Despite the recent downturn, Melbourne continues to record a high rate of seller satisfaction, beating other major capital city markets across Australia. How will the Victoran capital fare for the rest of the new year?
RateMyAgent’s latest Price Expectation Report, which surveyed more than 40,000 Australians, showed a significant increase in overall national satisfaction, led by an explosive recovery in metropolitan Melbourne and Sydney, where satisfaction rates rose five to six times higher in just 12 months.
According to RateMyAgent’s CEO Mark Armstrong, the results show just how far the property market has recovered, with happiness doubling in the year nationally, strong gains in metro areas and a surging Victorian market leading the charge.
“As we look to the year ahead there are plenty of reasons for optimism,” Mr Armstrong highlighted.
The peak in happiness was seen most significantly across the Victorian market, with the state (55 per cent) overtaking Tasmania (51 per cent) this quarter as Australia’s happiest state.
Apart from leading in seller satisfaction, Victoria’s Melbourne also has the second-highest median price in Australia, giving buyers the confidence to venture to Melbourne’s fringes, which are expected to display accelerated growth moving forward.
In the top 20 happiest places nationally, Victoria has taken out the most regions (11), followed by NSW (seven) and Tasmania (two). Victoria holds six of the top 10 regions nationally.
Taking out the title of Australia’s happiest region is Southern Melbourne, reaffirming a strong surge in vendor satisfaction across metro Australia. This upward trend in seller satisfaction across Victoria and NSW has seen seven regions leapfrog Hobart, previously the happiest region in Australia.
Moving forward into 2020, house prices in Melbourne are predicted to jump a further 8 per cent, followed by 2021 gains of around 3 to 5 per cent, while unit prices are expected to see a 5 per cent boost in the coming year, before a 2 to 4 per cent value increase in 2021.
Still, despite the positive outlook, CoreLogic Australia’s head of Australian research Eliza Owen said that property investors must be cautious when investing in Melbourne properties.
In a lot of ways, the Victorian capital is expected to have a similar tale as Sydney’s, according to her.
While population growth drives stability, the strong upswing during the second half of 2019 may cause a softening in growth rate.
“Off the back of a very strong upswing in the second half of 2019 and affordability constraints, the capital growth rate may start to soften,” Ms Owen said.
CoreLogic’s February 2020 Home Value Index has found a rebound in the pace of capital gains across the Australian housing market throughout the month, seeing the national index rise by 1.1 per cent.
The strongest capital gains were recorded in Sydney, at 1.7 per cent to $872,934, and Melbourne, at 1.2 per cent to a median house value of $689,088.
On an annual basis, both cities have returned to double-digit annual growth rates, with values up by 10.9 per cent and 10.7 per cent, respectively.
According to CoreLogic, the latest results “continue the recovery trend that has been running since June last year”.
Melbourne was highlighted as being the “most recent city to stage a nominal recovery, with housing values surpassing the September 2017 peak last month”.
The Victorian capital joins Brisbane ($503,265), Canberra ($631,862), Hobart ($488,968) and Adelaide ($439,453) in reporting housing values at record highs.
For investors who are looking for more affordable entry points to the capital city markets, CoreLogic’s head of research Tim Lawless said that they find it more practical to narrow down their property search by examining lower quartile values.
The lower quartile – or the most affordable 25 per cent of properties in a region – would provide a better view of the market entry point, according to him.
“This might mean looking for the worst house in the best street, buying a home on a smaller block of land, or choosing a property that needs some work,” he said.
Melbourne’s citywide median house value currently sits at $689,088. In comparison, across the lower quartile, the figure drops $184,300 to $614,330.
Among the most affordable regions in the capital city based on lower quartile median values are North West ($549,790), South East ($573,590) andPeninsula ($580,130).
According to the latest days on market data from the Real Estate Institute of Victoria (REIV), the average Melbourne house takes 34 days to be sold – down from 42 days from the corresponding period in 2019.
Outer Melbourne is the fastest selling area in Metro Melbourne, with suburbs in the outer ring taking just 33 days to sell on average, followed by Middle Melbourne with 34 days and Inner Melbourne with 41 days on market.
Outside the city, regional Victoria homes are seeing 55 days on average. This is down from the 57 recorded in November 2019.
Warranwood and in Melbourne’s east have the shortest waiting periods across the state, with the average property taking just 15 and 16 days to sell, just over two weeks.
