Property market update: Melbourne, July 2019

The home value index results in July further confirmed that the housing market has reacted positively to the recent stimulus of lower mortgage rates and improved credit availability.

However, the response to date has been relatively mild, according to Mr Lawless.

Ultimately, while the market has started to show signs of life, experts don’t foresee a fast recovery, mainly due to tougher housing credit policies.

“The ongoing tightness in housing credit is expected to keep a rapid rebound in housing values at bay, despite the lowest mortgage rates since the 1950s,” Mr Lawless highlighted.

Meanwhile, ANZ Research expects dwelling to return to positive territory later this year.

However, like CoreLogic, ANZ stressed that it does not expect a “V-shaped recovery” in the housing market as the continued crackdown on living expenses for mortgage applications and an oversupply of housing in major markets continue to stunt price growth.

“This all suggests that the recovery is likely to be a fairly modest one,” ANZ Research said.

By 2020, the group has forecast price growth of only around 3 per cent across major property markets.

Similarly, BIS Oxford Economics said that a “meaningful and widespread” price recovery is still “a way off”.

The group predicted that median house prices will remain 14 per cent below peak in Darwin, 13 per cent below peak in Sydney and 10 per cent below peak in both Melbourne and Perth come June 2022.

According to BIS Oxford Economics’ associate director Angie Zigomanis: “Supply is running at record levels, with new dwelling completions having exceeded 200,000 in each of the past four years and expected to have peaked at a record of just under 227,000 dwellings in 2018-19.”

“This compares with underlying demand for new dwellings averaging around 195,000 per annum in the same period, which in itself is a record.”

Property values

CoreLogic’s home value index shows that prices have risen in most major capital cities, including Melbourne, Sydney, Brisbane, Darwin and Hobart.

While the combined rise across capital cities is modest at 0.1 per cent, it still represents a significant turnaround from consecutive months of price falls.

Darwin recorded the sharpest monthly increase, with values rising 0.4 per cent, followed by Hobart, where values increased 0.3 per cent. Sydney, Melbourne and Brisbane each recorded monthly spikes of 0.2 per cent.

On the other hand, dwelling values declined in Perth, Adelaide and Canberra by 0.5 per cent, 0.3 per cent and 0.2 per cent, respectively.

The rise in value of Melbourne’s units and homes signals that the downturn may be at an end as houses rose for the first time since December 2017.

The median house price in the Victorian capital is now just 10 per cent below the 2017 peak at $818,200 after a 0.3 per cent rise over the quarter.

According to AMP Capital chief economist Shane Oliver: “The combination of the removal of uncertainty around negative gearing and capital gains tax discount, rate cuts, support for first home buyers via the First Home Loan Deposit Scheme and the removal of the 7 per cent mortgage rate test suggests national average capital city house prices are at or close to bottoming.”

Over the year, 23.1 per cent of Melbourne houses reached $1 million, down from 29.0 per cent in 2017-18, while 6.5 per cent of units sold for $1 million or more, down from last year’s 7.8 per cent.

With buyers’ confidence improving, new home sales have increased by 0.8 per cent in the second quarter of 2019, based on Housing Industry Association (HIA) figures.

“Home sales...could be bottoming following the lead from auction clearance rates, which bottomed six months ago. July average clearance rates were [the] best in Sydney since May 2017 and best in Melbourne since October 2017,” he said.

CoreLogic’s Mapping the Market report found that, in Melbourne, 41.7 per cent of suburbs had a median house value of less than $500,000 compared to 6.9 per cent as at 30 June 2019, declining 34.8 percentage points.

This coincided with an increase in the share of Melbourne suburbs with a median unit value of more than $500,000, which jumped from 25.3 per cent to 57.2 per cent, over the same period.

Despite the positive projections, Mr Oliver said that home values could remain flat for months to come as banks continue to reign in credit, units remain in oversupply and unemployment rates continue to rise.

Essentially, price growth would be minimal heading into 2020, he predicted.

Off-the-plan units

Much like Sydney, Melbourne is moving through a historic peak in unit construction and is, thus, experiencing challenges in the property market due to oversupply.

The latest CoreLogic CHIP Report, which uses data from the Cordell Construction database, showed that 62 per cent of Sydney off-the-plan apartments were settling with a valuation lower than the contract price, while 46 per cent of off-the-plan units in Melbourne are doing the same.

As a result, lenders are especially cautious of the lending/settlement risk that exists within this sector, the report said.

Supply and demand

Australia’s capital cities are seeing auction clearance rates hold steady over 65 per cent, further improving buyers’ confidence, according to a new report by CoreLogic.

