Melbourne gets a second wind as Sydney falters
As Sydney grapples with weakening market, Melbourne continues to power ahead, albeit at a slower pace
Melbourne’s solid run may not be over yet, if the latest data is any indication. According to CoreLogic RP Data’s January report, median dwelling prices rose by 2.5% in January, significantly outperforming Sydney’s 0.5% rise.
Annually, house values surged 11.6%, again overtaking Sydney to record the highest growth rate in the country during the past 12 months.
“Melbourne’s housing market has been more resilient to slowing growth conditions, which has propelled the annual growth rate to the highest of any capital city,” says Tim Lawless, head of research at CoreLogic RP Data.
“Previously, during the height of the growth phase, there was a large separation between Sydney’s housing market, which was streaking ahead, and Melbourne’s, where the rate of capital gain was substantial but still well below the heights being recorded in Sydney. The latest data reveals Sydney’s housing market is now playing second fiddle to Melbourne’s, at least in annual growth terms.”
In fact, Lawless points out that over the past six months, the performance gap between Sydney and Melbourne has been stark.
Sydney dwelling values have fallen by 0.6% between July last year and the end of January 2016, compared with a 3.0% rise across Melbourne dwelling values. Andrew Wilson, senior economist with Domain, sees a similar trend with their recent data and believes Melbourne will have another solid, albeit slower, growth this year.
“Melbourne just keeps on keeping on. It seems to have brushed aside the higher interest rate environment for investors. It’s a very measured, even and quietly confident market,” says Wilson.
Wilson says the forward indicators, such as auction clearance rate and sales volumes, are looking quite healthy in Melbourne at the moment.
“Melbourne’s median is still just around $700k compared to Sydney’s million-dollar median house price. There’s still a lot of upside in terms of affordability, particularly in the budget and mid-priced
range properties. I think this is where the energy is going to be,” he says.
Growth engine this year
As more buyers are priced out of the inner city suburbs, the north, the west and the southeast suburbs are naturally becoming attractive, according to Wilson.
“Since the GFC, these areas hardly had any growth. That’s because their local economy was struggling, but they started picking up last year. The growth momentum started in the mid to lower priced properties. It was always going to be a matter of time before these markets moved, and move they have. I think there’s still plenty of upside in Melbourne under the median under $700k,” says Wilson.
In contrast, Wilson explains that the upper range market in the Eastern suburbs, which were the engine room during the GFC, are now suffering from affordability barriers that has constrained activity.
“I believe higher prices will restrain activity in these markets. I think they will be the underperformers this year. That’s because buyers have been priced out from these markets. The very strong growth is happening in the northeast and down to the southeast where buyers largely ignored in the past. They’re now becoming very fashionable due to their affordable price tags.”
Specifically, Wilson points to Carnegie all the way down to Carrum Down and Springvale.
“These areas are attracting buyers because they’re significantly more affordable compared to the inner suburbs. You can almost see the heat energy working its way outward through the southeast corridor through the train line. Carnegie is now a million-dollar suburb because it’s been rediscovered and because of its affordability advantage compared to its neighbouring suburbs.
This is what’s going to keep driving the market.”
Wilson also expects to see solid performance of suburbs such as West Heidelberg, Macleod, Rosanna, Greensborough, Glenroy, Broadmeadows, Sunshine and Albion
Apartment pain to linger longer
While the overall outlook for the Melbourne market remains upbeat, the big elephant in the room – the apartment sector – is still a sore point for investors.
Angie Zigomanis, senior analyst with BIS Shrapnel, predicts the oversupply situation to continue for a few more years.
“I expect the oversupply situation to linger until the end of the decade,” he says.
“In the inner city, we’re seeing a lot of 600+ apartments still being built and they already built a lot of these massive high-rise apartments during the past couple of years. So the supply pipeline is probably locked in until 2018, maybe even 2019.”
SUBURB TO WATCH
Sunshine West: Affordable offering attracts buyers
Largely sought-after by young people and migrants, Sunshine is becoming popular for homebuyers and investors alike.
According to Onthehouse.com.au, median values have surged strongly over the past two years, rising by a total of 20.7%. During the past 10 years, median values grew solidly by 7.5%.
“Sunshine West is desirable to buyers and renters because of its relative affordability and accessibility,” says Richard Smith, real estate agent at Greg Hocking Lawson Partners. “There’s freeway access to town, and there are good public transport options too.
“Buyers who have been pushed out of the property market in neighbouring suburbs are now looking into Sunshine,” he adds.
There are several schools in the area, including the Sunshine Special School. “Sunshine Heights Primary has been the place to send your children for school,” Smith notes. “This year, demand was so high that they had to zone the intake. This will only make the area more desirable for families wanting to send their children there.”
Sunshine West is also blessed with plenty of open green spaces. A favourite in the area is Buckingham Reserve or, as the locals call it, ‘Rocket Ship Park’.
The best buys, according to Smith, are the original post-war homes, which are seeing high demand.
“You can still buy them for $420,000–$450,000 and spend $50,000 renovating or even extending so you’re not overcapitalising,” he says. “Developers can still find larger blocks that can be subdivided into three or more.”
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