Market Report Victoria (September 2009)


Melbourne median values hit a record

Like Sydney, Melbourne also hit a milestone in September with median house values surging past $500,000 mark. However, it comes at a hefty price: falling yields.

Melbourne achieved what was seemingly out of reach just a few months ago: breaking through the psychologically important $500,000 barrier. During the September quarter, median house values climbed by 6.50% to $524,500 - the fastest growth among all capital cities in Australia and the highest on record for the city. Units also performed solidly, with values rising by 3.47% during the same period.

Matthew Gross, managing director with National Property Research (NPR) attributes this strong performance to Melbourne"s relative affordability. 

"It remains the most affordable city in the east coast of Australia. Its performance has been outstanding. It achieved this strong growth on the back of lower infrastructure charges especially on new properties. They"ve revised their planning mechanism and boundaries to allow a greater supply of broader hectare land to come in which has taken some of the pressure off house prices. If they haven"t done that, house prices would have been reflective of Sydney. From a planning perspective, they"ve been really successful in moderating that prices growth to a more sustainable level. In fact what you"re looking at in Melbourne is probably the best performance in Australia," he explains.

Eddie van Pamelen, head of Metropole Buyers Agency in Melbourne also puts this down to high demand exceeding supply, low interest rates (although they"re now on the rise), first home buyer activity over the year as well as the increase of loan pre approvals for investors. "Now cashed up sellers are ready to upgrade and buy their next property," he says.

Strong population growth is also helping underpin Melbourne"s price growth according to Lindeman.

"Melbourne"s got incredibly high migration rate. In fact the last data from ABS showed the number of migrants arriving in Melbourne is now higher than that of Sydney, so they are now attracting more people. If you look at high migrant suburbs such as Doveton, Clayton and Springvale, they"ve all grown by at least 7% over the past three months," says Lindeman.

Too strong" Lindeman believes that Melbourne"s strong growth can be sustained as long as the migrant intake continues. However, Tim Lawless, national research director with is sceptical this growth momentum can be maintained.

"I don"t think the current growth rate is sustainable by any means, it"s simply too high. We"ve annualised it at a current rate of growth at 25% pa. I"m very doubtful that Melbourne will sustain this rate of growth," he says.

Rod Cornish, division director, Macquarie Capital Advisers adds that the exceptionally high growth will have a negative impact on affordability going forward. "Melbourne needs to slow down because it has been exceptionally strong. Together with the rate rises that we"re expecting, Melbourne could see drop in affordability due to interest rate rises and strong price growth."

Another downside of the strong run in prices is falling yields. Melbourne currently has the lowest yields for houses at 3.58% compared to 4.10% in Sydney and an impressive 5.41% for Darwin. While the median values have risen to $524,500, median rents have fallen to $360 a week from $370 a year ago. However, units are achieving higher yields at 4.56%.

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