Despite a current slowdown, the Melbourne property market continues to offer opportunities to investors – supported by consistent growth in population and building approvals. How can investors take advantage of the capital city market this year?
While not unlike Sydney in terms of declining home values, Melbourne remains quite prominent in Australia’s top hotspots for building approvals and population growth, according to the Housing Industry Association (HIA) Hotspots Report.
Out of 20 top suburbs for population growth and building approvals, 12 are from Melbourne. Most of the growth are found across the greater capital city area.
HIA chief economist Tim Reardon said: “The majority of the growth is in the fringe of Melbourne as the city expands, although inner city suburbs such as Southbank and Docklands are also enjoying strong growth as they change to accommodate higher density living.”
“This is not surprising given the significant investment in infrastructure and the region’s growing professional services sector.”
The Rockbank - Mount Cottrell area was the top building and population hotspot as it witnessed an annual population growth rate of 59.4 per cent and $224.2 million in building approvals; followed by Michleham - Yuroke in Victoria, in the Gold Coast in Queensland, Riverstone - Marsden Park in NSW and Cranbourne East in Victoria.
“Major infrastructure projects, including upgrades to the train station and train lines, as well as a new six-lane arterial road connecting the area are expected to maintain the momentum to keep the area as a hotspot next year,” Mr Reardon highlighted..
During the week ending 28 April, CoreLogic’s Property Market Indicator found that Adelaide’s home values rose by 0.1 per cent while Brisbane held steady., Sydney and Melbourne all recorded declines in home values, with the former falling by 0.1 per cent and the latter two falling by 0.2 per cent. Meanwhile,
Over the month, all capital cities except Canberra saw a decline in home values, with Darwin seeing the biggest decline at 1.2 per cent down to $390,621, followed by Hobart, which fell by 0.9 per cent; Sydney, which fell by 0.7 per cent to $780,672; Melbourne, which fell by 0.6 per cent to $621,759; then Brisbane and Perth, which both fell by 0.4 per cent to $484,047 and $440,546, respectively; and then Adelaide, which fell by 0.1 per cent down to $430,352.
Over the year, Sydney, Melbourne and Perth recorded the highest declines at 10.9 per cent, 10 per cent and 8.3 per cent, respectively.
Across Sydney and Melbourne, the most expensive quarter of the housing market has been seeing the biggest annual declines from 11.8 per cent to 13.7 per cent.
While the declines have been occurring consistently in the past months, CoreLogic’s Apil 2019 home value index showed that the rate of decline is actually easing.
According to CoreLogic head of research Tim Lawless: “In December last year, Sydney dwelling values were down -1.8 per cent, with the pace of month-on-month falls progressively moderating back to -0.7 per cent in April. Similarly, Melbourne values were down -1.5 per cent in December, with the rate of decline improving to -0.6 per cent in April.”
The easing of the rate of decline, combined with a rise in mortgage-related valuations, an improvement in ABS household finance data and auction clearance rates holding around 50 per cent, could mean that the housing market has potentially moved past the worst of the downturn.
In April, rents rose nationally by 0.3 per cent to 4.1 per cent, according to CoreLogic’s national hedonic rental index.
Melbourne, in particular, saw rises at 0.5 of a percentage point, Perth at 0.4 of a percentage point, the ACT and Sydney both at 0.3 of a percentage point, Brisbane at 0.2 of a percentage point and Hobart at 0.1 of a percentage point. Meanwhile, both Darwin and Adelaide held steady.
Over the quarter, unit rents in Melbourne have recorded their strongest quarterly gain since the same quarter a year ago, according to the latest Domain Rental Report. However, the rate of rental growth has eased compared to the past year.
Gross rental yields have also seen their strongest annual improvement for seven years.
Moving forward, experts believe that Melbourne’s rental market may tighten due to investors leaving the market, the decline in dwelling approvals and a slowdown in apartment completion, as well as the easing demand brought by the combination of slowing migration and a rise in first home buyers.
On the other hand, the consistent population growth, which remains above the decade average, could keep the rental market afloat and ultimately provide opportunities to investors amid the general softening of the property market.
New listing volumes are also down in most capital cities this month, resulting in a combined loss of 30.8 per cent.
Melbourne saw the largest decline at 37.7 per cent, followed by Sydney at 37.3 per cent—marking the 10th consecutive week of new listing declines for the NSW capital. Canberra saw a 25.1 per cent-decline while Hobart saw the smallest decline at 7 per cent.
Houses remained more popular than units, with Canberra recording the fastest time on market for houses at 39 days, followed by Hobart with 40, while Darwin, Perth and Brisbane had the slowest time on market at 93 days, 77 days and 66 days, respectively.
For units, Hobart was also the fastest at 26 days, while Darwin, Brisbane and Perth were again the slowest at 84, 78 and 77 days, respectively.
Vendor discounting was between 5.3 per cent and 8.6 per cent for houses across most capital cities, and between 5 per cent and 11 per cent for units, with Canberra as the low-end exception for houses, Hobart as the low-end exception for units and Darwin as the high-end exception for both houses and units.
Across Australia’s capital cities, auction clearance rate is recorded at 49.9 per cent out of 14,647 residential auctions over the quarter—an increase of 6.6 per cent over the December 2018 quarter, according to the latest CoreLogic Quarterly Auction Market Review report.
Sydney saw the strongest clearance rate at 53.2 per cent, followed by Melbourne’s 51.8 per cent, Adelaide’s 48.8 per cent, Canberra’s 45.3 per cent, Hobart’s 44.8 per cent, Perth’s 31.4 per cent and Brisbane’s 31.3 per cent.
