The heady heights of 2009 are long gone – but Melbourne is recovering from the winter doldrums.
It’s been a long, hard winter in the state of Victoria. Not only has it had to contend with the harshest weather in several years, the property market well and truly slowed following the highs of 2009 and early 2010.
You just have to look at the contrast in figures to see the difference: while Residex’s full-year growth up to July stands at nearly 19% for houses and over 16% for units – far and away the best in the country – growth for the last quarter stands at less than 2% for houses and 2.46% for units. That’s a slowdown of over 5% and 3% respectively, compared to figures for the April quarter.
However, the signs are that the potential freefall that many feared has been arrested, and that Melbourne is getting back on its feet. Jarrod Frazer, director of CB Richard Ellis’ (CBRE) Victoria office, is confident that the market has stabilised.
“The situation for Melbourne completely changed in the quarter leading up to August – the market levelled off significantly over the course of eight to 12 weeks,” he says. “We’re seeing prices coming back by up to 10% on what they were at the height of the frenzy; however, that’s probably a good thing, as I think the market would have struggled to support 2009 prices in the longer term. Where we are now is more realistic.”
The amount of housing stock on the market is also starting to settle down, following a spike early in the winter season. That, says Frazer, was due to sellers attempting to catch the crest of the wave and failing.
“People are now more realistic in terms of their asking price, and stock levels are back under control,” he adds.
Brendan Smith, valuations manager at WBP Property Group, concurs. “I’d go as far as to say the market is stagnant right now – that’s probably a good thing,” he comments. “Houses aren’t simply selling themselves any more, and vendors have come back down to earth. The market is at a much more realistic level.”
It’s a similar story in regional Victoria, too. While CBRE figures suggest the early part of the year saw plenty of activity and good growth, many regions came back down to earth with a bump following the end of the First Home Owners Grant Boost and the rapid rise of interest rates. However, the market has steadied significantly, and things are looking more positive – particularly in the Gippsland area, where property prices have remained strong due to an undersupply of land.
Steady as she goes
Smith suggests that Melbourne will continue on a stable path for at least the rest of the year – assuming there are no unexpected economic shocks.
“Interest rates are likely to stay on hold, and much depends on the wider economic factors, but generally it looks like the market will stay at a similar level for the next few months,” he says. “I’d predict growth of between 2% and 5% for the rest of the year.”
Frazer agrees – but suggests that now might be time for investors to start eyeing up potentials.“The investment prognosis is certainly a long-term one at the moment,” he says.
“Rents are still high, so serviceability isn’t an issue, but capital growth will be slow. I’d recommend going for city fringe suburbs which tick all the fundamentals: accessibility, shops, public transport and infrastructure.”
Frazer also comments that a whole tranche of medium-to-high density dwellings are about to be released near Richmond, to the east of the city, which is likely to be extremely popular. Some of the more affordable developments such as Docklands, which have often been seen as no-go areas for investors, are also showing good results, he adds.
Not everyone is as positive as Frazer about the city’s short-term prospects, however. Louis Christopher, managing director of SQM Research, reckons there may be a danger of oversupply.
“The area I’m concerned about is within 3km of the CBD,” he comments. “There are a few areas which have seen oversupply of apartments, and there’s a danger this could continue.”
Frazer disagrees that there’s any chance of a wider oversupply issue. “The number of people coming into Melbourne is still very high, and they still need housing,” he comments. “We’re nowhere near having any kind of oversupply problem.”
All three advise investors to pick their purchases carefully, though.
“Do your research, make sure you know what you’re trying to achieve and where the risks are,” says Christopher. “It’s a difficult call – Melbourne is set to become a real buyer’s market come spring and summer: it looks like there will be choice of stock and the option to pick something up for a good price that fits your strategy.
“You just have to make sure it really is a bargain,” he adds.