Melbourne prices soar with strong migration
Melbourne dwellings are still commanding attention from buyers as prices have increased by 9.1% over the past 12 months.
According to CoreLogic’s head of research, Cameron Kusher, Melbourne’s strength lies in its ability to attract residents.
“Population growth has slowed nationally; however, it has remained fairly steady in New South Wales and Victoria with overseas and interstate migration actually picking up in each of those states,” Kusher explains.
“Over the past five years, almost two thirds of all jobs created nationally were created in Sydney and Melbourne. Not only do these job opportunities attract more people to these cities but a stronger employment market also increases people’s capacity to borrow, particularly for housing.”
The resultant growth potential draws investors to the market, even with rental yields plateauing. Competition is also fast and furious, with the average time on market dropping slightly from 32 days in 2015 to 31 in November 2016.
Costs and policy changes could trigger slowdown
Unlike in most other Australian states, a decline is not inevitable for Melbourne. However, prosperity may end up initiating the capital’s property market downturn, especially since low returns could offset the gains from growth.
“Stretched affordability, imbalance between rents and dwelling values and constantly increasing market entry and exit costs are expected to eventually cause the market to slow,” Kusher states.
Smaller states are currently offering cheaper pastures, and the rising prices of Melbourne properties could turn buyers away just as the market is hit with an influx of unit stock. This could cause property investment efforts to plummet.
In addition, the evolution of lending policies could discourage homebuyers.
“The RBA has already noted that supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments,” Kusher reports.
“The RBA is already noting values are rising again in certain markets so we may see further adjustments over the coming months, especially if value rises continue to escalate.”
Perhaps in a bid to maintain demand and stave off oversupply, the number of new listings on the market has slightly reduced. As a result, auction clearance rates have increased. In fact, the capital was a top performer in the nation in terms of auction activity, with metro suburbs Reservoir and St Kilda recording the most activity in the week of 24 November 2016.
This performance, which is stronger than 2015’s, suggests economic conditions are steadily improving in Melbourne. Thus the market remains a good area for investment, says Charles Tarbey, chairman of Century 21 Australasia.
Surf Coast is on the up
The capital’s strong performance extends to outside the city as well, providing buyers wishing to remain within Victoria with a choice of investment locations. CoreLogic data indicates that Geelong recorded the highest clearance rates of all regional areas in the nation over the third week of November 2016, surpassing Melbourne itself.
This region serves as an affordable alternative to the capital, with median house and unit prices well below the metro average. While house prices stumbled slightly in the September 2016 quarter, this is not expected to be a sign of decline, says Andrew Wilson, chief economist at Domain Group.
“A strengthening local economy, increased migration, low interest rates, solid investor opportunities and significant affordability and lifestyle advantages will act to bolster housing demand in Geelong with prices growth set to resume sooner rather than later,” Wilson says.
The Surf Coast has also been recording consistent, if slow, increases. It is priced higher than Geelong at a median of $675,000, but is still considerably cheaper than Melbourne while offering well-located properties near the water.
SUBURB TO WATCH
Point Cook: RAAF base is a jewel in western Melbourne
The birthplace of the Royal Australian Air Force, Point Cook is regarded as a major growth suburb in western Melbourne.
It is situated only 25km from the Melbourne CBD, making it a convenient option for those looking to live near the city. Indeed, it sees steady demand, having maintained an average annual growth rate of 4.4% in recent years. Moreover, both the house and unit markets recorded strong growth of 8% and 7.5%, respectively, over the past 12 months.
A reason for this good performance may be the suburb’s proximity to the shore, something the local government is seeking to capitalise on with the construction of the Wyndham Harbour marina. The Point Cook Coastal Park highlights the natural attractions in the vicinity. The suburb’s bustling tourist scene has also inspired the opening of many shopping centres, cafes and restaurants to serve both visitors and locals.