Foreign interest inflating inner-city Melbourne apartment bubble, claims bank official

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Concerns have been raised about the condition of part of Melbourne’s real estate market, with a senior official from a major Australian bank saying the city’s inner-city apartment market has entered a bubble.

Commonwealth Bank chief financial officer David Craig made the claim at the Bloomberg Summit in Sydney last week, and said it was offshore money that was a major contributing factor to the current conditions in inner-city Melbourne.

“At the fringe in some aspects of the market, for example inner-city apartments in Melbourne, it is clear that there has been a fairly high percentage of foreign investors that are probably contributing a little bit to the bubble in that particular market,” Craig said.

“So it is a matter, from our point of view, of just being conscious of the type of investors and the impact they are having on different parts of the market,” he said.

While he wouldn’t go as far as Craig and use the word bubble, Antony Bucello, director and Victorian state manager for buyers’ advocacy firm National Property Buyers, said there has been some distortion of the market.

“If you’re talking about areas like the CBD, Docklands and Southbank, then I’d say the apartment market there has probably been distorted a bit,” Bucello said.

“The true value of the new and off the plan apartments in those areas is probably a little off, especially with the amount of supply that will be coming online over the near future. It probably has been distorted a bit by foreign buyers as those are the properties they’re able
to purchase,” he said.

In Bucello’s opinion Melbourne is currently home to separate apartment markets.

“If you take those CBD, Docklands, Southbank areas and put them together as one market then I’d absolutely say there are separate markets in Melbourne.

“We aren’t really targeting any of that new or off the plan stock in the inner-city right now. We still like the smaller boutique blocks.”

Bucello said the boutique apartments his firm is targeting tend to be located in the city’s middle-ring, and he believes they may see some benefit from the proliferation of units in the inner city.

“I think those boutique blocks, ones with maybe 12 or so apartments over a couple of stories, are really going to be in high demand over the next 12 months. People are starting to turn away from the idea of living on top of each other in a high-rise.

“There are some other reasons as well. A lot of them aren’t new, but they have been refurbished recently and a lot of them are still near the city and its attractions.”

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