VIC Excerpt from the 2012 October Market report


It’s no secret that Melbourne property has seen tough times lately, but one city region has taken a particularly hard hit, despite its historical popularity.

Many things can happen on Melbourne’s landmark Brunswick Street. The day-to-day boutique trade brings in a healthy dose of fashionistas, while at night the many bars can see anything from quiet after-work drinks to rowdy brawls. The one thing that isn’t happening is a growth in property values.

It’s becoming a theme for much of Melbourne’s inner north-eastern suburbs. Known for their bohemian vibe, neighbouring suburbs such as Clifton Hill, Collingwood, Alphington and Fitzroy North, where Brunswick Street is located, are now some of Melbourne’s worst performing property markets. These areas have seen values crash beyond negative 20% growth, offering a scary proposition for investors with properties there.

Measuring the damage

In Clifton Hill alone, some $175,000 has been shaved off the value of median unit prices in the 12 months to May, with RP Data figures showing neighbour Fitzroy North to be only slightly better off, losing $100,000 off its median unit price. This has been on the back of a long-term trend. Since 2009, unit values have been sliding in both Clifton Hill and Fitzroy North, the former recording falls of 17%.

That values have been falling so drastically in this part of Melbourne offers an interesting insight into how the city’s property market has been performing. The Real Estate Institute of Victoria’s (REIV) June figures show that over a similar period, values across the entire city have remained stagnant. This perhaps indicates that Melbourne’s inner north-east is the victim of a much-wider malaise.

“Both buyers and sellers are approaching the market in a conservative manner,” says REIV chief executive Enzo Raimondo. “This is translating into a lower number of sales in a strong market and as a result, no real price growth has been recorded.”

Raimondo adds that broad economic factors such as slow population growth and low consumer confidence have contributed to the lacklustre performance. Because of this, he expects prices to tread water in the months ahead. “The real estate market moves in cycles and, after initial price falls in 2011, Melbourne is now in a period of stability marked by low activity,” he explains.

Spotting the opportunity

If growth in the Melbourne market as a whole has remained dormant, with pockets of the city such as the inner north-east seeing large-scale falls, the obvious question that any investor would ask is if certain areas may have helped balance the market by performing well.

Raimondo believes that this may be true for select parts of the outer city. “Healthy demand was recorded in Langwarrin, Cheltenham, Newport, Pakenham and Reservoir. Of those, Pakenham is the only one where values are almost at an all-time high,” he says.

An interesting sidenote to that, Raimondo adds, is that houses sold through private sale have been on the increase, while auction clearance rates have seen a 2% drop.

Andrew Wilson, senior economist at Australian Property Monitors, confirms that Melbourne’s auction clearance rates appear to be drifting downwards. Wilson says that the city’s auction culture has traditionally been the strongest of Australia’s capital cities, but is now softening as the city loses “steam”.

What it translates to is a sign of slumping demand in a city that already has something of an oversupply of properties. Despite recent good performance, Newport, Cheltenham, Reservoir and Pakenham all have auction clearance rates below 30%. However, this has been something of a unifying factor among low- and well-performing suburbs alike. Melbourne’s inner north-eastern suburbs also show low auction clearance numbers, figures that more closely resemble the grades of under-achieving school students.

Wilson believes this is an extreme reversal of fortune for the city. “Two years ago, Melbourne was pushing an 80% auction clearance rate, but now it is at the other end of the scale, with a lot of post-auction negotiation occurring due to lower levels of buyer competition,” he says.

At the time of writing, the REIV showed auction clearance rates of 55% for all of Melbourne.

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