For the three years to 2001, Melbourne’s property market was exploding. Government incentives were driving a development boom, interest rates were at an all time low and the sudden increase of real estate options – in particular new suburbs and high rise inner city living – started an historic game of musical chairs.
Agents repeatedly reported cases of property selling 30% or more above reserve, and modest homes that started the cycle valued at around $250,000 were suddenly worth upwards of half a million dollars.
In 2001 alone, real estate values in Melbourne increased 20%, according to research by the Real Estate Institute of Victoria.
While the commercial property markets went on to continue this boom, the residential market slowed, and continued to slow following the events of September 11 until 2004, when median values began going backwards.
Figures released by the REIV since 2004 show a growing divide between suburbs that continued to increase in value, and others which fell back.
Five years ago, the pick of the bunch were Caulfield, Strathmore and Malvern – which each recorded annual median price increases of around 40%. Braybrook topped the chart with a median value increase of 40.2%, and nine of the top ten suburbs were within a 20 kilometre ring of the CBD.
Measured on a five-year basis however, just four of the best performing suburbs are within that ring – with suburbs more than 40 kilometres from the CBD dominating the rankings and expected to continue growing.
1. Hoppers Crossing (116.8% increase since September 2001)
2. Toorak (112.4%)
3. Seaford (97.1%)
4. Carrum Downs (94.4%)
5. Hawthorn (91.1%)
6. Altona (71.7%)
7. Hampton Park (71%)
8. Mount Evelyn (69%)
9. Craigieburn (66.7%)
10. Mornington (66.3%)
“What is coming out here is the impact of lifestyle changes” says Bernard Salt, demographer and Partner with advisers KPMG. “The sea change shift actually applies within metropolitan Melbourne.”
The western suburb of Hoppers Crossing topped the list, recording a median value increase of 116.8% over the last five years. Toorak came in second with an increase of 112.4%, and Hawthorn reported growth of 91.1%. Altona rounds up the metropolitan offerings coming in at sixth, with a median value increase of 71.7%.
The remaining suburbs are Seaford which came in third with growth of 97.1%, and Carrum Downs next at 94.4%. Hampton Park came seventh with a median value increase of 71%, followed by Mount Evelyn in the outer east recording 71%, Craigieburn at 66.7% and Mornington at 66.3%.
“We’ve actually had a revaluing of seaside property in this city – particularly beyond the traditional heartland of Port Melbourne through to Brighton” said Mr Salt.
This is supported by REIV figures, which show suburbs including Chelsea and Mt Martha to have increased in value this year by well above the metropolitan average of 4.2%. In the case of Skye in Melbourne’s south-east, median house value increased 34% this year.
Mr Salt says there are other drivers as well as a metropolitan sea change. He says changes in the types of industrial uses in the suburbs; new roadways, and a case of ‘the rich getting richer’ that are pushing up real estate values in unlikely places.
“I actually feel Dandenong’s role has changed in the early part of this century.” said Mr Salt. “The impact of manufacturing had diminished and what moved in, in the late 1990s, was distribution warehouse and logistics, which is at the upper end of blue collar work.”
“There was no longer storeman in blue overalls, but men in white collar prepped for high tech distribution.” said Mr Salt. “There needed to be higher end residential areas within close proximity to work in transport and logistics.”
“The Western Ring Road has also changed Melburnian’s perception of the western suburbs” said Mr Salt.
Three of the best performing suburbs over the last five years have direct access off the freeway which opened in 1998 and has been extended to the northern suburbs. This includes the cycle’s best performer, Hoppers Crossing and Altona, both in Melbourne’s west.
“(The Western Ring Road) has resulted in increased recognition that Hoppers Crossing is only 20 minutes from the CBD” said Rohan Smith, director of Jens Gaunt Real Estate in Werribee. Mr Smith attributes much of Hoppers Crossing’s growth to the precinct‘s demographic of 20-somethings, leaving family homes to buy their first home locally.
This sentiment is shared across Port Phillip Bay. “We are inundated by first home owners and young families.” said Luke Wright, sales consultant for MPRE’s Seaford branch. “Many old beach homes are now being demolished and families are building brand new homes.”