The biggest reduction in waiting time over the past 12 months was seen at Travancore, with the average home now spending just 42 days to sell down from 65 in January 2019.
According to REIV president Leah Calnan, homes selling fast are true indications of a strong market.
“Buyers have a big appetite for homes in Victoria, and strong competition for homes is causing shorter sales times. The Melbourne real estate sector is in great shape, and eager buyers can’t wait to get into a new home. Demand is high, local agents are being flooded with enquiries as soon as they list a new home for sale.”
Now is a great time to sell properties as strong demand – driven by record-low interest rates and easier lending conditions – makes the selling process quicker, Ms Calnan highlighted.
According to RPM Real Estate Group’s Residential Market Review, the total number of lot sales across Melbourne and Geelong’s land market increased 17 per cent to 3,185 for the past quarter when compared with the previous quarter. This jump is up 34 per cent from the same period last year.
In dollar value, the research found that Melbourne’s median lot price declined 2.1 per cent to $308,900, which RPM’s head of communities Luke Kelly said is “partly due to a reasonable amount of unsold or overhand stock on the market”.
“The key drivers underpinning a strengthening land market included improved buyer sentiment and activity from interest rate reductions and more borrowing power, ongoing price correction and continued incentives and rebates,” Mr Kelly added.
“In addition, rising values in the established market and moderating prices in the land market [have] reduced the land price to house price ratio, meaning buyers are seeing more value in a block of land or a house and land package rather than an existing house.”
Further, CoreLogic’s Market Activity Update for the final week of February showed, 2,446 homes taken to auction across the combined capital cities, returning a preliminary auction clearance rate of 77.7 per cent.
Zooming in on Melbourne, the CoreLogic market summary showed a preliminary auction clearance rate of 79.6 per cent, recorded across 1,215 auctions this week. By comparison, the week prior saw 743 auctions, returning a final clearance rate of 76 per cent. This marked the highest final clearance rate the city has seen since September last year.
Moving forward, ANZ’s associate director for property Daniel Gradwell expects a continuous improvement in terms of price growth, strong auction results, greater level of stock on the market and rising transactions, as well as the continuation of the supply-demand imbalance.
According to him, these trends will not be a “short-term hit”, but rather a “realisation that a stronger market is here to stay.”
“Over the final quarter last year, we finally started to see some positive signs regarding the construction pipeline, which has been a long time coming. We’re not talking about a sharp rebound, rather some green shoots emerging by way of building approvals starting to stabilise rather than continuing to fall. Building approvals fell more than 25 per cent from the peak and have now recovered just 3 per cent,” he said.
“We have reason to be more optimistic about the construction cycle than we were three months ago.”
First home buyers will have a huge impact on the future movements of the Melbourne property market as their number continues to increase, particularly because of lower property prices and less conservative lending conditions.
Low vacancy rates continue to put pressure on leaseholders, ultimately affecting renters across Victoria, according to data collated by the Real Estate Institute of Victoria (REIV).
Median rent for houses in Melbourne remained at $480 per week, but median rent for apartments saw an increase, with the average price now sitting at $445 a week.
Still, Victoria’s rental market remains tough after another month of low vacancy rates, with the metro remaining at 2.2 per cent and regional vacancy rates for January being 1.7 per cent.
“There is a strong demand for more rental properties, and sadly many families are still struggling to get a rental home,” Ms Calnan said.
With new rental laws being introduced by the Victorian government, landlords are apprehensive about how the regulations will affect them, adding to the rental shortage in Victoria.
“With vacancy rates having stayed below 3 per cent since March 2016 in Victoria, more homes are badly needed. The Andrews government needs to work more closely with landlord and the real estate sector to ensure more homes are available for rent.”
In this low vacancy environment, landlords are more likely to emerge as the big winners with competition for places heating up.
Further away from the city, the average rent for regional housing was reduced to $350 per week. Median rents for regional units remained at $290 per week.
Despite the generally positive run, Mr Gradwell said that economic and property indicators across the Victorian property market remain a “mixed bag”.
On the economic front, the recent bushfires and coronavirus present some challenges.
“For people directly [impacted] by the bushfires, it’s catastrophic, but the impact on the broader economy is likely to be temporary. There will be some rebuilding stimulus, which the federal government has already announced that will go directly to these communities,” he said.
