Feature Melb 151009

It has been another strong year for Melbourne real estate, with house values increasing 9.7%, and unit values 4.1% in the 12 months to the end of August, pushing September quarter median values to $725,000 and $538,000 for the two housing types, respectively, according to REIV.

This growth continued in September with values rising further in response to an acute stock shortage, particularly of freestanding houses. In fact, auction volumes for houses are an estimated 15 to 20% lower than last year – a potential symptom of increasingly high transaction costs, together with strong economic fundamentals, that are now seeing property owners hold their assets longer than in recent years.

Unemployment is particularly important to this level of confidence and comfort, with Victoria offering among the lowest unemployment in Australia, second only to New South Wales, according to August ABS data. Low interest rates are another important fundamental alleviating tension in the marketplace in favour of sellers.

Recent conditions have witnessed examples of houses in Kensington and Flemington rising $100,000 in value during the past quarter, simply due to demand and scarcity of supply. But it’s not just Melbourne’s inner suburbs reaping all of the benefit. There are growth pockets in areas like West Footscray, Glenroy and even further afield in places like St Albans.

Not surprisingly, Melbourne houses continue to show a substantially higher growth trend than units. Talk of the imminent oversupply of units appears to have rattled buyers, although if the oversupply does eventuate it is likely to be concentrated in inner city areas and among high-density developments.

Despite the overall performance for the apartment sector, the entry-level price for an established two-bedroom flat in the right position in South Yarra, Armadale, Toorak, Prahran, Malvern or Richmond is now transacting for $750,000 to $800,000. At this rate, by 2020 these same two-bedroom flats are likely to be worth over $1 million, and it’s easy to see why with the limited supply of freestanding homes, and an increasing number of high-density apartments.

As spring unfolds clearance rate are trending high, with the year-to-date average lifting one percentage point in September to 74% due to sustained high results during recent months. The strong performance is a result of strong participation at auction, with auctions now typically averaging five to six genuine bidders, with all but one missing out. This demand then carries forward to the next auction – the result, strong competition that causes price growth.

Like investors, homebuyers should invest in professional, independent and customised advice, if required, to assist with their home purchase.

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Authour: Greville Pabst
Property expert Greville Pabst is Executive Chairman of WBP Property Group.

Follow Greville Pabst on Twitter @grevillep