Analysing the property market
It is always important to analyse the property market before considering investing in property. This means, either yourself or with a professional, analysing the market for trends, following the property market cycle and forecasting areas of house price growth.
Growth figures can differ between national figures, cities, and suburbs – they can even differ between types of properties in the same suburb. So if you’re an investor, it’s important to keep an open mind about the type of property you’re looking to purchase and its location.
Melbourne’s property boom
Melbourne, like the whole of Australia, has just come out of a property boom. Since the highs of 2015, property markets have slowed across the country, but this does not necessarily mean that the market is crashing. It is common to see markets correct themselves after a period of rapid growth.
It’s true that on average some areas of Melbourne are slowing in house price growth. However, averages are just that – averages. There are many suburbs of Melbourne that are responding positively in the current climate.
It’s all in the price
Properties in the upper quartile of value in Melbourne’s housing market (in other words, more expensive houses and units) are dragging down the city’s average growth figures. High value properties in Melbourne have seen an -8.9% decline in annual growth.
The main reason for this is the tough mortgage market. Many lenders have hiked rates and there are a number of restrictions on bank lending that has resulted in a significant tightening of lending criteria for home loans. This means that people can no longer afford large loans and are usually required to bring a higher deposit to the table to get acceptable mortgage rates.
At the other end of Melbourne’s property market, in the lower quartile, dwelling values are withstanding national market trends and are continuing to grow. In fact at +2.9%, Melbourne’s lower quarter market is showing a stronger performance than Sydney (-4.6%), Brisbane (-0.9%) and Perth (-5.2%) when it comes to property price growth. This indicates that lower value homes are still a solid investment if you’re looking to buy in Melbourne.
Outer suburbs on the rise
In Melbourne, the demand for property is rippling outwards from the inner suburbs towards more affordable areas of the city.
There are suburbs across Melbourne’s outer north and west that have seen significant annual price growth. House prices in many suburbs are rising at a rate of 14–24%. For units, prices are growing at 10–13%, one suburb in the outer north saw an annual growth of 42%.
This shows that Melbourne’s property market is not homogeneous; there are smaller micro-markets across the city where significant equity can be built.
Population, population, population
There are a number of factors to follow to gain a sense of the future growth of Melbourne’s housing market. Things like infrastructure investment, job growth and population are all indicators of high growth for the property market.
Melbourne’s population is currently growing at +2.7% per year, compared to +1.8% for Sydney. It is forecast that the population of Melbourne will surpass five million by 2021 and pass eight million by 2050. In just twelve years, Melbourne looks to overtake Sydney as Australia’s most populated capital.
People coming to the city all need homes to live in. They also need schools, transport, amenities and infrastructure, meaning that Melbourne benefits from a range of investment and attract new businesses and industry. This is a good sign for Melbourne’s economy and for growth of the housing market.
What does it mean?
How much attention should you pay to property trends? That’s depends on your personal circumstances and your financial goals.
Over the last two decades, dwelling values in Australia have increased by 231% on a national level. This shows us that in the long term, property has incredibly strong growth potential. If you’re looking for an investment in the short term or medium term, you’ll need to pay closer attention to areas of high growth across the city to make the most of your investment. There are a huge number of factors that affect the value of a property, so we suggest seeking professional investment advice if you have specific wealth-building goals in mind.
Get Melbourne property investment advice for free
Reventon offers free advice sessions so you can discuss your current financial circumstances and your future money goals. After the meeting, one of our expert property consultants will prepare a comprehensive personalised investment plan tailored to your needs.
It contains industry insights, growth projects and the bottom line of how much you could be making year on year. This service comes at no cost, and you won’t be obliged to take up any of our services.