Melbourne’s Inner West ignites, but risk looms
Once a typical working-class area neglected by property investors and young professionals, Melbourne’s Inner West now seems to be attracting the same demographic it once repelled
You know an area is experiencing gentrification when factories and warehouses are turning into modern housing estates, and that’s exactly what’s happening in Inner West Melbourne.
And it seems that homebuyers, investors and tenants are interested in not just what this area offers but what it’s going to offer.
Indeed, Inner West Melbourne has been targeted for massive new developments that have just recently been proposed. These include:
A new $6b suburb called E-Gate located in West Melbourne, 2km from the CBD, which would provide housing for up to 10,000 people. There would also be 50,000sqm of commercial and associated retail space, and the potential addition of a school, a sports field and a library should help attract families.
A long-abandoned Kinnears Rope Factory site on Ballarat Road that could be turned into a suburb for 2,500 people, which would involve more high-rise apartments.
A project to build 751 apartments in Footscray, within 100m of the Maribyrnong River, in four towers rising to between 16 and 28 storeys high.
Furthermore, nearly 9,000 additional dwellings were built in Footscray between 2006 and 2011, according to the Maribyrnong City Council website.
So what is it about this area that has attracted so much investor attention, which has helped it outperform some of the wealthier parts of Melbourne in recent years?
What the Inner West offers
There are two key things Inner West Melbourne has that many other Victorian suburbs don’t, says Leo Dardha, a director at Hocking Stuart Yarraville.
“I think the proximity to the CBD and the affordability are two key components which have transformed the Inner West,” he says.
“To live within 5km of the Melbourne CBD – the world’s sporting capital – and get a nice two-bedroom apartment for under the half-a-million-dollar mark is a sensational buy, whether it be an investment or a place to live.”
Dardha says the area is becoming increasingly popular among singles, professionals and young couples who are looking for nice apartments.
Footscray: the new South Yarra?
Footscray has come on in leaps and bounds, so much so that it could become like the prestigious southeast Melbourne suburb of South Yarra, says Dardha.
With median prices for Footscray at $594,000 for houses and $350,000 for units, the suburb still has a way to go before it reaches South Yarra’s $1,133,000 for houses and $547,750 for units.
“I think the proximity to the city and the infrastructure changes are really helping Footscray become one of Melbourne’s premier suburbs, and it’s heading in the direction of becoming South Yarra, which is one of Melbourne’s most sought-after locations.”
In addition to Footscray, Dardha also sees great potential in West Footscray, which he says is benefiting from the ripple effect.
Like Sydney, Melbourne’s performance during the past 12 months is also causing some concerns among experts.
“On the plus side, values are rising and have generally continued to rise unabated for 20 years or so on the back of strong population growth creating additional housing demand, but the high level of investor activity and much more sufficient housing supply than across other states is the key risk, not to mention that rental yields are the lowest of any state,” says Cameron Kusher, senior research analyst at RP Data.
Angie Zigomanis, senior research analyst at BIS Shrapnel, agrees and adds that some parts of inner Melbourne could be headed for oversupply in the near to medium term.
“The record levels of new apartment supply in inner Melbourne over 2013/14 to 2015/16 will push the market into oversupply and vacancy rates will rise,” says Zigomanis.
“The high level of competing stock means that landlords will be unable to command the premiums that are traditionally available for new apartments, while owners of older established apartments will have to discount the asking rent on their apartments in order to compete.”
For Linda Janice Phillips, national research manager at Propell, there is the more adverse impact of oversupply.
“The risks lie in lower capital growth in future,” she says. “The boom is over, and while prices will still go up, it will be at a snail’s pace by comparison with 2013/14. A vast oversupply of residential land and inner-city units puts the lid on price appreciation for the medium term, and any purchase needs to be researched against how much more can be built nearby (units) or how much land remains available (houses). Employment risks feature writ large in Melbourne: in 2017 the car industry dies with potentially a huge loss of jobs, and while agents talk up the longer-term prospects, which are certainly there, no one really knows what 2018 is going to look like. It is possibly better to wait for 2018 and buy when things are at their worst.”
Suburb to watch: Upwey
This picturesque suburb combines the peaceful sound of nature with scenic views you wouldn’t get closer to the city. And the ambience is just one reason why it’s a popular choice for young families. Not only are there plenty of good schools to choose from in and around the area, but there are also lots of big character homes that would suit those who feel too cramped in the city. Many of these homes have the benefit of being private without feeling like you’re in the middle of nowhere. On top of that, Upwey is renowned as a friendly and tight-knit community. The local train station on Main Street, Upwey’s main shopping strip, provides access to the city. And the super-regional shopping centre, Westfield Knox, is just a 10-minute drive away.
The median house price of $420,250 is very good compared to neighbouring suburbs. Lysterfield, for example, has a median house price of $685,625. And the strong demand in this area indicates prices will go anywhere but down. Indeed, the auction clearance rates are 92.9%, there is only 0.88% of stock on the market and vacancy rates are a tight 1.24%. Add to this the fact that properties on the market are typically snapped up by buyers in 49 days, and you will start to get an idea of just how attractive Upwey is proving to be.
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