Top-performer Melbourne may Stumble
Due to the availability of job opportunities, Melbourne’s population continues to grow at a strong rate.
“The present population growth rate of around 2% per annum implies that the state population would increase by more than 1.4 million over the next decade,” says Michael Yardney, founder and director of Metropole Property Strategists.
“Established homes in Melbourne’s inner and middle ring suburbs are still in strong demand and are likely to perform well again this year. However, the markets will remain fragmented, with the current oversupply of new apartments creating a glut that will limit capital and rental growth in this segment of the market for a number of years.”
In 2016, approximately 18,000 new apartments entered the Melbourne market. About 16,000 more apartments will be completed in the inner city over 2017 and 2018, adding to the existing oversupply problems in the CBD, Southbank and Docklands.
Still, Yardney continues to see much potential in Victoria’s capital.
“Currently, there are some great investment opportunities for buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations,” he says.
“And if your budget allows, buying a villa unit or a small house in the right suburb should deliver strong capital growth over the next few years.”
Price growth prospects begin to slow
In contrast to the city’s status, however, the regional areas of Victoria are suffering from stagnant price growth.
“Other than Geelong, population growth has all but ground to a halt in regional Victoria, and with negligible regional employment opportunities there are few growth drivers of regional property prices,” Yardney says.
Tim Lawless, CoreLogic’s head of research, also notes that property prices overall are beginning to drop in Melbourne, even though the capital continues to report one of the highest annual growth rates in Australia.
“Unit values were down a larger 3.2% in November 2016, while Melbourne house values declined by 1.3% over the month,” Lawless states.
“It appears that higher unit supply is progressively weighing down the capital gains across Melbourne’s unit sector, with annual capital gains tracking at 3.9% for Melbourne units compared with a 12.2% annual gain in Melbourne house values.”
The state of Victoria has also reported the most significant drop in year-on-year settled sales, at 14.9% compared with the other states.
“With the unit supply pipeline remaining substantial, we expect to see a continuation of weaker market conditions across those unit markets where high supply levels are dampening the prospects for higher value growth,” Lawless concludes.
Infrastructure change and development could turn the tide
For Nerida Conisbee, chief economist at REA Group, the slowing market is not necessarily all bad news for buyers since it may lead to an increase in the number of listings on the market. Furthermore, the establishment of the Melbourne Metro Rail could help enhance mobility in the city, which could improve the profile of outer-ring suburbs.
The unit oversupply could also be attributed to the fact that Melbourne residents are still adjusting to the idea of apartment living. With the affordability of apartments, especially in the inner city, this mindset is changing and could result in demand catching up with supply.
Nonetheless, “houses in Melbourne will continue to provide the best opportunities for growth, especially in inner suburbs”, Conisbee predicts.
“Affordability is a big driver nationally and places that can offer affordable prices within commuting distances are the places to watch, particularly larger homes on bigger blocks of land. Key areas to keep an eye on this year are northeast and outer-east Melbourne, as well as Central Coast.”
SUBURB TO WATCH
Coburg: Hip suburb draws youngsters
An entertainment-focused suburb, Coburg is a hotbed of cafes, restaurants and pubs.
It is just 8km north of the Melbourne CBD, which makes it ideal for professionals working in the city. The lively cultural scene attracts young residents to Coburg, which plays host to street and music festivals, hip dining establishments, venues for live music and studios. For outdoor recreation, Lake Reserve is a favourite picnic spot and provides access to the Merri Creek Trail.
Coburg houses four shopping arcades, bringing together over 200 shops, an indoor market and supermarkets. The renovated Victoria Street pedestrian mall is a well-known meeting place for locals. There are numerous schools in the area for both primary and secondary education.
Residents are served by train, tram and bus, which allows them to travel easily to Melbourne, Toorak and Preston, another popular destination for food and shopping. There are several bike lanes as well.
Can you afford to buy in this suburb? Find out how much you can borrow