“We are also selling to investors who are holding off for the Eastern Link freeway to be built.” added Mr Wright.
Mr Salt also acknowledges infrastructure improvements changing the perception of Melbourne suburbs, and expects Eastlink to affect the value of real estate in the outer eastern and south-eastern suburbs up to 2012 in much the same way it has done for Hoppers Crossing and Craigieburn.
A strong economy has also underpinned growth in Melbourne’s blue chip suburbs, with Hawthorn and Toorak both performing strongly over the past five years. The two suburbs also top the chart as the biggest improving suburbs for the year ended June 2006, growing 35.7% and 33.6% respectively. Rounding off that list is Mt Martha (29.8%), Hawthorn East (27.4%) and Balwyn North (26.1%).
“People keep wanting to live in these suburbs and, once they are there, keep spending large amounts of money improving their homes by renovation which inturn increases the suburb’s desirability.” says Ross Savas, director with Kay & Burton real estate in Toorak.
“Also, people are no longer suburb specific buyers,” said Mr Savas. “They are just looking for the right house in a quality suburb.”
This is reflected in sales evidence for the precinct showing strong growth over the last few years. The most famous of this is a semi-detached Wayne Gillespie house in Washington Street Toorak which sold for $2.5 million in 2003, and was resold this year for more than $4.3 million.
“In 1998 we sold a house in Clovedale Avenue Toorak for $1.4 million and we resold it this year for $2.53 million.” said Mr Savas. “We are definitely seeing the emergence of a more affluent younger brigade (of buyers). Many are forty plus with young children who have large amounts of money to invest on the right house in the right location.”
Many newly built suburbs however have not experienced strong levels of growth, particularly those without links to public transport. The suburbs of Sydenham, Roxburgh Park and Greenvale – where house and land packages were marketed to first time investors five years ago – have reported relatively lower growth than most of Melbourne’s established suburbs.
Bernard Salt authored the book The Big Shift, and The Big Picture which discuss the implications of demographic and social change.
CASE STUDY: LIZ ROWLAND
Liz Rowland saw the potential of Craigieburn years ago.
Liz and husband Wayne bought into the area before real estate prices starting their upward spiral in 1998. Liz said she was attracted to the suburb’s easy access to the CBD where she worked, it’s village atmosphere and it’s sense of fresh air and space – close to Kinglake National Park and Mount Macedon.
She adds that the suburb was an affordable starting point to get into the real estate market.
A modest three-bedroom home close to the Craigieburn town centre set the couple back $98,000. So impressed was Liz at the precinct’s value, she later bought a nearby block of land as an investment.
When baby Isabella came in 2003, Liz and Wayne sold the house to move to bigger premises. Craigieburn had experienced five straight years of strong capital value growth and the house sold for $160,000.
The sale price helped give the family the capital it needed to buy a large renovated 1930s home in Oak Park.
Craigieburn is between two principal activity centres in Epping and Sunbury as detailed in the state government’s Melbourne 2030 blueprint. It has experienced strong residential and retail development over the last two years. The $500 million Craigieburn bypass, connecting the suburb to the Ring Road network opened last year.
CASE STUDY: Ricky Turner
Ricky Turner has developed quite the property portfolio in Melbourne‘s outer south-eastern bayside precinct. His formula is to buy second-grade homes on sites in desirable locations, rebuild and sell.
Ricky said he realised the potential for the belt between Mordialloc and Frankston in the late 1990s when property prices started began increasing well above the metropolitan average. His various projects have given the developer returns he needed to move onto bigger projects.
In particular Ricky highlights the suburbs of Carrum and Seaford – which both register on the REIV’s research of the top ten best performing suburbs since 2001 – as those that have been very successful for him.
His company’s first major development was in Carrum Downs, where a dilapidated home made way for four units, which were quickly eaten up in the marketplace.
Ricky subscribes to three rules when buying real estate in the peninsula precinct. He says home buyers are most attracted to properties close to the beach, close to retail amenity and close to public transport.
Such has been his success that he has diversified into commercial property, recently acquiring a site in Carrum Downs which he plans to develop into mixed use retail, office and residential.