An inner-city riddle
We’ve long been served a story of how units in inner Melbourne are oversupplied and decreasing in value, but in some suburbs it appears that house prices are falling, not unit prices
Why do buyers hate Parkville? It may be out of many people’s budget, but aside from that, most prospective homebuyers would have a tough time listing its faults. Like its name suggests, Parkville is abundant with inner-city parkland and defines the word ‘green’. It’s a five-minute tram ride from the city, or a 30-minute walk, and offers something for everyone. Families get open space right next to the CBD, while singles and young couples are at the doorstep of Sydney Road’s restaurants and bars.
Despite these strengths, detached houses within Parkville have had Melbourne’s worst-performing property values over the last five years. RP Data figures show that, since 2008, the median price has slid from a base of over $800,000 to its current level of $565,000. This suggests that buyers who purchased a house in the area five years ago are likely to own an asset that’s worth a third less than they paid for it.
One could put this down to an isolated occurrence, but Parkville isn’t alone among inner-city suburbs where house values – not unit values – have decreased significantly over the last five years. West Melbourne, almost in the heart of the city, has seen house values tumble 11% since 2008. And this suburb is in a highly desirable location – most residents can walk to work.
If one compares houses in these city regions to comparable suburbs such as Carlton, Clifton Hill or Fitzroy, it’s evident that affordability isn’t the issue here. Back in 2008, Parkville was at least on a par with these suburbs in pricing. But while Parkville has been falling back, in these suburbs median house prices have been inching up.
Oversupply also falls short in explaining the price drops. Compared to Docklands, where developers have been notoriously oversupplying the market with units since 2010, both Parkville and West Melbourne have seen much smaller construction numbers, dominated by unit construction, not detached houses, and yet Dockland unit values have performed better.
Of course, investors should bear in mind the methodology for calculating median prices. “It’s not an exact science,” says APM’s Andrew Wilson. “Every property is different in time and space, and not every buyer’s or seller’s preferences are the same. This makes working out underlying price movements problematic.”
In the case of Parkville, very expensive homes exist alongside fairly cheap homes, and a falling median price could be more a reflection of the fact that larger numbers of houses are being sold at the bottom end of that spectrum than at the top, skewing the ‘median’ value.
Residex founder John Edwards says investors should use median values more as a guideline. “Sales only tell you what is selling,” he says. “They don’t tell you the fundamental value of the suburb.
How units in Vic compare
It is well known that apartments in Sydney are more expensive than in Melbourne, but the differences in the markets extend well beyond simple dollar figures.
No market in Melbourne has a median unit price exceeding $1m, according to RP Data, while in Sydney there are three – all harbour-side suburbs with units that typically look across the Sydney Harbour. Among Sydney’s other most expensive markets are suburbs right next to beaches.
In contrast, Melbourne’s most expensive markets for apartments tend not to be on the water. With the exception of Brighton – Melbourne’s most expensive unit market – the most expensive units tend to be in southeastern suburbs that are approximately 10km from the CBD.
What data should you believe?
While RP Data figures show that Melbourne house prices have fallen over the 12 months to May, it is worth noting that a competing index by the Real Estate Institute of Australia (REIA) shows that house prices increased over the eight consecutive months to May.
REIA calculates median prices differently from RP Data, using a simple median index that plucks out the middle figure in a ranking of prices from highest to lowest. RP Data, in contrast, uses a hedonic index that combines recent sales data with the attributes of individual properties. The result is that median prices, while appearing to be similar, are not exactly the same and offer slightly different views of the market.
REIA’s figures show that, in addition to house price increases, unit values have increased modestly over the three months to May, inching up 0.9%.
Spotlight on: Performance of Melbourne’s cheapest units
Property supply statistics for the city tell a diff erent story, depending on whether you’re looking at the market for units or for detached houses. For units, the inner city is the most oversupplied market, with the Melbourne CBD particularly aff ected. There, the buying market is still trying to absorb more than 600 properties that are on the market.
For detached houses, the city’s northern and western fringe regions are largely the most oversupplied, with Greenvale currently the most oversupplied market in the entire city, measured by the proportion of all properties in the suburb that are currently up for sale.
Those who doubt the eff ect such oversupply issues can have on property values should consider this: property values over the last 12 months have decreased in all of the house markets in this list. The biggest loser has been Wyndham Vale houses, which lost nearly 10% of their median value, representing close to $25,000.
Suburb To Watch
Peter Hooymans of Melbourne Real Estate says that parts of South Yarra have transformed, making the area one of Melbourne’s most appealing
Selling points: South Yarra is a premium suburb and off ers exceptional amenities. It is located within minutes of the CBD, and rental returns are boosted by the area’s ability to attract high-quality tenants. There also tend to be few vacancies.
Most sought-after properties: The most common properties are high-rise apartments, usually ultra-modern or renovated homes, but there are also period homes. One-bed apartments are always in high demand, as well as properties that appeal to young urban professionals, such as two-bedroom, two-bathroom units.
Top amenities: World-class restaurants, cosmopolitan cafes, high-quality retail, and some of Melbourne’s best schools. There are also great outdoor spaces near the Yarra River.
Recent changes: The Forest Hill Precinct has undergone major revitalisation in the last fi ve years. What was once a dilapidated eyesore in a blue-chip suburb is now home to world-famous bars, restaurants and cafes. Luxurious buildings dot the skyline of what was once a streetscape of warehouses.
Public transport: Services are excellent. Trams, trains and buses are within a short walking distance. There’s also easy access to freeways and toll roads, making the CBD minutes away.
Best streets: Tree-lined streets close to the main shopping strips and public transport.
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