Market rising faster than expected
The Melbourne property market has been posting some significantly improved results, but how is foreign investment impacting on it?
After a period of somewhat underwhelming activity, the Melbourne market has turned a corner. In the latest Australian Property Monitors (APM) Quarterly Housing Report, Melbourne recorded the strongest result of all the capitals over the June quarter, with houses up 5.0% and units up 3.7%.
Further, the city’s auction clearance rate recently jumped to a three-year high, according to APM senior economist Andrew Wilson. Not only are more homes being listed for auction, but potential buyers are keen to make purchases, he says.
The city’s inner suburbs and outer east emerged as the best-performing areas, boasting clearance rates of 87.5% and 75% respectively. Each of these figures is significantly higher than the 69% average seen over the past few months, suggesting that the Melbourne market could indeed be emerging from the slump it has been in over the last two years.
Buyer activity has increased significantly over the first half of 2013, with the rise in house prices propelled by the lowest interest rates in decades, rising confidence and continued generally solid economic performances, Wilson says. “The results in Melbourne are not surprising and are in line with forecasts made earlier in the year – of particular note is the correlation over the quarter with the strong auction clearance rates, proven to be an accurate guide to the general level of house and unit prices growth.
“The patchiness that characterised market activity over 2012 is diminishing, and we are seeing the fastest prices growth since the government-stimulated house price boom of 2009/2010, with most capital city markets and market segments at or near record levels and rising,” he adds.
RP Data research director Tim Lawless agrees that the Melbourne market is currently being buoyed by positive conditions, with residential values 2.4% higher over the past three months alone.
“A typical capital city dwelling is selling in just 45 days compared with 59 days at the same time a year ago,” he says. “Vendors are discounting their prices less, and clearance rates remain slightly lower than 80% in Melbourne.”
Deloitte Access Economics partner Chris Richardson says that Victoria is generally doing it tougher than NSW, with the A$ leaving some carnage in its wake. “However, the state’s population momentum remains good, risks around housing construction are no worse, and even the A$ has lost some altitude, leaving Victoria’s overall growth outlook adequate.”
The influence of Asian investors
Foreign interest in investing in Australian real estate has risen in recent years, due to the asset classes’ relative stability when compared with other investment vehicles, and there has been significant interest from our Asian neighbours in particular, WBP Property CEO Greville Pabst says.
Despite this interest, foreign investment is heavily regulated by the Foreign Investment Review Board, he says. “In simple terms, this stipulates that foreign investors may only invest in new property and not the established variety. This has driven foreign investment activity in off-the-plan developments in major cities such as Melbourne, typically one- and two-bedroom apartments.”
While foreign investment is of little consequence to domestic buyers in most cases, it does support the construction industry and has led to a large increase in the supply of new high-rise developments in cities like Melbourne, Pabst says. “The oversupply has a dampening effect on the value of apartments in new developments, which diminishes their investment potential for both foreign and local buyers.”
As off-the-plan properties are marketed to both local and foreign investors, many of the developments are largely comprised of tenanted properties, and there are only a few, if any, owner-occupiers, Pabst continues. “This poses a risk for property values in the event that there is a downturn in the economy that forces investors to sell, effectively flooding the market with similar properties.”
Scott McElroy, managing director of Hockingstuart Property Investor Services, says that, while Asian property buyers are certainly active in the market, it is necessary to be mindful of what they are buying and where. “I feel the impact on the local market is only really impacted through the large CBD towers.”
There is no doubt that the reasons why a lot of Asian investors want to buy in Australia are not going to change in the foreseeable future, so it is likely that the interest in Australian property will continue, he adds.
“Asian investors see our market as stable, our country as a safe place to invest and live and with our tertiary education at a high standard.”
Suburb to watch
Historically Melbourne’s abattoir and livestock area, Kensington is just 4km from the city’s CBD, is well serviced by trains, trams and buses, and features some streets of well-preserved Victorian and Edwardian housing – all of which mean it is a suburb on the rise.
Edward Thomas, director of Edward Thomas Estate Agents, says typical properties in the suburb are split into two types. “There is an established area with a mixture of brick and weatherboard Victorians and Edwardians on an average land size of just over 200sqm. Then there is Kensington Banks, which is an estate of about 2,000 homes with a range of townhouses, houses and apartments.”
He says there are a number of new developments of boutique apartments being constructed at the moment, but the most sought-after properties continue to be period homes, especially brick Victorians.
Kensington has a good community feel, a vibrant shopping strip with boutique stores and quality eateries, some great primary schools and fantastic amenities, and is also in close proximity to central Melbourne, Thomas continues.
The suburb’s JJ Holland Park is a major recreational area with three ovals, a BMX track, children’s play areas, a public swimming pool and a community centre. There is also another large public park on the Maribyrnong River, which has tennis facilities and walking tracks that follow the line of the old stock route.
Kensington prices are expected to remain steady, like those across the whole of the Melbourne inner-city market, with long periods of slow and steady growth, Thomas says.
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