Unit values surge as buyers search for affordability
As we’ve flagged in the previous issue of Your Investment Property magazine, Melbourne’s property prices have some way to go before they peak. And the latest data from Residex appears to confirm this view.
During the three months ending January 2010, median house prices jumped by another 4.02% to $539,000, this is after adding 3.63% in the previous quarter and despite the withdrawal of the government’s first homebuyer boost.
However, this impressive growth in median house values pales in comparison with the remarkable strength of the unit market during the same period. Over the January quarter, median unit values surged by a whopping 7.14% to $421,500, the fastest growth recorded by any capital city during the same period. On a year-on-year basis, median unit values have climbed by 15.98% compared to 14.46% for houses.
“This year has been a remarkable one for Melbourne’s residential real estate. The property recovery was initially fuelled by first homebuyers, but now established homebuyers are trading again and investors have returned to the market,” says Brendan Smith, valuations manager with WBP Group.
The rental market remains strong with Melbourne’s vacancy rates remaining at a low 1.4%, applying sustained pressure to rents, says Smith. “The Melbourne property market has seen rental vacancies fall to their lowest levels in 25 years, fuelling predictions that levels will tighten further in the year ahead as underlying housing demand continues to outstrip dwelling completions. The vacancy crisis is even worse within a 4km radius of central Melbourne, with just 0.5% of rental homes in that zone vacant.”
Movers and shakers
Not surprisingly, Melbourne’s inner suburbs led the way with strong growth over the last 12 months, with inner-eastern areas in particular showing positive capital growth results, says Smith.
“The inner-south and bayside regions have come second in the performance ranks with many of the suburbs in both these and inner-eastern areas having a median house price of double the Melbourne median,” Smith explains.
“The inner-east, inner-south and bayside have performed above expectations, due largely to the factors that are driving significant demand for properties in these prime locations such as the quality of private schools, access to public amenities such as parkland, bay and river aspects as well as the quality and continuity of period housing stock, wide tree-lined canopied avenues and streets, superior public transport, shopping centres and lifestyle amenities.”
Smith notes that reports from real estate agents in the inner-east reveal that approximately 40% of all sales are made to offshore Asian buyers. “Following the relaxing of FIRB regulations, Asian investors appear to have a keen interest in Melbourne’s inner-eastern real estate, which is likely to continue to have an inflationary effect on prices in 2010,” he says.
“More affordable Melbourne East suburbs such as Croydon and Bulleen are also likely to respond positively in 2010, due largely to their proximity to higher priced neighbouring suburbs, strong transportation infrastructure and amenities such as schools and shopping facilities,” Smith explains.
Like most suburbs across the state, the north-west area of Melbourne has also shown a notable increase in property values, while still remaining an affordable option for first homebuyers and investors. “Suburbs such as Reservoir and Preston offer a unique mix of housing styles located within 15km of the CBD and represent solid prospects for future capital growth as issues of housing affordability worsen,” says Smith.
An Opteon report backs this up, stating that prices from early 2009 until the end of the year have increased as much as 20% in these areas. “Agents have reported a lack of listings with the supply in some areas being approximately 30% less than this time last year. The demand has been that strong that some agents have not been advertising properties and offering them to registered prospective purchasers,” the report says.
Even the prestige market which was slow to recover from the downturn in late 2008 appears to have gained strength. Opteon says the recent prestige sales in Fitzroy North, Carlton North, Brunswick, Parkville, Essendon and Moonee Ponds have shown strong price growth.
Regional markets perform strongly
Victoria’s regional markets have racked up solid gains over the past 12 months. According to Residex data, country Victoria achieved a staggering growth of 6.56% in median house values to $300,500 during the three months ending January 2010.
“These fringe areas, previously overlooked due to their lack of infrastructure and distance from the city, are fast becoming popular for those adopting a more balanced work-life approach to living,” says Smith.
Regional and holiday lifestyle properties are showing significant growth potential due to large-scale infrastructure development, which has resulted in increased local employment opportunities, improved transportation and amenities, and reduced travel times to Melbourne.”
First homeowners impelled the market in these areas in mid-2009 as they took advantage of generous government grants of up to $36,000 for new homes in regional areas. However, Smith says that recently, investors and owner-upgraders are returning to the market with growing ferocity as they vie for these comparatively affordable property segments.