1. Demand
Population Growth Statistics
Melbourne’s population is expected to increase by one million people between 2006 and 2020 (Source: ABS).
“Melbourne’s growth of 93,500 people was the largest of all Australian capital cities in 2008-09.” (Source:ABS, Media Release, 30 March 2010).
Population Growth Drivers
• Liveability
• Rising immigration
• Baby boom
• Lifestyle seeking Generation Y young professionals
• Educational facilities attracting domestic and international students
• Business epicentre (Victoria generates 30% of Australia’s food and farming output, home to the automotive industry, home to the nation’s busiest seaport and transport hub, home to five of Australia’s ten largest companies)
• Events capital
2. Supply
It is estimated that almost 50,000 new dwellings are currently required to meet the underlying demand for housing in Victoria. Strong demand has been driven by surging net migration into Victoria with Melbourne’s growth of 93,500 people over the past year (June 2008-June 2009) the largest of all Australian capital cities.At the same time, new dwelling completions have been constrained by the fallout from the Global Financial Crisis. A severe deficiency in dwellings has put upward pressure on property prices with the average price of units and apartments in Melbourne increasing by 47% over the past five years to December 2009. The increasing shortfall of dwellings has also pushed more people into rental. Over the past two years rental vacancy rates have averaged just 1.1% for properties within 4km of the CBD, well below the balanced market rate of 3% explaining soaring rental increases (Source: REIV).
3. Price growth
A severe deficiency in dwellings has put upward pressure on property prices with the average price of units and apartments in Melbourne. Over the past 5 years apartments have increased by an impressive 47%, outperforming houses. Investors who are renting their apartments to tenants have received a strong gross property return of 11.5% per annum. (Source: REIV, January 2010)
4. Vacancy rates
The shortfall of supply is evident in the vacancy rates within inner Melbourne. Over the past two years(January 2009-10) rental vacancy rates have averaged just 1.1% for properties within 4km of the CBD, we below the balanced market rate of 3% explaining soaring rental increases.
Over the 12 month period ending April 2010 median rental rates for apartments within inner Melbourne increased significantly. Rental rates for 1 Bedroom apartments increased by an impressive 6.9% whilst 2 Bedroom apartments experienced 7.5% growth
58 % of residential dwellings within inner Melbourne are occupied by tenants.
HERALD SUN, REAL ESTATE P.19, 20.02.10
Melbourne is gaining ground as a prime investment target, writes Kamahl Cogdon
PROPERTY investors are passing over Melbourne in favour of Brisbane and Sydney, a new survey has revealed. And it’s a big mistake, those behind the poll warn.
PRDnationwide research director Aaron Maskrey says Melbourne has the strongest property market of all the capital cities and promises the best returns on investments this year.
“Many analysts are raving on about how Sydney and NSW are recovering best from the credit crisis,” he says.
“But, looking at Melbourne and the Victorian market, it never really slowed. In fact, it is really just starting to take off.”
Maskrey says Melbourne’s strong population growth – about 1400 new residents each week – and the continuing shortage of housing means property prices will continue to climb.
He says Melbourne’s suburbs have traditionally catered to new residents but there’s a strong push into inner areas now.
Maskrey says inner Melbourne is proving popular with lifestyle-seeking members of Generation Y.
“There is a strong push from young professionals who prefer that inner-city lifestyle,” he says.
“They want everything at their fingertips and they’re willing to sacrifice their front yard, back yard and openspace lifestyle for easygoing, low-maintenance living.”
He tips hot demand for city and suburban accommodation will help keep a lid on vacancy rates, which are at 1.3 per cent, and push up rents across Melbourne.
“We expect to see rental prices take leaps and bounds forward as well,” he says.
This means investors will reap strong capital and rental gains.
Maskrey says Melbourne rents already showed strong growth last year. The 3.3 per cent increase in weekly median rent in the September quarter outstripped every other capital city.
But investors appear unconvinced. A PRDnationwide online poll shows Brisbane in front as the preferred capital city for property investing.
A huge 45 per cent of the 1200 investors surveyed nominated Brisbane, followed by 25 per cent for Sydney and 17 per cent for Melbourne.
Adelaide was the favoured investment target of 5 per cent. Four per cent preferred Hobart and 2 per cent nominated Canberra. Only 1 per cent of those polled thought Darwin and Perth had the best investment opportunities.
Maskrey says Brisbane is a solid choice, but its popularity is fuelled by publicity about its emergence from the global financial crisis.
He says Queensland property prices are just starting to recover from the economic downturn. But
Melbourne’s market remains strong.
“Melbourne is leading the way of all the capitals,” Maskrey says.
“There is still potential for a lot of growth on top of what they have had already.”
HERALD SUN, NEWS P.1, 20.01.10
THE average Melbourne home may cost more than $1 million by 2020.
Real estate analysts predict the median price of a house will be $1,166,344.
According to property expert and wealth creation author Michael Yardney, the trend will be repeated in everycapital city across the nation.
“They (house prices) are likely to be closer to $1.5 million,” he said.
The prediction comes after a record year in Melbourne's overheated property market, which continued to boom despite the global economic crisis.
Statistics compiled by Mr Yardley from a variety of real estate sources including the Real Estate Institute of
Australia, show house prices in Melbourne grew from an average $230,500 in October 1999 to $518,500, an increase of more than 124 per cent.
“A lot can happen in 10 years,” Mr Yardney said.
“Median house prices have more than doubled in every capital city and in some cities property values have gone up more than 200 per cent.
“These increases have occurred despite a recession in 2001, a change of government, periods of high interest rates and the global financial crisis,” he said.
Continuing its reputation as the most expensive property market in the country, Sydney is tipped to be home to the highest-priced properties.
Average house prices in the Harbour City are tipped to be more than $1.2 million by 2019.
“Our major cities of Melbourne, Sydney and Brisbane are growing at an enormous pace and are bursting at the seams,” Mr Yardney said.
He said some forecasts suggest the population of all three cities, including southeast Queensland, could each grow by 700,000 people over the next 10 years. This should create a building boom and
lead to economic prosperity that gives home owners and investors the confidence to invest in property.
“We are moving into a new economic cycle with record population growth fuelled by rising immigration and a baby boom,” Mr Yardney said.
He said we need more dwellings for the same number of people, because we are living in smaller
households.
“However, we have a shortage of housing, vacancy rates are low, rents are rising and the cost of new construction is escalating,” he said.
Where an investment will be safe as houses ABS confirms housing supply drives prices in 2009
HERALD SUN, REAL ESTATE P.6, 20.03.10
Craig Binnie explores Melbourne’s rental property hot spots
MELBOURNE property investors have voted with their wallets to make the CBD their No.1 investment choice.
Figures from Australia’s largest mortgage broker show more investors are buying properties in the city than any other suburb or town in Victoria
The outer-western suburb of Point Cook was the second most popular choice followed by the new suburb of Tarneit near Hoppers Crossing, also in the west.
The city has long been popular with investors who are attracted by the many affordable and easy-to-rent apartments.
These properties have performed well over the past five years as the median city apartment price jumped 45 per cent from $323,750 to $471,000.
Point Cook is one of Melbourne’s more affordable suburbs with a median of $451,250 compared with the Melbourne median of $450,500 in the December quarter.
The cheaper prices in Point Cook and Tarneit offer young people the chance to enter the property market before they move out of home.
They can buy an affordable house and rent it out. In some cases the rent is almost enough to cover the mortgage repayments.
AFG’s state manager Victoria and Tasmania Carl Taylor says there are several types of investors – those buying a second or third home once they have their mortgage under control and those who are buying while still living with their parents so they get a foot in the market.
This second type of investor might otherwise find themselves priced out of the market, but buying a property to rent out while still living at home ensures that if prices continue to rise property ownership will not slip out of reach.
Taylor says different suburbs attract different types of buyers.
More affordable suburbs might have better rental yields but more expensive suburbs often have better capital growth.
He says investors have to work out which suits their circumstances – regular income, or the prospect of future gains.
AFG figures show investors account for 34 per cent of all home purchases – the largest share of housing loans since at least 1994.
AFG’s general manager sales and operations Mark Hewitt says: “Investors are now the driving force of the market, encouraged by rising property prices in recent months, and the longer-term view that a housing shortfall will continue to underpin future price growth as well as rental yields.”
Real Estate Institute of Victoria research manager Robert Larocca says it’s pleasing to see investors active in the market.
“After all, the sizeable majority of the city’s rental homes are supplied by private investors,” he says.
“Stimulating greater investment and construction of homes for the purposes of renting is a central challenge we have in the local housing market.
“The bulk of the demand from investors needs to be in the middle and affordable segments of the market and it is.”
WHERE INVESTORS ARE BUYING
Suburb / 2009 median house price / 2008 median house price / 2004 median / One year change / Five year change
MELBOURNE* $409,000 $380,000 $310,000 7.6% 31.9%
POINT COOK $420,000 $407,000 $352,500 3.2% 19.1%
TARNEIT $325,000 $334,900 $275,000 -3.0% 18.2%
PAKENHAM $316,000 $297,500 $215,000 6.2% 47.0%
CARLTON* $777,500 $820,000 $471,500 -5.2% 64.9%
FRANKSTON $315,000 $300,000 $233,000 5.0% 35.2%
MELTON $223,600 $205,500 $181,000 8.8% 23.5%
BRUNSWICK $637,000 $560,000 $395,750 13.8% 61.0%
COBURG $562,000 $526,000 $365,000 6.8% 54.0%
WERRIBEE $260,000 $240,000 $222,000 8.3% 17.1%
SOUTHBANK* $472,750 $445,000 $310,000 6.2% 52.5%
PORT MELBOURNE $845,000 $795,000 $518,750 6.3% 62.9%
KENSINGTON $617,500 $537,000 $390,000 15.0% 58.3%
CRANBOURNE $277,000 $255,000 $195,000 8.6% 42.1%
BERWICK $400,000 $377,250 $290,000 6.0% 37.9%
ST KILDA $855,000 $897,250 $562,500 -4.7% 52.0%
MAIDSTONE $492,000 $450,000 $285,000 9.3% 72.6%
SOUTH YARRA $1,180,000 $992,500 $642,500 18.9% 83.7%
DOCKLANDS* $545,000 $525,000 $486,000 3.8% 12.1%
CRAIGIEBURN $325,000 $280,000 $237,000 16.1% 37.1%
DEER PARK $309,500 $285,000 $210,000 8.6% 47.4%
TRUGANINA $297,000 $290,000 n/a 2.4% n/a
GLENROY $426,300 $378,000 $282,000 12.8% 51.2%
MILDURA n/a n/a n/a n/a n/a
RICHMOND $736,000 $686,000 $460,000 7.3% 60.0%
* Apartment prices
Source: Mortgage Choice/Real Estate Institute of Victoria
TOP 10 INVESTOR PICKS
Melbourne
Popular with second and third-home buyers who want to invest in an apartment. Most buyers have their own
home loans under control and want to invest as close to the city as possible for growth and steady rental returns.
Point Cook
Popular with young investors and those looking for a cheaper investment property. Strong demand for rental properties ensures steady rental returns, although capital growth is not as great as some other suburbs.
Tarneit
Affordable prices and new homes are attracting young investors who are buying to rent before eventually moving into their purchase. Owners can find it takes a couple of weeks to find a tenant when their property is vacant.
Pakenham
Affordable outer suburb that is popular with first-home buyers. With a median price of $316,000 buyers are finding the rent they receive pays most of their mortgage. Capital growth has been strong.
Carlton
Super close to the city and one of Melbourne’s best performing suburbs. Properties rarely remain vacant for more than a day and many are re-rented before the tenant moves out. A great place to invest if you can afford it.
Frankston
Better road connections are transforming Frankston into an investor’s paradise. More renters are moving in and lifting rental returns because they can now commute to other areas around Melbourne faster.
Melton
With a median house price of just $223,600 there are not many buyers who cannot afford to buy here. If you can rent your property the rent will take care of the bulk of your mortgage repayments. Capital growth has been steady.
Brunswick
Suburbs as close to the city as Brunswick always do well. If you can afford to buy here you will probably make more money than if you had bought in many further out suburbs.
Coburg
Described as the sleeping giant of the north, Coburg is 8km from the city with good road links and public transport. Investors who are doing their sums believe there is only one way prices can go here.
Werribee
A middle-ring suburb with houses middle-tier investors can afford. Growth has been consistent but not as strong as many nearby areas. Good homes rent relatively quickly.
17.03.10
The ABS December quarter dwelling commencement figures confirm that the supply shortage has been the
prime factor driving price growth and represents the biggest threat to affordability over the next five years.
REIV CEO Enzo Raimondo said that in the past five years Melbourne’s rate of population growth has
increased by 84 per cent and according to the Australian Bureau of Statistics the number of dwelling
commencements in Victoria has increased by 22.4 per cent (seasonally adjusted).
“There is no doubt that the mismatch between supply and demand, underpinned by increasing population, is
driving house prices in Melbourne.
“The significant increase in the number of dwellings commenced is very welcome and if it continues for the
next few quarters it will have a beneficial impact on affordability and prices.
“Today’s release of the REIV Annual Property Update for the 2009 calendar year shows that as the
population has increased, so have house prices.
“Since 2006 the Melbourne median house price has grown by 23 per cent compared to four per cent for the period between 2003 and 2006.
“The supply shortage became particularly protracted last year, as the improving economy brought life back
into the market. As a result six of the top 10 growth suburbs for the year had a median below half a million:
Dallas, Broadmeadows, Sunshine North, Highton and Croydon North.
“It is also clear that the demand shortage is even more protracted in the unit and apartment market, as over
the past five years the median price of a unit and apartment has grown by 37.9 per cent compared to 26.4
per cent for houses.
“More medium- and high-density housing, located in established areas, is required to meet the housing
shortage and is in demand from buyers.
“The dwelling supply shortage is also evident in the rental market, which has now seen rising rents and a
vacancy rate below three per cent for five years.
“Unless we continue to see increases in the number of homes that are being constructed home prices will
continue to grow, making it significantly harder for home buyers and particular first home buyers,” Mr
Raimondo concluded.
Apartment prices slay the safe-as-houses myth
HERALD SUN, REAL ESTATE P.5, 06.02.10
The latest REIV figures show that investing in an apartment is a safe bet, writes Richard Conrad
THE widely held belief that units and apartments generally don’t increase in value as fast as houses is just plain wrong.
The latest REIV figures show that in the past five years units and apartments have performed slightly better than houses.
From December 2004 to December 2009, the average price for a metropolitan house grew 46.1 per cent from $370,000 to $540,500.
In the same period, the average price for Melbourne units and apartments grew 47 per cent, from $300,000 to $441,000.
And recently, average prices paid for units and apartments have increased 7.6 per cent, from $410,000 in the September 2009 quarter to $441,000 in the December quarter.
Chosen wisely, units or apartments can be “safe as houses” – and they’re top places to live, too.
In East Melbourne, where the average price for an apartment is $825,000, an 118 per cent rise in values can be attributed to record prices paid for luxury pads, particularly in the Mercy Hospital redevelopment. Other desirable suburbs that have seen big increases in the average prices of units and apartments include Port Melbourne, Armadale, Caulfield North, Northcote, Fairfield, South Melbourne and Docklands.
In Toorak, the average house price at the end of 2009 was $2,675,000, yet the average unit or apartment would have set you back only $701,250.
But for value for money, you would have been better off investing in Toorak units and apartments because they rose 12.9 per cent in value last year – more than double the 6.3 per cent rise for houses.
Units and apartments span the entire price spectrum – from entry-level one-bedroom units in outer
suburbs to multi-million-dollar penthouse apartments at Melbourne’s best CBD and inner-city addresses.
REIV research manager Robert Larocca credits the shift towards medium and higher-density housing in
Melbourne as one reason units and apartments are performing well.
“For some that shift will be a lifestyle choice; for others it will be a decision based on cost,” Larocca says.
“For many, inner-city suburbs’ higher density can provide a more affordable option.
“The increasing popularity of medium and higher-density housing also has a positive outcome; for some suburbs the capital appreciation matches that for houses.
“Overall, growth in the median price of units and apartments has matched that of houses for five years,” he says.
But Larocca warns that the adage of location, location, location applies as much to units and apartment as it does to houses.
“In some cases, the location may not mean what suburbs or what street, but what floor,” he says.
“Get the right location and your resale value will be comparable.”
Larocca says the belief that units and apartments don’t perform as well as houses is a legacy of older attitudes to medium and high-rise dwellings.
HOWEVER, precautions need to be taken when buying an apartment or unit.
These include being aware of costs such as owners’ corporation (previously known as body corporate) fees and liability for repair and maintenance costs for the building as a whole.
Archicentre – the Australian Institute of Architects’ building advisory service – recommends a professional inspection of the building before buying a unit or apartment.
Faults Archicentre has found during pre-purchase inspections of apartments include lack of insulation and noise barriers between apartments, poor ventilation in laundries and bathrooms, drainage problems and structural damage.
UNITS AND APARTMENTS
Dec-09 Median / Sep-09 Median / Quarterly Change
1 East Melbourne $825,000 $485,000 70.1%
2 Port Melbourne $810,000 $622,500 30.1%
3 Armadale $575,750 $450,000 27.9%
4 Caulfi eld North $570,000 $457,000 24.7%
5 Northcote $493,000 $410,000 20.2%
6 Melbourne (CBD) $471,000 $395,000 19.2%
7 Fairfield $448,000 $376,250 19.1%
8 South Melbourne $690,500 $580,000 19.1%
9 Braybrook $419,000 $356,000 17.7%
10 Docklands $615,000 $525,000 17.1%
Source: REIV and Office of Housing
HOUSES VERSUS UNITS
Houses / Dec-09 median / Quarterly change / Annual change / Units /apartments / Dec-09 median / Quarterly
change / Annual change
Toorak $2,675,000 3.3% 6.3% Toorak $701,250 0.4% 12.9%
Brighton $1,661,500 4.9% 20.8% Brighton $730,000 -4.3% 21.5%
Malvern $1,521,000 1.4% 10.5% Malvern East $490,000 9.5% 14.0%
Balwyn $1,451,000 12.8% 51.8% Balwyn $650,000 5.9% 20.4%
Hawthorn $1,406,000 10.3% 4.9% Hawthorn $452,500 2.4% 24.7%
Kew $1,380,000 2.5% 35.2% Kew $550,000 7.8% 15.8%
Camberwell $1,339,000 3.4% 36.6% Camberwell $629,000 12.4% 12.0%
Hampton $1,255,000 2.9% 14.1% Hampton $581,000 -3.2% 11.7%
Hawthorn East $1,252,500 5.6% 54.6% Hawthorn East $555,000 16.2% 46.2%
Elwood $1,247,500 1.8% 22.0% Elwood $500,000 7.2% 13.9%
South Yarra $1,200,000 11.9% 21.2% South Yarra $605,000 8.5% 34.3%
Source: REIV and Office of Housing
Renters squeezed out
HERALD SUN, NEWS P.12, 25.02.10
MELBOURNE’S rental property drought is continuing, with vacancy rates dipping to 1.5 per cent this year.
Real Estate Institute of Victoria chief executive Enzo Raimondo said the January low marked five years since
the market was “in balance”, explaining soaring rental increases since 2005.
“Since that time rent increases have grown from 3 per cent a year to about 10 per cent,” he said.
“There are two reasons for this – over the past five years the rate of population growth has doubled and the
supply of housing has not increased at the same rate.”
The market favours landlords across the state, with vacancy rates falling to just 1.1 per cent in regional
Victoria.
Potential renters have the best chance of finding a home within 4km of the CBD, where vacancy rates were
at 1.7 per cent in January.
Vacancy rates across the state hit the five-year low of 0.9 per cent in February 2008.
Rents set to soar
theage.com.au-business, 13.01.10
Renters should prepare to pay more this year, as landlords pass on the costs of interest rate rises and tax
increases to tenants, a research group says.
Expectations of steeper rent charges follow a flat quarter of rental growth for houses in eastern states,
according to Australian Property Monitors.
The median weekly asking rents for houses in Melbourne, Sydney, Brisbane and Hobart were unchanged in
the December quarter, the property research group said.
But December “is likely to be the last quarter of flat rental growth,” APM economist Matthew Bell said.
“Melbourne rents should resume their long-term upward trend and are expected to rise by 5 per cent to 7
per cent, in line with their long-term growth rate,’’ Mr Bell said.
“Sydney rents are likely to increase by at least double the 2009 rate of 2.2 per cent to approach the $500 per week level for houses.’’
Property markets in Brisbane and Perth would play “catch up” with Sydney and Melbourne, APM predicted, with median house rents in Perth forecast to hit $400, a jump of 11 per cent.
“Brisbane rents, coming off the same base of $360 as Perth, are also likely to approach $400 with an
expected growth rate closer to 8 per cent,” Mr Bell said.
The Reserve Bank raised the official cash rate three months in a row at the end of 2009, taking the rate to
3.75 percent.
But more rate hikes are expected from the RBA, with another rise tipped by markets next month.
“An improving employment outlook means that overall, renters will be more willing and able to afford rental
increases,” Mr Bell said.
The unemployment rate sank to 5.7 per cent in November, leading economists to speculate that the worst is
over in the job market.
Also, the end of the First Home Owner Boost in December has removed a key incentive aimed at helping
turn renters into owners.
House prices continue to climb, putting ownership out of reach for more people, Mr Bell said, with little
relief expected.
Home loan data released yesterday by the Australian Bureau of Statistics showed that investment in housing
rose only 2.1 per cent in November, while total new home loans fell by 5.6 per cent in the month.
