VIC Excerpt from the 2011 August Market report

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Melbourne’s no stranger to cold winters – however, it seems like winter came early to the Melbourne property market this year.

The rocketing growth rates of the last few years are nothing but a distant memory now, with values – and sales – stagnant. Cameron Kusher, senior property analyst at RP Data, says growth has slowed to a crawl.

“Values are only up around 1% overall – 0.8% for houses, 1.4% for units,” says Kusher. “Melbourne’s had a good run, but it’s definitely slowed right down.”

Robert Larocca, spokesman for the Real Estate Institute of Victoria (REIV), agrees with this sentiment.

“There is a high number of homes on the market – we’re seeing around 700 a weekend, whereas historically it’s been around 550. Auction clearance rates have come back a bit too, to around 60% throughout May – that’s causing a cool market to cool even further.”

PRDnationwide research analyst Josh Brown argues that a number of factors are deterring property buyers, primarily the market uncertainty stemming from the increasing cost of debt, the rising costs of living and slowing population growth.

“Victoria is recording some of the largest decreases in sales over Australia,” says Brown. “Over the December 2010 period, the greater Melbourne region recorded a 59% decrease in settled unit transactions, while houses endured a 55% drop.”

The question on everyone’s lips is whether the market slowdown is a controlled slide to a plateau, or a precursor to a crash in property values. Kusher thinks it’s the former – but doesn’t expect the market to recover any time soon.

“I’d fully expect that we won’t see a lot of capital gain in Melbourne over the next few years,” he says. “What we’ll probably see in the next couple of years is something similar to what we’ve seen in Brisbane and Perth – a period where values don’t do anything, and perhaps even fall a bit.”

Kusher ticks off a number of reasons why Melbourne’s rapidly cooling market is likely to see a big freeze over the next couple of years.

“Affordability’s just stretched to the limit at the moment; supply has kept pace in Melbourne a lot better than it has in Sydney and Brisbane, so you don’t have that shortage of accommodation driving prices; and rental yields at the moment aren’t particularly attractive at 3.8% for houses and 4.2% for units. You can do better than that by putting your money in the bank at the moment.”

Brown is more philosophical about the market conditions.

“[The conditions provide] an opportunity for investors, as vendors commence repricing their properties to meet the market,” he comments. “Although market conditions appear unfavourable for those currently in the market, the value of real estate is supported by strong fundamentals. Save for a gradual softening in price, these fundamentals will keep prices buoyant.”

Brown adds that a drop in the volume of sales does not equate to a falling demand for dwellings in Victoria, as population growth remains relatively strong despite recent softenings.

He also believes that rentals will benefit from increased competition – in turn improving rental yields and providing opportunities for investors to purchase “a well-priced property with strong returns”.

Larocca also points out that the market isn’t uniformly subdued.

“It’s not, in any way, even – parts of the city are doing well,” he says. “We’re seeing higher clearance rates in the inner east and inner south, whereas they’re lower in the north and west.”

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