Along with other major property markets, Victoria’s capital Melbourne experienced harsh declines in property value over the past month. However, it remains a popular location for property investment due to growth achieved over the long-term. Is it a good time to invest in Melbourne now?
During the week ending 29 July, CoreLogic recorded home values in the capital city dropping by 1.8 per cent over the June quarter Annually, median house prices grew by 0.5 per cent.
Meanwhile, unit prices declined by 0.6 per cent over the quarter, but annually, it grew by 0.9 per cent. At the moment, the median unit price in Melbourne sits at $604,000.
The softening conditions in Melbourne is one of the implications of having median prices higher than average income, according to Domain’s Nicola Powell.
After the property boom, investors had more choice and are subject to less urgency, which resulted to a decreasing number of active buyers in the market. Those who are already in the market are restricted by tighter lending regulations high prices.
Over the quarter, median house prices across Melbourne dipped to $840,000. Inner Melbourne’s prices fell by 4.9 per cent to $1,459,000 while middle Melbourne’s prices dropped by 5.4 per cent drop to $974,500. Outer Melbourne is the only part of the capital city that experienced price growth, with median house prices rising by 0.5 per cent to $604,000.
In general, regional Victoria has outperformed Melbourne in the June quarter. Median house prices across the regions rose by 4.0 per cent to $419,500 while apartment prices grew by 3.7 per cent to $304,500.
Despite the less-than-stellar reports, REIV President Richard Simpson said that, in a long-term perspective, the Melbourne property market is actually performing well compared to the recent years following the property boom.
In fact, Melbourne is among the location in Victoria that achieved a double-digit growth over the year at 14.6 per cent. Out of 67 locations on the list, 28 are also from Victoria.
Mr Simpson said: “2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions.”
Still, investors need to be more realistic about their expectations because the fact of the matter is Melbourne remains in the softening phase.
According to him: “Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.
“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson highlighted.
While most capital cities have not seen big growth since the global financial crisis, the positive impact of key industries as well as local confidence, job growth and population growth are expected to increase the demand for dwelling and ultimately keep the Australian property market afloat.
As in most capital cities, listings in Melbourne declined over the month. New listings were down by 4.8 per cent to 6,821.
However, the total number of listings in the capital city, like the other softening market Sydney, is still higher, up by 10.5 per cent to 30,029.—a reflection of the current difficulty in trying to sell stock
Despite the deemed oversupply, the capital of Victoria outperformed other capital cities in therms of average time on market. Both houses and units in Melbourne stay in the market for an average of only 35 days.
According to CoreLogic’s Cameron Kusher, if a lot more stock comes into the market, it could further the decline in property values.
He said: “The real litmus test for the housing market will be what happens in spring, particularly in Sydney and Melbourne. If, as usually occurs, new listings ramp-up and a lot more stock becomes available for sale, this could create further downwards pressure on values.”
“Don’t be surprised though if with tightened credit and an already weakening housing market, that spring this year is a lot more muted than what we’ve seen over recent years,” the property expert added.
Vendor discounting across the capital cities was between 4.9 per cent and 6.8 per cent for houses, and between 5.8 per cent and 9.2 per cent for units.
Despite declining home values, the rental market in Melbourne has experienced growth in the past weeks. Over the month, apartment rental grew by 2.5 per cent to $410 while house rental held steady at $420.
In terms of the number of days on the market, units are taking longer to rent while houses are fairly stable.
Melbourne stands among the slowest moving capital city for time on market to rent, moving 1 per cent slower at 19.3 days.
While the growth is slow and the available stock in the market are significantly larger, investors can remain profitable by using unique marketing strategies to allow their property to stand out in the market.
Some of the more innovative tools are marketing packages on major portals, targeted social media campaigns and illuminated or picture signboards.
While it’s often compared to Sydney in terms of market movements, Melbourne actually offers more affordable alternative to the New South Wales capital as well as a good potential for significant returns.
According to Industry Insider’s Andrew Date, some of the best areas to look into are within 20 to 25 kilometres of Melbourne, in the inner north and inner west.
Inner Melbourne is the only region that saw a rise in demand at 8.8 per cent, while demand in outer east and north west Melbourne declined by 20.3 per cent and 14.9 per cent, respectively.
Mr Date said: “I see the inner north of Melbourne as like the west of Sydney over the last property boom, where the houses were going up 20, 30 per cent over a 12, 18-month period.”
“However, that's not going to happen in this cycle. In the next cycle, it will, but it's going to take a while because we've just come out of such a strong period of growth and we're in a steady decline at the moment,” he added.
Other in-demand suburbs in Melbourne for houses include:
Meanwhile, the in-demand suburbs for apartments are:
Houses are seeing less interest with a fall of 12.8 per cent in demand, while apartments saw an increase in demand by 4.5 per cent.
However, Mr Date warned investors against suburbs with high number of large developments, primarily due to lack of scarcity value.
“If someone has to get out of that estate at a loss, that really affects the value of your property, and you don't have any point of difference, which is unfortunate,” he explained.
Track the major market movements in Melbourne and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018, May 2018 and June 2018 market updates.