“Coronavirus will have a larger impact. A recent ANZ Research note forecast the bushfires to take 0.2 per cent off GDP, while coronavirus will shave off 0.5 per cent due to the impact on tourism and foreign students. And, unlike the bushfires, there won’t be any stimulus measures.”
In terms of property indicators, there have been tentatively positive numbers coming through in building approvals, which signal a positive turn from very low levels seen throughout 2019 for both apartments and detached houses.
“That said, it’s worth highlighting the large lead and lag times before getting product onto the market. Even if building approvals start to pick up today, there will still be a housing shortage in the short term,” Mr Gladwell highlighted.
Moving forward, Mr Gradwell said that 2020 is shaping up to be a good year from a housing standpoint.
Anticipated rate cuts will further support price growth for existing and new dwellings, both across the house and unit markets. In fact, across Melbourne, prices are already above the previous peak for units and apartments.
First home buyers will also continue having a solid presence across the market despite complications in affordability.
On supply and demand, Mr Gradwell said: “The demand and supply dynamic will put upward pressure on prices initially, but building approvals and construction should start to accelerate in the second half of the year. That’s the key challenge; supply can take 12-18 months to come through, and the delay could put further pressure on both housing prices and rents.”
“Vacancy rates are already low, and if we’re not building enough for the remainder of the year, it’s likely the vacancy rate will continue to fall and result in continued rent increases.”
However, Right Property Group’s Victor Kumar reminded investors to be careful about where and what they buy and ultimately recognise that, while the property market is recovering, significant capital growth is unlikely to happen over the medium to long term.
Despite affordability issues, early interest and activity from investors seeking “premium” investment opportunities in 2020 have been recorded in Melbourne – a sign that such assets will only increase in popularity in the months to come, according to Colliers International Melbourne.
The company’s metro sales director Ted Dwyer and associate director Ben Baines have indicated that despite a marked decrease in activity around “trophy” assets in 2019, premium investments were still considered a lucrative investment.
In fact, appetite for these assets saw Victoria receive a 70 per cent clearance rate. This result is only expected to go higher through 2020.
The Colliers International metro sales team reported 119 premium investment transactions in Victoria for 2019 – a total of almost $365 million worth of sales. Activity was most prominent in the metro region, where investors competed for service stations, banks and fast-food assets.
The average yield for premium metro assets last year was 5.27 per cent, while regional assets achieved an average yield of 6.4 per cent.
“Investors have re-emerged with aggressive mandates for commercial investments with long-term leases,” the experts commented. “Assets such as childcare facilities, banks, fast-food retailers, supermarkets and service stations are expected to be in high demand.”
Apart from growth potential, those who are keen to invest in property this year are advised to go beyond looking at interest rates, population growth, negative gearing and proximity to desirable locations.
Propertyology’s Simon Pressley said that there are other factors that have a larger impact on property prices and those who invest because of infrastructure projects and population growth are “missing much more important parts of the property puzzle.”
1. Exchange rates
3. Housing affordability
4. Consumer confidence
5. Wage growth
6. Key industries
7. State governments
8. Job creation
9. Construction industry
10. Credit policy
Off the back of a strong end to 2019, Melbourne has seen 15 suburbs elevated to million-dollar status.
The club’s newest additions have been attributed to significant market recovery observed across the second half of last year, with 12 of the 15 new entrants found on the east and southeast side of the CBD.
Among the members of Melbourne’s million-dollar club are , Box Hill South, Rosanna, Blackburn South, Somers, Burwood East, Flemington, Kingsville, North Warrandyte, , Wantirna South, Moorabbin, Chadstone, Travancore and Cape Schanck.
Smart Property Investment recently reported that it is likely that Melbourne’s median house price will hit the $1 million mark by the second half of 2021.
Greystar, the largest operator of rental housing in the area, has purchased two adjoining sites at a value of $400 million.
The firm is expected to redevelop the properties into an integrated mixed-use project comprising attractive ground floor retail, approximately 5,000 square metres of high-quality office space and over 500 rental units across two towers.
“Australian renters deserve the same higher standard of service-orientated and amenities housing that is available in the major urban centres around the world, in contrast to what has traditionally been an inferior rental experience here in Australia,” said Chris Key, managing director for Greystar in Australia.
Located in close proximity to the South Yarra train station, Toorak road tram and surrounded by an abundance of retail, food and entertainment offerings, the site is set to give Australian renters a convenient living arrangement, according to Greystar.