Will the Melbourne property market go pop?
Sydney real estate is seen as king when it comes to growth but it may surprise you to know that in the last 12 months Core Logic’s RP Data shows that dwelling values in Melbourne have risen 10.1 % as opposed to Sydney which only rose 8.9%.
Since the latest cycle of real estate growth began in 2012 Melbourne has seen a staggering 37.1 % increase in dwelling prices but that still pales when comparing it to Sydney where the increase is some 52.7%.
The rise and rise of the market is attributable to a number of factors; a cyclical downturn in supply, historic low interest rates, and as such, low returns on savings, overseas inputs, and the self -funded super market.
But the outlook for Melbourne’s property market may not be so rosy in the future.
Prosper, Australia’s recent report points to an oversupply of housing that is not being used and may simply be sitting stagnant hunting for capital gain. Data collected from retail water supplier’s suggested that over 82,000 properties used less than 50 litres per day (significantly less than a single person’s usage) and indeed some 24,000 properties used no water at all including some 6.7% of properties in the CBD, that equates to 1,100 empty properties within cooee of Flinders St Station.
From October 2014 to 2015 planning authorities authorised over 70,000 new dwellings in Victoria. The evidence suggests that there is a large pool of property that is owned by investors that is not being made available to either renters or homebuyers. It would seem that these investors, whether from overseas or not, are waiting for a value increase before returning their stock to the market.
This strategy seems to have been reaping rewards across the country. In Core Logics “Pain and Gain Property Report” they outline that 31% of all owners who sold in March of 2016 doubled their money, and indeed across all of Australia over 90% were sold for more than their purchase price. Except in Melbourne.
The same report details that inner city Melbourne showed that over 19% of apartments were sold at a loss, the highest such loss they have recorded since 2005.
Is Melbourne about to pop?
A report by Propertyology cites that the supply of dwellings in process exceeds the population growths needs by some 12,000 units per year.
It is estimated that the manufacturing automobile plant closures will affect up to 6% of the Melbourne population which may well compound the oversupply by adding stress to the market, and lower demand or indeed see sales occurring under duress.
Common sense tells us that there will be a flattening of demand and as mentioned earlier maybe even further drops in sale prices. Given lower valuations we may also see pressure on highly leveraged investors to sell properties to meet loan to value ratios demanded from their lenders.
The Australian Financial Review recently reported that overseas sales agents were being offered commissions of up to 10% and significant upgrades on apartment finishes in order to get sales across the line. The RBA has been warning on property prices for some time and with the current glut in Melbourne and the large amount of properties in the pipeline it all points to a pin bursting the balloon in the Melbourne property market.
If you are thinking about investing in Melbourne it might be wise to count the cranes that currently dot the skyline and then maybe sit on your hands for a year or so when there may be some very good buying in the Melbourne market.
So where should you be looking for real estate investments?
Contact our Property Division for an obligation free chat about where we see value in the real estate investment market.