It’s been predicted for a while, but it finally seems that Melbourne’s superheated property market is starting to cool.
Not that you’d believe it if you looked at the upper end of the market in early winter: property buyer agent James Buyer Advocates reckons that, in the two weeks leading up to 19 June, a $1m home was sold every two hours.
Even so, it seems that the rapid succession of interest rate increases and the end of the First Home Owner Grant boost have finally had an impact on Victoria’s property market. According to Residex, house price growth finally appears to be slowing, with house price growth over the three months to May growing by just 6.36% compared to 7.70% in the previous quarter.
These gains are nothing to be sniffed at, however: Melbourne’s growth still outstrips that of the other eastern capitals in the same period.
According to Residex, Melbourne also remains the only capital city where there are no suburbs recording any drop in value for houses and land values. However, there are some suburbs in the lower end where unit values are falling for the first time in a long while.
During the last three years, Melbourne houses have increased by 42%, which translates into an increase in wealth for the average Melbournian of $172,000, according to Residex. In the unit market there has been an equal increase in percentage terms, and in dollar terms it has amounted to $132,000.
“The rate of growth was very steep and was a cause for concern because when these types of increases occur and are brought to a close by robustly increasing interest rates, there is a significant chance of a ‘bubble bust’,” explains John Edwards, CEO of Residex. “There is a tendency for people to pay excessive amounts for properties at the top of the market and get caught on a ‘cash-flow tight rope’ and be forced to sell at a loss at an inopportune time. “There remains, albeit at a much lower risk now, [the chance] that this market will get into trouble. If it does it is likely to be the only market in Australia that will.”
Angie Zigomanis, senior project manager at BIS Shrapnel, agrees that Melbourne’s time in the sun has come to an end. “We’ve seen a general softening across the board, largely thanks to the six interest rate rises in the last eight months – which has had an impact on affordability – and the expiration of the First Home Owner Grant boost. Melbourne’s come off the boil compared to three or four months ago, and there’s a risk it’s overshot the rest of the market,” he adds.
Despite concerns of an overheated market, Melbourne’s fundamentals remain sound according to Edwards. “Melbourne is generally doing better than any other capital city. Immigration is high, business and consumer confidence seems to be high also – and why not when the population has seen such significant increases in its wealth,” he says.
The Victorian government is also one of the few that seem to have things under control, adds Edwards. “The state is clearly far better managed than, say, Queensland. Melbourne is home to some very significant corporate entities – CSL, BHP, ANZ, NAB, Telstra and Rio Tinto, to name just a few. “As employment increases generally and immigration continues, these entities will maintain the demand for housing stock and ensure a limited correction impact. If you didn’t purchase in Melbourne a year or two ago, in a few months’ time it will be a good time to go bargain hunting.”
Out in the sticks?
So, if Melbourne is looking like a no-go area for property investors, what about regional Victoria? Zigomanis is cautiously positive about the countryside’s potential. “The Victorian regions benefit from a broader economic base than some of the regions in the other states,” he explains. “There’s also the fact that the state government is trying to encourage people to move to regions, and have provided sizeable economic incentives for builders and developers, which will fuel growth in those areas.”
Patrick Brady of WBP Property Group says Victoria’s coastal and regional areas are fast becoming the ‘place to be’ as many buyers are forced out of the Melbourne property market. “A noteworthy number of purchasers are relocating from Melbourne to these lifestyle destinations. For example, Greater Geelong is fast becoming a genuine alternative for commuters and people looking for a lifestyle change, the appeal being its affordability, level of infrastructure and employment opportunities. “With commuting times comparable to the outer eastern suburbs of Melbourne, Greater Geelong will continue to benefit from the strong demand generated by non-local buyers in the foreseeable future. While external activity is currently driving this market, activity from local ‘upgraders’ is also supporting positive growth,” says Brady.
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