Melbourne Property Market Update
During the last 12 months, many property commentators have labelled Melbourne as the worst performing city in the nation. However, the latest Real Estate Institute of Victoria (REIV) December quarter figures have revealed quite the opposite highlighting an increasing trend in demand. In actual fact, during the last quarter Melbourne median house prices increased by 7.8 per cent from $515,000 to $555,000.
Throughout 2012 Melbourne’s house prices experienced a downward trend despite the Reserve Bank (RBA) of Australia cutting interest rates six times since November 2011. However, some respected property analysts are of the opinion that the RBA’s moves may have assisted in laying the foundation for market stabilisation this year and the current environment that is generating rare opportunities for prospective buyers. Interest rates are at all-time lows and prices have softened in some areas, which presents very attractive opportunities.
According to researcher RP Data, Melbourne recorded a drop in the city’s median house price of 1.5 per cent during the December quarter, and a decline of 2.9 per cent for the year. Units also recorded negative growth of 2.7 per cent for the December quarter and 2.5 per cent for the year.
Melbourne recorded the lowest rental yields of all capital cities with houses showing gross rental yields of 3.7 per cent and Melbourne units at 4.4 per cent.
Confidence in the market steadily increased throughout 2012. A more favourable balance between supply and demand, in addition to falling interest rates helped Melbourne’s property market gain momentum towards the end of 2012.
Overall transaction numbers remained low in historical terms, which may cause some ongoing fluctuations. However, if improvements in confidence continue, 2013 will see improved activity and an increase in sale values.
The residential property market in Melbourne’s eastern suburbs has been relatively stable during the last quarter, driven by gradual improvement in interest from buyers. Clearance rates have remained consistent, averaging approximately 60 to 65 per cent each week. This is a positive sign for the local market, which demonstrated a decline in performance during the last two years.
First and second home buyers appear to be the most active with low interest rates giving buyers more confidence, particularly in the entry-level to middle price bracket.
Many consider it a good time to invest due to the record-low borrowing costs and relatively good affordability as a result of recent price decline.
Established houses and units are in strong demand in the city’s east. Astute buyers remain cautious of new off-the-plan style apartments, particularly in light of significant volumes of this multi-level apartment stock entering the market.
The residential property market in Melbourne’s western region has shown stability in recent months, with owner-occupiers the most active in the marketplace.
But new estate develops in outer areas such as Melton South, have been fraught with issues, catching many buyers unaware. Large oversupply issues and significant mark-ups of new properties in 2011 and 2012 have resulted in many buyers losing significant capital value in their properties when they sell.
New apartment developments in the western suburbs are largely targeted at investors and owner-occupier’s. While this property type may represent greater affordability the market segment has seen little capital growth in the past and therefore prospective buyers should conduct their research before purchasing.
Melbourne’s outer south-eastern residential property market performance was underwhelming during the final quarter of 2012, largely due to an overwhelming lack of buyer confidence across the region.
New homes have also been greatly affected with builders struggling to cope with the financial implications of the Carbon Tax along with the falling market. Several builders have commented that since the Carbon Tax was introduced, costs have risen an estimated seven per cent.
Smaller markets such as Moe, Trafalgar and Yarragon remain thinly traded with a noted lack of investors.
There were several large infrastructure projects completed during the final months of 2012. St.Francis Xavier College in Officer was completed and enrolments commenced in February 2013. The new school, which lies in the heart of The Grandvue Estate, may trigger price rises in the area as the school year unfolds. The new education facility will service Officer, Pakenham and Beaconsfield.
Woolworths has opened its new Lakeside Squarestore situated on the Pakenham side of Cardinia road, opposite the recently opened Cardinia Station. Lakeside Square Shopping Centre will contain an array of speciality shops when the construction of the centre is complete.
Information gathered from discussions with selling agents and local property professionals suggests that 2012 was a very difficult year for real estate in outer eastern areas. Many suburbs suffered price falls because of the limited interest from buyers, financing difficulties and economic and political uncertainty.
Justin Thomas, Commercial Valuations Manager
WBP Property Group