After months of decline, experts predict that the Melbourne property market will bottom out soon and consequently recover. Should investors jump back into the Victorian capital?
According to BIS Oxford Economics managing director Robert Mellor: “It could be even three months earlier.”
“What’s the other possibility? There’s the return of not only owner-occupiers, but investors in the market. Investment activity could even be greater and there could be… a little mini surge in prices.”
Adding to the confidence of consumers in the capital city is the improving local economies across Australian regions, as highlighted in the 22nd edition of the State of the Regions 2019-20: Population, productivity and purchasing power from the National Economics for the Australian Local Government.
The improvements, measured by gross regional product growth rate, were largely spurred by the “sustained recovery” of southern Western Australia’s success, Tasmania’s success due to the recovery of the tourism industry and the attention by mainland Australians towards Tasmanian real estate.
Also identified as improving areas are the Gippsland area in Victoria, NSW’s South Coast, Coastal Hunter and the Central Coast, Lingiari in the Northern Territory, far north and western South Australia and around Townsville.
However, despite the good predictions, Melbourne remains at the downswing phase of its property cycle, recording a decline of 6.1 per cent year-on-year, based on the Australian Residential Property Update 2019 report by Momentum Wealth.
Melbourne’s rental market proves to be a beacon of hope for the capital city as average house rental rates increased by 1.4 per cent over the course of 2019. Further, yields are currently at 3.6 per cent – slightly higher than Sydney’s 3.4 per cent.
“With capital values expected to continue their decline and lack of affordability still pricing many buyers out of the purchase market, the capital city market is likely to see sustained rental demand in the months ahead, with yields adjusting accordingly,” the report stated.
Over the final week of June, Melbourne and Sydney defied the declining trends as they recorded value rises in the latest CoreLogic’s Property Market Indicator data.
Melbourne recorded the largest rise at 0.2 per cent, followed by Sydney at 0.1 per cent.
Meanwhile, Adelaide and saw the largest declines at 0.3 per cent each, followed by Brisbane, which declined by 0.1 per cent.
However, over the year, Sydney, Melbourne and Perth recorded the highest declines for the year again at 10.1 per cent, 9.6 per cent and 9.1 per cent, respectively.
As property values rise, new listing volumes went down in most capital cities over the final week of June, except in Hobart and Adelaide.
The largest declines were seen in Melbourne at 29.4 per cent, followed by Sydney at 27 per cent, Perth at 17.2 per cent, Canberra at 16.6 per cent, Brisbane at 10.8 per cent and Darwin at 17.2 per cent.
While the average time for houses on market slightly fluctuated, houses remained generally more popular than units.
Hobart was the capital city with the fastest time on market for houses at 36 days, followed by Melbourne at 43 days and Sydney at 48 days. Darwin, Perth and Brisbane, on the other hand, had the slowest time on market at 90 days, 86 days and 73 days, respectively.
For units, Hobart was the fastest at 41 days, while Perth, Darwin and Brisbane were the slowest at 86 days, 77 days and 75 days, respectively.
Meanwhile, vendor discounting was between 4.2 per cent and 8.7 per cent for houses across most capital cities and between 5.5 per cent and 10.4 per cent for units, with Canberra as the low-end exception for both houses and units, Darwin as the high-end exception for houses and Perth as the high-end exception for units.
Over the month, the national vacancy rate declined by 0.1 per cent to 2.2 per cent, according to data from SQM Research.
Darwin saw the biggest decline of 0.3 per cent to 3.3 per cent, followed by Brisbane, Sydney, Perth, Adelaide and Hobart.
Melbourne and Canberra, meanwhile, recorded no movement and held steady at 1.8 per cent and 1.2 per cent, respectively.
CoreLogic’s analysis of data from the Australian Bureau of Statistics found that the rate of population growth has been increasing across Australian regions, thus spurring an increase in demand for property.
Over the past 12 months, Australian population has increased by 1.6 per cent – the largest increase in raw number terms since September 2017. Further, it is also the third quarter in a row to see the rise in annual population figures increase over the previous quarter.
Overseas migration was largely responsible for population growth, followed by natural growth.
CoreLogic’s research analyst, Cameron Kusher, noted this year’s natural growth of 156,337 is at the highest level since March 2015 and 8.5 per cent more than the year prior. Meanwhile, net overseas migration is at 248,446 people and sits at its highest level since September 2017.
NSW and Victoria, in particular, have seen the strongest population growth in recent times.
According to Mr Kusher: “Vic has seen 34.6 per cent on net overseas migration nationally over the past year and has also recorded the second highest rate of net interstate migration (behind Qld).”
