts don’t expect the market to ease any time soon.
 
Strong population growth continues to outstrip supply in Melbourne, and Braxton Chase CEO Andrew Donnelly says there are “few better capital gain drivers” than population growth.  
 
“Whilst Melbourne’s inner city markets are still strong, they should be eclipsed – and in some cases already have been – by the middle ring suburbs, where buyers can get much better bang for buck,” Donnelly says.
 
But Donnelly warns that the heat of rising interest rates is being felt in Melbourne’s outer fringe suburbs, where many markets are sluggish and stagnant. In some areas, cases of negative equity are being reported.
 
He says the “party stopper” in Melbourne – or at least, the issue that is most likely to slow down the level of robust growth in the year ahead – is affordability.
 
“Due to second consecutive year of double digit price growth, affordability in Melbourne is becoming quite stretched, which can turn off investors and principal buyers alike,” Donnelly says. “With interest rates creeping up, there exists that possibility of affordability issues slowly applying the brakes to property growth in Melbourne overall.”
 
For investors, however, rising rents can help to ward off unwanted interest rate hikes. The Real Estate Institute of Victoria (REIV) Residential Vacancy Rates report shows that vacancy rates throughout 2007 were consistently low, with constrained supply and high demand helping to keep vacancies to a minimum.
 
As a result, Melbourne’s lack of vacant rental accommodation has maintained upwards pressure on rents, which REIV CEO Enzo Raimondo says will continue throughout 2008.
 
"Investment in new dwellings in Melbourne has not kept up with demand, and unless we build more accommodation where people want to live this shortage will persist,” Raimondo says.
 
The area that shows the greatest demand and lowest vacancy rate is in the inner city, within 4km of the CBD, where the vacancy rate currently stands at 1.1%. It reached a low of 0.6% in February 2007, Raimondo says was “the lowest vacancy rate we have ever seen”.

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