Melbourne is continuously thrown into the same basket as Sydney. The media suggesting that the market is in an unrecoverable free-fall.
Put simply, it’s not.
There are areas of the Melbourne market which are experiencing a correction more significant than others however, the extent of a correction is generally dependant on the level of growth achieved in the latter years of the market growth cycle.
Melbourne is a uniquely segmented market. The growth achieved in the recent growth cycle occurred disproportionately among property types but also geographically.
Throughout the growth cycle, Melbourne’s housing market far outperformed the apartment market. Australian Bureau of Statistics indicates that Melbourne’s median house price rose from $478,000 to $752,000 between March 2012 and December 2017. Over the same period the median price for apartments increased from $440,000 to $555,000.
The disproportionate growth was a result of an increase in apartment supply diluting and limiting apartment price growth, while the housing market remained heavily under supplied.
|March ’12 to December ’17 growth rate||57%||26%|
The graph below, highlights what this has meant for the disparity between house and unit prices.
Historically, Melbourne’s house prices have been around 10 – 20% more expensive than apartments. This is considered a healthy sustainable level. In 2017, the disparity between property types reached an all-time high (36%). An unsustainable level that in time, will correct itself to more natural levels of disparity. We see an opportunity for apartment market growth to reduce the level of disparity between the two property types. There are some suburbs within Melbourne where the gap between house and apartment prices has exceed 100%.
In 2018, the disparity fell to 28%. This was largely a result of a reduction in median house prices from $750,000 to $706,000. Meanwhile, apartment prices held steady at $550,000 over the 12-month period. Our research indicates that a further reduction restoring levels to the historic averages will be driven by an apartment out-performance.
Working in Melbourne’s favour is an unprecedented level of population growth underpinning the property market. This rising population growth has meant that the supply increase hasn’t led to market saturation. The city’s vacancy rate of 1.7% indicates that the market is in fact under supplied. There’s also a significant under supply of high quality, owner occupier type dwellings which are the types of property which an investor needs to be identifying.
Despite our strong belief in the south-east Queensland market, we also believe that there are strong opportunities to be capitalised on in Melbourne. Our research indicates that in the sub-markets where supply levels have been limited and the demographics suit apartment living, strong levels of growth are likely to be achieved.
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