Australia’s cultural capital is on the must-watch list for investors and homebuyers. Melbourne has recorded significant growth throughout 2016, with house prices peaking at over $750,000 and unit prices hitting nearly $470,000.
While these prices are by no means the lowest in Australia, they make Melbourne a more affordable alternative to Sydney, with first home buyers considering Melbourne to be an accessible market.
“Melbourne’s thriving apartment market is a gold mine for new buyers looking to break into the market at a reasonable price,” says economist Andrew Wilson in the Domain House Price Report for September 2016.
“The Melbourne housing market continues to grow at the fastest rate of all the Australian capital cities. Robust price growth is likely to continue … as demand pushes ahead of supply. Melbourne’s high levels of migration mean that record levels of new apartment construction are not impacting unit prices, which continue to grow.”
Indeed, Melbourne hit the 80% auction clearance rate in October 2016, putting it on par with Sydney and indicating heated activity in the property market.
In August 2016, almost 3,000 units were approved for construction, the second-highest monthly figure for the year, according to the ABS. This seems to be in line with the findings of 2015, when building approvals soared in the latter half of the year before tapering off at the start of the following year.
The ABS also reports that buyers in Victoria are taking out bigger loans than before; the average loan amount is almost $350,000.
“There’s a large chunk of them who can’t afford to live in it, [but] can afford to live at home and have an investment property,” says Alan Oster, chief economist at NAB.
The inner city accounts for the majority of these building approvals, followed by units in the inner south. Several developments have been approved in the middle-ring suburbs as well. This comes after the Reserve Bank’s warning of “a marked future oversupply in apartments in some geographic areas”, one of these being Melbourne.
While there is a concern about oversupply, Wilson says there is “no sign of supply moving ahead of demand in the apartment market, with prices and rents still rising and vacancy rates tightening”.
“The ongoing Melbourne apartment boom has been a significant catalyst for the recent sustained revival in the local economy,” Wilson says.
“Melbourne has created 86,350 jobs over  to August  according to the ABS, with the jobless rate falling from 5.7% to 5.5% over the year.”
Regionally, the property market is also getting the ‘go’ signal for construction. Units are not the only dwellings getting approved: Geelong is also reporting an increase in dwelling construction with the strengthening of its housing market, an initiative that is helping to enhance the local economy. ABS figures indicate that over 250 houses were approved for building in August 2016, and the construction of houses in this area is going at an even faster rate than in Melbourne – the suburb of Grovedale leads the pack in this respect.
“Strengthening house building activity in Geelong is supporting a growing local economy,” Wilson explains.
“The labour participation rate has increased sharply over the year, rising to a healthy 66% and [is] now similar to Melbourne’s at 66.2%.”
Regional market faces stiff competition
Areas beyond the CBD are also experiencing vacancy troubles as retailers leave suburban shopping strips for the city. This is attributed to the establishment of new malls like St Collins and Emporium Melbourne and the upgrading of existing shopping centres in the city centre.
According to Richard Jenkins, research director at Knight Frank, Chapel Street in South Yarra and Bridge Road in Richmond are among the retail strips suffering a major identity crisis as vacancy rates have soared following the departure of brands like David Lawrence, Forever New and Bossini.
Nonetheless, Jenkins expects the influx of residents brought in by the residential boom to revive these areas. Some retail strips are also sustaining performance and bringing in personal service-based tenants.
SUBURB TO WATCH
Cranbourne: Multicultural hub experiences rapid growth
The multicultural suburb of Cranbourne is one of the fastest-growing areas in Victoria. The median house price has increased significantly by 12.4% over the past year, and the unit market has offered high average returns of over 5%.
Cranbourne mixes the old with the new, with modern gyms and historic pubs sitting side by side. And as the local council is also encouraging the listing of affordable housing, the suburb is attracting more workers.
Those looking to unwind can take advantage of the Casey Fields sports centre in Cranbourne East, which has a 2.2km cycling track. Moreover, there are many golf clubs in Cranbourne itself, and horse racing is another popular activity. There are also many natural attractions, such as the Australian Garden, and Trig Point Lookout offers a great view of the Royal Botanic Gardens.
Cranbourne is the last stop on the Cranbourne train line, and there are bus services available as well.