Apartment construction could pull Melbourne down
Fears of an oversupply in Melbourne may be overstated – or are they?
Melbourne’s property market has held on through the 2015–16 fiscal year, but that may be set to change.
The constraints on foreign investors, especially those from China, have caused the apartment market to flatten and have fuelled oversupply concerns.
However, the influx of new apartments has been followed by a high number of migrants, meaning demand for properties may meet the incoming supply.
Rohan Christie, director at Kingfisher Recruitment, says “apartments are still selling and there will only be an oversupply if things don’t settle. We have not seen any evidence of this occurring yet”.
In the next three years, he adds, “there are expected to be 24,000 [apartments] completed in Melbourne. Whilst this is a big jump in new dwellings, we are taking in a far bigger number of new people and most are coming from locations where apartment living is the norm”.
The difference in the needs of local and overseas investors will continue to have an impact on the market, Christie says.
“Offshore groups that are feeding offshore buyers have a different mindset to local developers,” he explains.
“Local developers want a decent return on equity and a development that makes their risk worthwhile. Offshore developers are looking to create a presence in Melbourne and are more interested in recycling capital, not necessarily focused on a return. Offshore purchasers are similar, looking to have an asset in Melbourne on which they will take a very long-term view.”
Flourishing under the hammer
While the apartment market is cloudy, by contrast, the housing market is prospering. Home auction results were exceptionally strong in mid-July, recording a very high 80.4% clearance rate. This rate was the highest of the year until that point.
“The weekend’s result was also the highest rate recorded since June 20 last year, at the height of the then boom-time market conditions,” notes Domain chief economist Andrew Wilson.
The northern suburbs saw the most competition, with that day’s auctions reporting a whopping 96.7% clearance rate.
For investors who are seeking to benefit from rentals in the metro, they need look no further than Monbulk. Properties are in significant demand because supply is limited here, and the resultant rental yield is good, at 4%.
Outlying suburbs consistent
Outside the CBD market in Melbourne, there has been “continual demand for land and new houses in the outer south western region of Melbourne”, Herron Todd White reports. “Areas such as Truganina, Tarneit, Wyndham Vale and Werribee
are providing … relatively affordable properties.”
Despite being over 25km away from Melbourne, the CBD is accessible from these suburbs by train.
Footscray and Maidstone, which are on the western fringe of the city and closer to the CBD, offer inexpensive housing.
, the rental market has become more balanced in terms of supply and demand. Nonetheless, vacancy rates are low and gross rental yield continues to hover at 6%. Prices have been stable for the past year, with the trend expected to hold. The flourishing local agriculture industry supports the economy, which helps sustain this property market.
Investors can also invest in well-located suburbs that are close to amenities and convenient transport by buying units or townhouses in suburbs like Croydon.
Meanwhile, Ringwood’s unit market has high potential for capital growth following the upgrade of infrastructure in this suburb, including the local shopping centre and train station.
“For investors, properties in the outer suburbs could see more growth as new infrastructure such as schools and public transport are constructed,” Herron Todd White concludes.
SUBURB TO WATCH
Ringwood: World-famous hops developer shows growth
In this suburb, known internationally for the ‘Pride of Ringwood’ hops that form part of many beers, the property market has soared, with house prices recording over 20% growth in the past year. With the recent redevelopment of the train station, diving centre and the Eastland Shopping Centre, Ringwood’s value looks primed to shoot up even more.
The suburb is also known for its many parks and reserves, especially Ringwood Lake. In fact, it is home to Ringwood Field Naturalists Club Inc., a natural history and conversation group. There are various primary and secondary schools in the area, as well as the Ringwood Library. Sports are widely popular, and Ringwood has over five facilities for different activities. A Costco was also established a few years ago.
Trains run from the local station, and the bayside town of Frankston
is roughly half-an-hour’s drive from Ringwood for those who want to get away from the city.