“Over the coming quarters, it is expected that similar trends will continue with strong population increases in NSW and Vic driven by overseas migration and strong rates of net interstate migration for Vic and Qld.
“High levels of migration mean increased demand for housing, which is a factor that should assist in putting a floor under the recent declines in dwelling values, particularly in Sydney and Melbourne. Furthermore, increasing populations should also assist in the absorption of the large volume of apartments under construction in Sydney and Melbourne.”
Moving forward, consumer sentiment or buyer behaviour will have a significant influence on the movement of real estate prices and, ultimately, the recovery of the property market, according to Propertyology’s Simon Pressley.
Following the conclusion of the recent federal election, the confidence of investors has improved as they gain a clearer view of a potential economic future as laid out by the government.
Over the coming years, three main factors are expected to affect the shift in buyer’s activity across Australia’s major markets, namely, the elimination of negative gearing, the possible implementation of the First Home Loan Deposit Scheme and APRA’s influence on credit.
As uncertainties on capital gains tax and negative gearing changes were consequently eliminated following the Liberal government’s win, Mr Pressley expects “an extra 5 per cent increase in buyer activity from that investor space”.
Similarly, despite varying opinions on long-term effects on the property market, the First Home Loan deposit Scheme is also expected to add another 5 per cent buyer’s activity in the future.
“It will enable some people who are going to become a first home buyer bring that transaction forward now that they only need a 5 per cent deposit instead of a bigger deposit and they don’t have to pay mortgage insurance,” according to Mr Pressley.
Finally, the buyer’s agent highlighted the Australian Prudential Regulation Authority’s influence on credit as the main driver of a significant shift in buyer’s activity across the property market.
APRA’s intention to change serviceability calculations on new mortgages – that is, lenders in Australia won’t need to assess loan serviceability based on an interest rate of 7 per cent – might just add an extra 10 per cent buyer’s activity, he said.
“People generally don’t pay cash for a property, not because they’re irresponsible with money but because they just couldn’t. I still think that there’s more room for improvement with APRA, but we’ll take anything compared to what we’ve had.”
Along with the prospect of future rate cuts, this “credit relaxation” could alter the credit environment moving forward and, thus, influence the wave of new investors coming into the market.
According to Mr Pressley: “Extra buyers mean prices perform better than what they would have without it.”
“Right now, I’d say never hurry a decision involving a really, really expensive asset, but if you can afford to transact in property, get off the fence is what I’d say. If you tried to get finance last year and you couldn’t, get back in touch with your broker and try again – you probably can now.
“If you’re worried about property prices going backwards because negative gearing might be scrapped, get that idea out of your head… Just get in the game.”
A joint report by CoreLogic and Archistar found that over 583,000 properties across Sydney, Melbourne and Brisbane meet the requirements for the addition of one granny flat: a minimum of a spare 60 square metres.
CoreLogic’s head of research, Tim Lawless, said: “Granny flats not only help manufacture new capital gains, they also have the potential to generate rental income while meeting demand for more affordable housing.
“This has wider economic benefits for renters who want to access popular suburbs without paying a premium,” Robert Coorey, co-founder of Archistar, highlighted.
“The family benefits of a secondary residency can’t be overlooked, whether that’s giving adult children more privacy while they save for a mortgage, keeping loved ones close as they become more reliant on care or having additional accommodation for overseas visitors.”
“What is a relatively small outlay for home owners could boost the construction industry to the tune of $87.5 billion and accommodate the growing population in some of the cities’ most popular suburbs.”
Melbourne, in particular, has 145,625 properties fit for building a granny flat.
Mount Eliza has the most amount of subdivisible properties available at 2,584, with a median value of $1,161,700, while Merrick’s Beach has the largest proportion of subdivisible properties at 47.3 per cent, with a median property value of $806,779.
Cockatoo is the most affordable Melbourne suburb with subdivisible properties (29.2 per cent) at a median value of $615,124.
In terms of rental yields, Belgrave, with 38.2 per cent of properties able to add a granny flat, offers investors a gross rental yield of 3.9 per cent, with a median property value of $635,876.
Other suburbs in the top 20 Melbourne suburbs for granny flat potential are Eltham, Mount Martha, Glen Waverley, Rowville, Frankston, Doncaster East, Greensborough, Mount Waverley, Templestowe, Endeavour Hills, Wheelers Hill, Berwick, Frankston South, Mooroolbark, Ferntree Gully, Doncaster, Templestowe Lower, Boronia and .