Every sub-region of Melbourne saw clearance rates improve over the quarter, with the Inner East seeing the greatest improvement at 12.7 per cent and the highest clearance rate at 57 per cent, while West Melbourne saw the lowest clearance rate at 44.4 per cent.
CoreLogic’s Cameron Kusher said: “Auction volumes and clearance rates are mirroring the broader slowdown in property transaction and housing market conditions. Vendors are less confident of achieving a positive result at auction, and this has further impacted auction volumes during what is traditionally a quiet start to the year.”
Most capital cities also saw auction rates rise, with the exception of Canberra, which declined 1.6 per cent, and Hobart, which declined 5.2 per cent.
Melbourne saw the highest level of auctions at 6,375, while Hobart saw the fewest at just 45.
At a suburb level, Melbourne’s Craigieburn - Reservoir area saw the highest number of auctions for the quarter at 99, followed by Sydney’s Randwick at 73, Brisbane’s Sunnybank Hills at 24, Canberra’s Curtain at 23, Adelaide’s and Adelaide area at 15 and Perth’s Dianella and East Perth area at 10.
Meanwhile, Sydney’s Erskineville saw a clearance rate of 83.3 per cent, Melbourne’s saw a clearance rate of 75 per cent, and Brisbane’s Sunnybank Hills saw a clearance rate of 35 per cent.
Investors and developers can take advantage of the opportunities presented by the large numbers of international students coming in Australia’s biggest cities, including Sydney and Melbourne.
According to CBRE’s Global Living report, Melbourne and Sydney were ranked third and sixth, respectively, in the list of cities for the most international students. Moreover, international students, especially those from the Asia-Pacific region, are becoming more mobile.
Investors and developers, therefore, are well-positioned to provide accommodation for this demographic, with the potential for higher yields.
In fact, 9 per cent of investors identified student accommodation as the most attractive alternative real estate sector, higher than last year’s 4 per cent, based on CBRE’s recent Global Investor Intentions survey.
Developers also recorded a current pipeline of approximately 18,000 beds in 51 projects over the course of 2019 to 2023. Of this pipeline, the majority are in Melbourne, making up 44 per cent, followed by Perth at 15 per cent, Brisbane at 12 per cent, and then Sydney at just 5 per cent.
There are also $100 billion worth of infrastructure projects announced in the federal budget, which is expected to allow Australia to survive a global economic slowdown and ultimately place the country in a favourable economic environment moving forward, according to the International Construction Market Survey 2019 by Turner & Townsend.
“The federal government’s $100 billion investment in infrastructure over the next decade, in addition to the state government investments, will help cushion the economy and keep jobs growth strong,” according to Garry Emmett, economist for Turner & Townsend.
“Sydney Metro, Melbourne Metro, Cross River Rail in Brisbane and Perth’s METRONET will help counterbalance downturns elsewhere. The announcement of the Inland Rail project for freight adds to the high levels of infrastructure investment.
“An already busy construction sector in Sydney and Melbourne in 2018 was boosted by a pledge of around $50.4 billion of public funding for road and rail projects in these states alone.”
The strong mining and energy exports, along with commercial, health, defence, retail, hotel and natural resources construction, are also contributing to the Australian economy, he said.
To ultimately support the recovery of softening markets such as Melbourne and ultimately allow the Australian property market to thrive, experts are pushing for a greater focus on planning and investing in the City Deals policy for the upcoming federal election.
City Deals, which focus on projects surrounding cities and taking on board all three levels of government, need to be expanded further, experts said.
According to Property Council of Australia CEO Ken Morrison: “Australia’s major cities are among the fastest-growing in the developed world. The way we plan for and invest in our cities will have a huge impact on our future economy and quality of life.”
“Given Melbourne’s rapid growth and national economic significance, it is the obvious missing link in the City Deal framework and should be a priority for the next federal government,”
“Delivering good growth in our cities and regions demands more than just tinkering with immigration levels. Good growth requires real policy purpose and investment in priority infrastructure projects to help our cities and their residents reach their full potential.”
Apart from the improvement of City Deals, experts also recommend the improvement of major infrastructure projects through an advisory board, funding for a future cities cooperative research council, further investment in infrastructure and the restoration of the asset recycling fund in order to incentivise major state projects.
The Real Estate Institute of Victoria (REIV) found that the Nillumbik Shire Council area contains multiple suburbs seeing success.
While metropolitan Melbourne’s median house price declined 1.4 per cent over the quarter to $793,000, the median house price in Elthan rose 7.3 per cent to $950,000 over the quarter, and Greensborough’s median price increased by 6 per cent up to $808,000.
“Melbourne’s Green Wedge Council proved to be our property hotspot for the first quarter of 2019 as the area’s idyllic surrounds and enviable lifestyle boosted house values. You can still get impressive family home with all the bells and whistles in this truly unique area of Melbourne for less than a million dollars,” REIV president Robyn Waters said.
“Consistent with 2018 trends, some outer areas continue to do well, with Narre Warren South sitting second on the top 10 list for median house price growth with a 7.1 per cent increase, Mulgrave is at number four with a 4.7 per cent increase, and Point Cook in fifth place, also with a 4.7 per cent increase.
“Interestingly, we are also starting to see signs of recovery in Inner Melbourne, with Balwyn North making the top 10 this quarter, recording increases of 4.3 per cent and 4.2 per cent, respectively.”and
Overall, the top 10 performers for media house price growth between April 2018 and April 2019 were all in Outer Melbourne, proving the strong demand for affordable options for families.
The top metro suburbs for house price growth for the quarter, according to the Real Estate Institute of Victoria, are: