Dubbed a slowdown – not a bust – Melbourne’s real estate market has been affected by a variety of factors including share market volatility, sharp dips in consumer sentiment and successive interest rate rises.
Substantial increases in the cost of living too – which included rent rises of more than 20 per cent in some inner-city parts – also affected the ability of home buyers to save a deposit to buy a home.
Those that were able to save a deposit were met with a runaway market, with land and median values in some suburbs increasing more than 20 per cent over a quarter.
Interstate investors – particularly from Western Australia and Queensland – were also out in force last year, and continued to outmuscle “owner occupier” home buyers until December, when the global credit crunch affected some of the most popular “mum and dad” type ASX-listed companies, like Centro.
The fact so many prospective buyers put their plans “on ice” suggests 2008 is indeed a blank page for the Melbourne real estate game, with its key contributors – owner occupiers and investors, both on the property sidelines licking their wounds.
The one thing industry experts agree on however, is that buyers have more bargaining power today than they have had at any time throughout 2007.
And for those lucky buyers – at last – estimating a fair market price for a home looks like it has become much easier.
For how long however, remains to be seen.
According to annualised research produced by the Real Estate Institute of Victoria, median home values in Melbourne increased 13.5 per cent in the last 12 months to $430,000, and is now at its highest value on record.
Despite this sharp rise – an average home in Melbourne is still cheaper than in Sydney, Perth and Canberra, where median prices are closer to $500,000.
The REIV statistics quoted throughout this analysis compare Melbourne’s median house price for the year ended January 31 2008, and differ from those quoted throughout the Domain Property Review, which quote the REIV’s annual median figures, released to the market earlier this year.
The annual figure used includes the many suburbs which might not make the REIV’s quarterly rankings, because less than 30 sales were recorded. As it includes many more sales than the quarterly figures, it is considered statistically more reliable.
Melbourne’s leafy suburbs returned to form in the six months since our Spring review, with nine of the top ten best performing suburbs in the eastern and south-eastern “blue ribbon heartland”.
This compares to our last analysis, where only four suburbs in this region appeared in the top ten (another four were bayside, and two were from the inner-north).
The top ten best performing suburbs to February 2008, according to the REIV, include Kew and Malvern, which reported annual median house value growth of 45.5 per cent, to $1.31 million and $1.411 million respectively.
They was followed by Mont Albert which recorded a 44.5 per cent increase in median house value for the year to $1.02 million and Malvern East which reported a 44.4 per cent increase to $1 million.
Other suburbs to round out the top ten best performing suburbs include Surrey Hills and Mont Albert North (the fancy name for the leafy pocket of Box Hill North) which both reported median value increases of 43.9 per cent to $1.04 million, and $770,000 respectively.
Ashwood was the eighth best performing suburb for the year – and also the cheapest of the list of best improvers – with median house values increasing 42.7 per cent to $624,500 for the year.
It was followed by adjoining Ashburton (42.4 per cent increase to $826,000) and Blackburn (40.2 per cent increase to $645,000).
But it was the inner city suburb of Carlton – the only suburb north of the Yarra River in this list – that took the mantle as the best performing suburb for the year, recording a 64.5 per cent increase in median house value over the twelve months to January 2008.
An average home in Carlton now costs $867,500 – up from $527,500 at the same time last year.
Longer term analysis incorporating the latest figures reflect the truism that the rich are getting richer.
Toorak and Middle Park tied as the best performing suburbs over a five year period, recording average median value growth per annum of 16.9 per cent to $2.78 million, and $1.425 million respectively.
They were followed by Malvern (median value growth per annum of 16.6 per cent per annum), Hampton (16.3 per cent) and Brighton (16.1 per cent). Kew, Hawthorn and Balwyn were also in the top ten list of best performers, over a five year period.
The performance of Melbourne’s blue ribbon market since 2002 but in particular in 2007, will long be remembered as being on the back of widespread economic prosperity.
The record price for a home in Melbourne was smashed twice, while almost every suburb reported a record new price paid.
Kay & Burton Toorak director Gowan Stubbings says secure employment prospects, executive sale bonuses, as well as a booming share market resulted in “an enormous level of confidence being in the inner south-eastern market last year.”
“People realised the value of their own properties have gone up, and this pushed them to consider their next purchase.”
He said a shortage of substantial, quality homes, stirred the hunger of those prospective buyers in the market to buy what was available, or risk losing out completely.
This resulted in some phenomenal prices achieved for properties in the south-eastern suburbs, including several worth more than $10 million. On more than one occasion, neighbours spent more than $5 million buying adjoining homes they planned to demolish, and replace with a tennis court.
Mr Gowing isolates Malvern as one of the best performing suburbs in the Stonnington region, driven by a lack of quality homes available for sale in adjoining Toorak.
The recent sale of the Stonington mansion in Glenferrie Road Malvern set a new price record for a house in Victoria, selling to art dealer Rod Menzies for $18 million.
Many in the industry believe Melbourne real estate market could become “two tiered” this year, with one trend for slow growth for the middle and inner city suburbs – and another trend – for negative growth – in some outer suburbs.
In particular, the most vulnerable suburbs at present are in the “mortgage belts” where an interest rate rise – let alone three in quick succession – spells the end for the mortgage dream, and typically result in more properties being put to the market for sale.
Median property values in some areas already started going backwards last year.
This included the new relatively new western suburb of Wyndham Vale, where median values fell 5.9 per cent last year, albeit from a relatively low $239,000 to $225,000.
The north-western suburb of Westmeadows – the first sprawling suburb visitors see travelling by freeway into the city (directly behind to The Age Print Centre in Tullamarine) also performed poorly last year, with median values dropping 3 per cent from $275,000 to $267,000 as at the end of January 2008.
Burnside and Werribee in Melbourne’s west also performed poorly, as did Lysterfield in Melbourne’s outer south-east, according to the REIV.
In a testament to the acceptance of higher density living in metropolitan Melbourne, the value of units and apartments increased 13.6 per cent in the last year, to $360,000 – and was slightly higher than the 13.5 per cent recorded over the same period, for houses.
The best performing suburb for units and apartments was Mentone, the next bay side suburb travelling south from Beaumaris, about 20 kilometres from the CBD.
The median value for a unit or apartment in Mentone surged 47 per cent last year to $411,500.
It was followed by nearby Sandringham (43.5 per cent growth to $635,000), Ascot Vale (37.6 per cent growth to $347,500), South Yarra (34.1 per cent growth to $480,000) and Flemington (33.3 per cent growth to $273,500).
Interestingly, it is only in the unit and apartment market any western suburb is represented as performing strongly.
Over a five year period incorporating the latest REIV statistics, units and apartments in the middle and outer suburban have performed better than those in the inner-city.
Median value growth for units and apartments was strongest in Black Rock, increasing an average 12.8 per cent per annum over the last five years, to currently average $667,500.
It was followed by Mt Waverley which recorded an 11.9 per cent annual increase since 2002, to $481,750, Mentone (10.5 per cent annual increase), Bentleigh (10.4 per cent), Mitcham, Caulfield South and Malvern (which each recorded 10.2 per cent annual increases since 2002).
The performance of Melbourne’s once-troubled Docklands market shows those that held onto their assets, have something to finally be smiling about.
According to the REIV, the median value of an apartment in Docklands increased 18.3 per cent last year from $470,000 to $556,000.
However those that sold their Docklands apartments between 2002 and 2004 for tens, sometimes hundreds of thousands of dollars less than what they paid – usually to invest elsewhere – need not feel too bad.
Shares, and bank bonds, would still have been a much better investment than a Docklands apartment.
According to the REIV, the value of units and apartments in Docklands in 2007 is only 0.6 per cent higher than it was in 2002.
The number of apartments available for sale in Docklands is set to balloon over the next two years, with Mirvac, Lend Lease, Walker Corporation, MAB, ING and Central Equity all planning new high rise towers in the area.
Depending on how well these apartments are received by buyers and renters, the Docklands market is still a real risk of being oversupplied.