Demand for many individual properties in the inner to middle suburbs of Melbourne has been strong, helped on by a very limited stock for sale.
Sensing the conclusion of the First Home Owner Grant boost was near, buyers rushed into the Victoria near the end of the first quarter this year. That's helped keep sales activity strong, and median values healthy in the state's real estate market, despite a limited stock and sunken consumer confidence.
Looking at the auction figures illustrates just how different the market has been this year from 2008. In the week ending April 19, Victoria had 442 properties for auction, compared to 1,105 at the same time last year, according to the Real Estate Institute of Victoria. Yet this year, the auction clearancerate was much better, at 79%, compared to64% last year.
"Auction clearance rates are high, days on the market are low, and some private sales are being hotly contested by multiple bidders," says Eddie van Pamelen, head of the Metropole Buyers Agency based in Melbourne. He says the flurry of first homebuyer activity has pushed up prices 10% to 15%, particularly in the inner to middle suburbs where there's little stock. "On the outer suburbs, there's a lot of stock available, so prices haven't pushed up there," he says.
While the early indications were that it would not be extended, the Federal Budget pushed the First Home Owner Grant boost through in its entirety into September, and then to the end of the year with a slightly smaller payout.
When that boost does expire, expect prices in the lower segment to drop again as demand falls off, says van Pamelen. "It has brought forward demand, whether they extend it or not," he says. "There's not going to be demand anymore."
Other segments have already presented good buying opportunities for investors, such as houses between $750,000 to $800,000, van Pamelen says. Some houses in that range have seen prices come back 15-20% over the last 12 months, he says.
David Harris, LJ Hooker franchise manager for Victoria/Tasmania, says the outer suburbs of Melbourne have actually been showing some the most growth lately, after they had lagged behind other areas and are now some of the affordable buys. The outer suburbs are driving the market, he says.
"What we have now is a more realistic price growth, as a new set of economic conditions with low interest rates and grants that are bring in a new generation of customers to the market with new needs," says Harris. "This means that a three bedroom home in Dandenong, Tullamarine, or Werribee, of median value, is actually hotter than ever and prices are growing."
Harris points to an expected continuation in population growth that will continue to push growth into more of Melbourne's suburban areas. The Australian Bureau of Statistics show the city is on track to have four million people by the end of 2009, with an average of 200 new residents arriving a day. The building sector has failed to keep pace. "Victoria as a state continues to face a shortfall in residential construction worsened by stricter credit conditions by borrowers," says Harris. "This means the property market will continue to be undersupplied, keeping prices for property strong and rents will be high as vacancy rates are set to remain low."
After sitting on the side and waiting for the right moment, some investors are starting to strike back into the Melbourne market, lured on by low rates and good yields. "Yields are increasing, and we're definitely seeing investors coming back the market and buying," says van Pamelen, noting most investors are buying at around the $600,000 mark or above.
Rents, however, have remained flat, or in some cases, fallen back a little, he says. There's no longer much demand for high-priced rents in the city. "Some renters have gone off to buy, and some are not living the high lifestyle they were comfortable living a few years ago," he says.
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