With 115,433 dwellings having been approved for construction over the past two years and house prices having increased by almost seven percent over the past year alone, the Greater Melbourne area has been a hotbed of residential development activity and capital value appreciation in recent times.
With that, however, has come fears about oversupply, particularly in inner city apartment markets.
That raises questions about the outlook for Melbourne’s apartment market, where the best development opportunities are and what home owners in Melbourne are looking for in terms of their dwelling types and living preferences.
In a recent presentation at a Property Council of Australia event in Melbourne, REA Group chief economist Nerida Conisbee said price growth Melbourne would continue in 2017 but would be more constrained compared with recent times as borrowing rates began to shift upwards – potentially with the banks moving independently of the RBA. Nevertheless, she says the city remains an attractive proposition over the long term in terms of amenity and employment opportunities. Whilst foreign buyer demand eased back in 2016, Conisbee said, Australia as a whole remained an attractive market for overseas buyers in light of turmoil relating to Brexit and Donald Trump in the United Kingdom and United States. Courtesy largely of its access to education and other opportunities, Conisbee said Melbourne remains Australia’s most popular destination for Chinese purchasers.
Using data collected by her firm, Conisbee said active suburbs in terms of home buyer demand included Warrandyte, Brunswick and Northcote for detached houses and Parkdale, Bonbeach and East Melbourne for apartments. She says Warrandyte’s popularity revolves around its reasonable price points along with the ability to secure good properties with ample space within reasonable proximity to the city. Renters, meanwhile, are looking for detached houses in St Kilda East, Abbotsford and St Kilda and apartments in Clifton Hill, Carrum Downs and Fitzroy North, Conisbee says.
In terms of new stock, Conisbee says the most popular suburbs among buyers include Hampton Park, Craigieburn and Point Cook for detached houses along with Williamstown, Port Melbourne and Melbourne for apartments.
Speaking particularly of apartments, Conisbee says two bedroom/two-bathroom stock is sought after whilst popular features include carports, balconies and outdoor entertainment areas, ducted heating and cooling and storage. Price points of around $400 to $450k are the most active, she adds.
Penny Frost, a senior development manager at Peet Ltd, offers a slightly different perspective. Asked specifically about greenfield areas in which she saw as being most attractive from a development perspective, Frost said she generally favoured markets within the west and south-west. By far the busiest and one of the most promising areas, she said, was Wyndham in the south-west and especially Tarneit - which she said currently accounted for around a quarter of growth area sales activity and which she says is well serviced from a transport perspective.
Though constrained from a development perspective and less well serviced from a transport viewpoint, Frost said Point Cook was another favourite as this offered a special opportunity for first home buyers. Meanwhile, Werribee and Melton were also showing promise in terms of other areas in the west due to their attractive price points.
Outside of the west, Frost said Clyde/Cranbourne were popular in the east. Up north, Frost said Craigieburn was busy but remained constrained from a supply perspective. She said activity in the north was likely to shift to Kalkallo, which she said was also one of Melbourne’s most affordable greenfield areas.
“There’s a lot of sales activity going on there at the moment,” Frost said, referring specifically to Wyndham and particularly to Tarneit. “I see no reason why that would not continue.”
In terms of regulatory challenges, Frost says the greater planning flexibility is needed to enable creation of more lower-density multi-residential dwellings (subdivisions, townhouses, units 2-3 storey apartment blocks etc.) whilst costs associated with taxes and charges were adding more than $50,000 to the cost of some new homes in greenfield areas. Within the apartment sector as well, she says a challenge for industry was to deliver a greater diversity of one, two and three bedroom apartments.
Finally, there is the issue of oversupply of apartments and fears about empty houses. On this score, Conisbee notes says the massive volumes of new stock in the pipeline especially in the city do present a case for caution in the short term. Noting Melbourne’s (CBD) presence as one of the top areas of interest for new apartment purchases, however, Conisbee says some underlying demand certainly does exist.
Longer term, Conisbee feels that Melbourne is building roughly the right level of new houses and apartments but adds that the challenge is for more people to warm to apartment living. Whereas many first home buyers in Sydney were amenable to apartments, she says the majority of those in Melbourne still prefer to have their own land. That, however, will shift over time due to the relative prevalence of apartment related stock relative to detached housing at reasonable price points within close proximity to the CBD and urban amenity.
“As a city worker, if I was a first home buyer and I could choose to buy out in Berwick or I could buy in inner Melbourne, I would be interested in inner Melbourne,” she said.