The research group’s latest National Auction Market Preview showed that 1,044 properties were going to auction around Australia, a slight decline from the previous week when 1,108 homes were auctioned and significantly lower than the 1,402 auctions in the same week in 2018.

In the main capital city markets of Melbourne and Sydney, auction numbers were down 5.8 per and 9 per cent, respectively.

Both Melbourne and Sydney markets recorded clearance rates of above 70 per cent, the fifth week in a row for Sydney that rates remained at this level.

According to the report, Melbourne remains a busier market for auctions with 471 scheduled for the week ending 11 August, with the busiest suburbs being Glen Waverley, Bentleigh and Glen Iris in the south of the city and Footscray in the north.

Spurring demand is the continuous growth of population in the major capital city markets.

Data from the Australian Bureau of Statistics (ABS) shows that, when it comes to population, both Sydney and Melbourne saw the most growth in real terms, with each city gaining about 77,000 newcomers through overseas migration over the year.

Sustainable housing

Health and community services industry fund HESTA has committed $20 million to Melbourne apartment project Nightingale Village.

The joint venture between sustainable developer Nightingale Housing and not-for-profit Social Ventures Australia (SVA) will have 40 per cent of the carbon-neutral homes allocated to low-income earners and key service workers.

HESTA chief executive Debby Blakey said that the project appealed to the fund because of its focus on delivering affordable homes for a key demographic in its member base.

“Our members deliver critical, life-changing services in their communities and we are looking for investment opportunities that improve their access to secure, affordable housing near infrastructure and in proximity to where they work,” Ms Blakey said.

“The way we invest focuses on the much broader impact we can have for members by aligning investments with seven strategic UN Sustainable Development Goals, including how we can help make cities and communities more sustainable and inclusive.”

Nightingale has developed four sustainable housing projects in Victoria, dedicated to allowing low-income and service workers to purchase inner-city homes at cost through savings that it achieves on energy efficiency and marketing expenses.

The Nightingale Village development is HESTA’s second foray into sustainable property through its Social Impact Investment Trust, which has allocated $70 million of member funds toward impact investments that provide risk-adjusted market-based returns.

SVA executive director for impact investing Michael Lynch said the project was a good example of how large institutions could fund affordable and environmentally friendly property developments into the future.

“It speaks to the scale of opportunities available to investors looking to make both a social and financial return and grow the impact on investing market,” Mr Lynch said.

“We’re thrilled that through our partnership with HESTA we’re able to again support innovative projects like Nightingale Village that create more social and affordable housing and help build an Australia where all people and communities can thrive.”

Strategy

Investors who are looking to take advantage of opportunities in the Melbourne property market as it makes its way toward recovery are advised to consider current and upcoming supply before making any purchasing decision.

After months of decline, Melbourne is slowly getting “back to a point of equilibrium, where there’s enough supply and enough demand, and then there will be certain little niche areas which may become undersupplied [again]”, according to Right Property Group’s Steve Waters.

Like Brisbane, the Victorian capital has started to see rents increase, which is often a sign of improving housing demand.

“This has come off the back of being heavily oversupplied,” the buyer’s agent said.

His advice to property investors: “It’s not just a matter of what’s constructed now but what’s in the pipeline in terms of DAs or just beginning construction and what have you.”

“Investors who can identify those good areas with the right fundamentals and perhaps take advantage of a market now where not everybody is in should be able to set themselves up for the future,” he offered.

“But once again, buying the correct area is paramount.”

Hotspots

Sydney and Melbourne suburbs have, once again, climbed onto lists of the most in-demand suburbs in Australia as buyers look to capitalise on ongoing price declines.

According to a report from realestate.com.au, Allambie Heights, located on Sydney’s northern beaches, has topped the list as the most in-demand suburb in Australia. It has a median price of $1.5 million for all dwelling types in the area.

This was followed by Melbourne’s Middle Park, which holds a median price of $1.98 million, and Adelaide’s Crafers, which holds a median price of $732,500.

Next up was another Sydney northern beaches suburb, Narraweena, which currently has a median price of $1.3 million, followed by Birchgrove, located in Sydney’s inner-west, recording a median price of $1.6 million.

Chief economist of realestate.com.au Nerida Conisbee said: “Allambie Heights and Narraweena are more affordable northern beaches suburbs.”

“If you look at somewhere like Manly – where the median price is nearly $3 million – Allambie Heights and Narraweena aren’t that near the water, but they aren’t too far away, so comparatively they are more affordable.”

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