VIC Excerpt from the 2016 July Market report

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Melbourne unit market exhibits strong growth but at what cost?
 
More and more units are being constructed, but will it be a smart move in the long term?
 
In 2015, Melbourne’s property market experienced its “third consecutive good growth year”, and 2016 appears to be maintaining this trend, according to a report published by Propertyology.
 
“Victoria’s economy at the moment is strong as evidenced by its AAA credit rating,” says Simon Pressley, managing director of Propertyology, in the report. “In the 2014 and 2015 calendar years, a remarkable 194,000 extra jobs were created in Greater-Melbourne. No wonder its property market has been strong.”
 
Pressley mainly ascribes this boom in job opportunities to the thriving industries of tourism, professional services related to finance and insurance, education, and construction.
 
Moreover, “New South Wales and Victoria are pulling away from the rest of the states as the reversal of the two-speed economy becomes more apparent,” comments Nerida Conisbee, chief economist at REA Group. As a result of the significant economic growth, house prices in Melbourne surpass those in most of the other Australian regions. This has driven the increased housing demand in Victoria since 2010.
 
“Melbourne’s employment opportunities have coincided with a downturn in Western Australia’s (iron ore) economy, resulting in a rebound in interstate migration since 2012,” he notes. Pressley also highlights a trend in the construction of more apartments. “Attached dwellings represent 56% of all building approvals over the last four years, up from the 35% 10-year average. Melbourne City is on track to approving 19,000 CBD apartments over the last three years ... an increase of 158% on the annual average from the previous five years.”
 
CoreLogic RP Data statistics reflect this trend. Units in suburbs such as Kalorama are shown to be in greater demand than houses with respect to the demand-supply ratio. Moreover, auction clearance rates for units exceed 70%, in contrast to the significantly low rates for houses. “The best yields available are for one-bedroom apartments in Melbourne,” says Conisbee. “In particular, the suburbs of Bentleigh, Altona and Box Hill are all experiencing rental yields in excess of 9.5%.”
 
The unit markets in Port Arlington and Ocean Grove also grew over 30% in the past 12 months, while maintaining positive quarterly growth. “Ocean Grove gets a lot of holidaymakers from Melbourne and Sydney as well as different types of retirees,” says Lee Botsios, senior associate at Fletchers Bellarine.
 
The vacancy rate is also a low 1.3%, indicating the suburb’s appeal. Nonetheless, “buyers from the city prefer homes in old Ocean Grove built on 4,000sqm to one-acre blocks of land,” Botsios notes. This suggests houses continue to sell very well. In Melbourne, growth in houses over the past year was 8.2%, compared to growth in units of 4.3%.
 
Glen Waverley is currently doing particularly well for apartments,” Conisbee adds. “This is being driven by the addition of more high-quality stock to the area, but also strong demand from Chinese investors.”
 
The rosy view of Melbourne’s property market is reiterated in the Domain House Price Report published by Domain chief economist Andrew Wilson. Melbourne was highlighted as “the only mainland capital to buck the trend of falling house prices” all over Australia. The city showed a house price hike of 1.2% in the March quarter, although unit prices dropped by 1.7% in the same timeframe. Moreover, over the 12-month period that ended that month, Melbourne had the highest house price increase of all Australian capitals.
 
“Melbourne has now overtaken Sydney as the fastest growing capital city housing market in Australia,” Wilson states. “Melbourne has recorded 14 consecutive quarters of house price growth, the longest sequence since June 2008. It’s a quietly confident market, very even in terms of price range.” But price growth is not likely to exceed 5%.
 
However, while Propertyology experts have said Melbourne could be among the top performers this year, they do not recommend investing here. Pressley notes that “the housing supply pipeline exceeds population demand in Melbourne to the tune of approximately 12,000 dwellings per year”. The increase in unit construction could result in considerable oversupply.
 
“Of even bigger concern is the impact on as much as 6% of the city’s households from car manufacturing plant closures from late-2016 and continuing through 2017,” he adds. This is expected to shake the confidence of both consumers and businesses, aggravating the discrepancy between housing demand and supply further. Thus, this capital’s outlook over the next couple of years is “bleak”.
 
 
SUBURB TO WATCH
Oakleigh: Historic suburb has a legendary future
 
The suburb of Oakleigh is known for being strongly influenced by Greek culture brought to the area by immigrants in the 20th century. It is one of the largest CBDs near Melbourne.
 
Given its short distance from Melbourne and wealth of amenities, Oakleigh is one of the more expensive suburbs in Victoria. Atherton Road, the suburb’s main street, has much historical value and the highest-priced homes in the area. This area is populated by many food establishments, hotels and shops, making it a lively hub for locals. The pedestrian zone on Eaton Street links Atherton Road to the Centro Shopping Centre and train station; from here, residents can travel to Melbourne in just half an hour.
 
According to Frank Scalise, property consultant at Woodards Oakleigh, residents mainly prefer large family homes with four bedrooms and two bathrooms or high-priced Californian bungalows. Many locals are also professionals renting smaller units in proximity to the CBD, though they may be looking to trade up to larger homes. Streets such as Abbeygate are particularly popular because they remain residential family areas untouched by developers. Such pockets are also close to shopping centres and public transport, such as bus services.
 
As a result, Oakleigh experienced reasonable 7.6% growth over the past year and 14% growth over the past three years. The vacancy rate also dropped in the past 12 months by 0.2%, to a low rate of 1.6%. CoreLogic RP Data stats indicate that the suburb has high capital growth potential.
 

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