All eyes on Melbourne as the next star performer
Melbourne could be the country’s next big growth centre as its population swells and supports an increased appetite for foreign investment
Unlike Sydney’s dramatic deceleration in property prices, Melbourne’s values have experienced a gentler deflation. The market saw only a slight softening in the December 2015 quarter after two consecutive years of positive growth.
Eliza Owen, market analyst at OnTheHouse.com.au, suspects Melbourne’s continued growth is the result of a cyclical upswing bolstered by Sydney’s accelerated pricing. “As the Sydney market has become increasingly unaffordable, people are looking to Melbourne as the next growth centre,” says Owen.
This sentiment is supported by ABS statistics that reveal Victoria now tops the leaderboard as the fastest-growing state in the country, with a growth rate of 1.7% compared to 1.4% for runner-up NSW. It’s from NSW that the highest number of migrants moved to Victoria as Sydney prices escalated out of reach last year.
This signals a positive outlook for investors, and the good news keeps coming as the ABS predicts the population of greater Melbourne will double by 2056 to over eight million, at which point it will likely overtake Sydney as Australia’s biggest city.
Owen says affordability isn’t the only instigator of the population influx. “Also helping demand in Sydney and Melbourne are the consistently high job vacancies in these states that encourage migration, and hence dwelling demand.” she adds. The job market is one of the best in the nation, second only to NSW, according to the ABS.
The swelling population combined with Melbourne’s relative affordability has put pressure on rental demand. As a result, rental values have defied predictions of a stumble, with the median asking rental price for metropolitan Melbourne hitting a record high of $415 in January, up $5 from December, according to REIV data, which also shows the vacancy rate holding steady at 3.1%.
Nichole Ammerlaan, principal at AQD Estate Agents in Melbourne, says foreign investors are showing an ever-increasing appetite for investment in the Melbourne and Sydney metro markets, with a significant influence on property prices. “For example, a Chinese developer has just purchased a development site in South Melbourne for $15m, an increase of more than $5m since the vendor purchased the property only three years earlier.”
The mounting supply of high-rise apartments appears to have impacted negatively on demand for rentals in inner-city suburbs. January figures from SQM Research show a 2.5% residential vacancy rate in Melbourne, putting it in fourth place in the national ranking behind Hobart, Sydney and Canberra – a high figure considering the population increase.
Owen says although recent figures show that approvals for new units are high above those for houses, “units are still experiencing steady growth, so there must be some demand for them”.
In terms of median value, units and houses have experienced “quite disparate growth”, says Owen. Units realised an annualised capital gain of 6.15% in the year to January, compared to 13.96% for houses. “This could either be due to the high stock of units in the Melbourne market, or a time lag between capital growth in units and houses,” Owen adds.
“Median houses are now at $754,000, and units at $501,000.”
The outer suburbs of Melbourne are a different story. Ammerlaan says suburbs considered traditionally more affordable experienced growth even as the inner-city suburbs dropped a fraction in value. “Also, rental prices continued to increase throughout the year, and interestingly, even more in regional Victoria than in Melbourne metro.”
REI figures confirm the seven suburbs with the lowest vacancy rates are in regional zones. Top places are taken out by Seymour and Echuca, with vacancy rates of 0.12% and 0.31% respectively and rental returns of over 4%. The streak is broken by The Basin on the outskirts of the metro region with a 1.2% vacancy rate.
Experts say outer suburbs are likely performing best due to attractive lifestyle factors, which are increasingly coming into play with renters. “Competition for trendy ‘hipster’ housing and quality, yet affordable, family accommodation continues to be strong state-wide, as supply is only just keeping up with the growing population,” says Ammerlaan.
However, she warns investors about the incursion of newly developed apartment and unit stock due to hit the market in late 2016. “It is likely the rental growth rate for this kind of home will ease later in the year,” she adds.
But Ammerlaan says family homes in the outer-eastern suburbs of Melbourne should continue to be in short supply and tick the boxes for lifestyle and location. “Strong demand balanced with supply levels are unlikely to see any reduction in rental rates. The potential for investors is the strongest it’s been in years.”
SUBURB TO WATCH
Ringwood delivers location and lifestyle
Situated 23km east of Melbourne, Ringwood is renowned for its leafy streets, parklands and bushland setting combined with modern amenities, features that make it particularly appealing to families.
“The topography of this area makes it naturally attractive,” says Nichole Ammerlaan, principal at AQD Estate Agents in Melbourne. “There are numerous nature corridors, bicycle tracks, and excellent public and private schools.”
Recording stellar 21.1% growth in 2015 and 21.2% in 2014, the transformation of Ringwood in recent years is keeping demand high and vacancy rates sitting at 2.2%, according to CoreLogic data.
“The recent redevelopment of the Ringwood town centre, including Eastland and the railway station precinct, is transforming this suburb into an even more desirable and well-serviced metropolitan hub,” explains Ammerlaan.
“Further development of amenities, which is currently underway, is adding value quicker than most other regions of Melbourne.”
Easy access to the city via the EastLink motorway adds to the appeal of Ringwood, a suburb populated with an array of home styles, from fresh townhouses and modern apartments through to ’50s cottages and large family homes that present ideal opportunities for renovation.
“In terms of affordability versus amenity versus rental demand, Ringwood and its neighbouring suburbs provide some of the most balanced investment prospects in Melbourne,” says Ammerlaan.
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