Melbourne locks down but property still rises

Melbourne’s lockdown might be claiming headlines while footage of empty CBD malls dominates television news reports, but low interest rates and falling unemployment continue to quietly power the Victorian property market. 

The median house price in metropolitan Melbourne inched up further to $1,010,000, and by an impressive $49,000 to $559,500 in regional Victoria, according to data released this week by the Real Estate Institute of Victoria.  

The REIV’s June quarterly report revelation that metropolitan Melbourne is holding steady above $1 million is confirmation the historic March quarter result was not a one-off spike following episodic lockdowns. 

The usual winter hiatus has also not materialised, with an above-average number of sales during the June quarter. 

REIV President Leah Calnan attributed an end to some stamp duty incentives as a motivator for many buyers to make a property play before the 30 June deadline. 

She said another stand-out insight from REIV’s June quarter report was the propensity for buyers to genuinely consider regional Victoria as an attractive option for living and investing.  

“We know COVID-19 has created flexibility in employment arrangements and hybrid working models are allowing people to set their property sights beyond Melbourne but it’s also true that there are plenty of investment opportunities in regional areas,” Ms Calnan said.  

Herron Todd White director Perron King said that with the majority of people spending more time at home than ever, many individuals and families have taken the opportunity to upgrade their homes.  

“They have been assisted by first home buyers’ incentives, mortgage repayment holidays and record low interest rates,” Mr King said. 

In comparison with metropolitan Melbourne as a whole, properties in the CBD are slightly less sought after, mainly driven by the absence of international students.  

They are remaining on the market for 52 days, compared to 36 days for the suburbs. CBD properties are also clearing at auction less frequently than their suburban counterparts, with a clearance rate of 61 per cent compared to 84 per cent for Melbourne suburbs.  

The story is a little different for investors with rental apartments in the CBD. Prices have fallen or stalled and rent yields are taking a hammering. 

The cost of renting an apartment in inner Melbourne has plummeted by as much as 24.5 per cent over the past year. 

Melbourne Real Estate general manager Mike Drover said any increase in demand for apartments had been matched by supply.  

“Changes to minimum requirements in rental legislation paired with widespread drops of more than 15 per cent in rental yields has convinced many investment property owners to tap out, with those playing the long game choosing reputable agents who can keep good tenants in their properties,” he said. 

Melbourne CBD, Docklands, Southbank and Carlton relied heavily on international students, and have all seen rents fall by more than 20 per cent. 

“Apartment prices will rise when international travel resumes, so it may well be a worthwhile time to get in now while prices are low,” Mr Drover said. 

Seeking value 

According to Woodards director Stasi Adgemis, the inner north and eastern suburbs are where investors should be looking for capital growth potential into and beyond 2022. 

“Close proximity to the CBD at relatively affordable prices will drive people from the city and apartments as they seek a larger home while retaining the flexibility to visit and work in the city centre,” he said. 

Melbourne’s inner north has already seen growth throughout 2021, with the median house price in suburbs such as Fitzroy increasing by 6.2 per cent from $1.552 million to $1.617 million across the March quarter. 

Limited supply and a high demand for properties in the inner north have helped drive these price increases. This competitiveness has also meant that clearance rates in the inner north are at an all-time high, with some suburbs such as Abbotsford reaching 100 per cent clearance rates. 

“Since COVID-19 has taken hold, we are now finding buyers and families are putting a strong emphasis on getting a larger home after experiencing a different normal with a lot more home time and the day-to-day lifestyle changes,” Mr Adgemis said. 

“There is also a massive shift in where the spending of money is now being directed, with holidays and lifestyle decisions on hold and focus shifting to property, renovation and planning for a longer term future.” 

Numbers talk 

As well generating wealth among property owners, the continued growth in the property market has also generated a wealth of statistics that highlight its strength. 

There has been an increase from 155 to 177 in the number of metropolitan suburbs with at least a $1 million median house price.  

Auction clearance rates have stayed above 80 per cent since January 2021. June quarter 2021 saw the highest number of auctions held and sold for any June quarter, with 11,904 reported and 9,880 sold. 

Days on market (private sale) for regional Victoria was 29 days in June 2021, five days below the metropolitan median figure of 34 days. Mornington Peninsula dominated the municipalities list, racking up three of the top 20 suburbs in quarterly growth, and five in the top 20 suburbs for annual growth. 

Toorak remains the most expensive suburb, but Hawthorn East recorded an extraordinary 42.2 per cent quarterly increase. 

Just how sustainable are these gains and widespread areas of exceptional price growth? 

Woodards’ Mr Adgemis said he expected the market to level out over time but not in the short term. 

“Once vaccination levels reach a significant level, I believe the economy will strengthen further and drive sustained price growth through higher incomes and employment stability. 

“Vaccinations and an eventual removal of travel restrictions will also reignite international purchasing and bring further competition to the property market.” 

Surging suburbia 

A report by Heron Todd White (HTW) detailed performance throughout 2021 in Melbourne’s various market segments.  

In the recently released Month in Review, Heron Todd White chief executive Gary Brinkworth said a sense of confidence was being fuelled by low interest rates, bullish returns to economic form and substantial government assistance.  

“Buyers who’d been keeping their powder dry were suddenly given a hurry up, as activity and price growth gained momentum,” he said. 

The combination of substantial government incentives and record low interest rates has allowed a platform for first home buyers to enter the market more easily in the inner and outer north of Melbourne. 

House prices continued to outpace unit prices as high-density housing faced less demand despite sustained supply across some of Melbourne’s inner-city areas.

The report said Melbourne’s outer northern suburbs have predominantly seen growth in the estate home market.

Suburbs such as Kalkallo, Wollert and Beveridge began the year with median house prices of $540,000, $574,000 and $526,000 respectively. These all significantly increased by 10.8 per cent, 6.1 per cent and 5.7 per cent respectively. 

Off the back of the uncertainty and irregularity of 2020, the market in Melbourne’s inner east over the past six months has seen similar growth in median prices for both houses and units as it did towards the end of 2019.  

These positive signs of growth are consistent across five marquee suburbs located within the local government areas of Whitehorse, Monash, Maroondah, Knox and Boroondara, which cover the eastern corridor of Melbourne. 

Heron Todd White’s Mr King said at the halfway point of 2021, the property market in outer south-east Melbourne continues to grow.  

“Although the Homebuilder stimulus is ending, buyer demand is unlikely to slow down due to low borrowing costs, the stamp duty waiver and First Home Buyer Loan Scheme,” he said. 

“Given the affordable housing price, suburbs such as Berwick and Pakenham remain popular hotspots for first home buyers.” 

He said the majority of Melbourne’s western suburbs experienced growth in the first half of the year, including suburbs such as Tarneit, Point Cook and Melton. 

“Demand remains consistent in these development areas, particularly in land sales, with government incentives enticing consumers to build rather than buy existing properties,” he said. 

Melbourne Real Estate’s Mr Drover said Melbourne had a long record of capitalising on its international reputation for being one of the world’s most liveable cities and was confident the CBD market would eventually perform as well as the rest of the market. 

“That reputation will return, but for now interstate and international buyers are scarce and it is the people here in Victoria who are having a shift in lifestyle, and those prepping for the upcoming boom when international travel resumes, that are driving the market," he said.