Here’s what he had to say:
Melbourne and Sydney have long been the engine rooms of Australia’s property market, with Sydney traditionally leading the way.
But the southern capital is looking more appealing than ever before due to its superior value for money and glowing reputation as the world’s most liveable city for the past six years*.
In our recently released 2017 McGrath Report, we discussed Melbourne’s emergence as the No. 1 hot spot for both overseas immigration and Australians moving between states.
Of particular importance is the growing number of Sydneysiders relocating and/or investing in Melbourne where property is cheaper, with good employment opportunities and an appealing lifestyle.
Melbourne’s relative affordability is contributing to record high net interstate migration, as well as strong net overseas migration, making it Australia’s fastest growing capital city with an average of 1,760 people moving in per week in FY2015, according to the ABS^.
Although Sydney outshone its southern cousin in the boom, with 64% growth in home values compared to 44% since 2012#, the Melbourne property market arguably offers greater prospects for growth in the future.
Its median house price is $287,000 cheaper##, and a projected population surge from 4.61 million in 2016 to 7.91 million in 2053 will see it overtake Sydney as the most populous city in Australia^^.
Melbourne’s median house price rose by a modest 8.6% in FY2016 to $608,000, with the median apartment price up 2.5% to $485,000##.
However, some areas experienced much stronger price growth due to a lack of supply in 2016.
According to CoreLogic, Melbourne’s top 10 suburbs for house price growth in FY2016 all experienced more than 25% gains in value ##.
The dominant buyers in Melbourne today are upsizing families, most of whom are targeting the catchment zones of top performing public schools to avoid private school fees.
This trend is so strong that new REIV research** shows there is now a significant price difference between homes located within top catchments and those that border them.
In Parkville, homes within the catchment for University High have a median house price of $1,395,000, compared to $799,000 for homes that are 1km outside the zone.
Similarly, homes in the catchment for McKinnon Secondary College have a $305,000 premium over those outside the zone**.
With interest rates continuing at record lows, young buyers are stretching their budgets to get into premium areas.
They’re targeting small inner-ring cottages with a bit of character, and paying well over the reserve to secure a piece of prime land while they can.
Some vendors are leveraging strong selling conditions to upgrade to larger homes in more affordable areas with change to spare.
For example, vendors in Doncaster, Mitcham, Blackburn and Box Hill are selling in the early $1 millions and buying in Croydon for $800,000-$900,000.
Given Melbourne’s tight supply and rising prices, we are seeing the ripple effect in many areas.
For example, buyers priced out of the highly desirable Bayside area are purchasing next door in Bentleigh and McKinnon, leading to several sales above $2 million this year – a price level not thought possible just a few years ago.
APRA restrictions have impacted investor demand, but we are still receiving enquiries from Sydney, Perth, Brisbane and ex-Melbourne locals living overseas.
Many investors have now put Sydney into the ‘too-hard box’ due to affordability, and have switched their focus to Melbourne.
The southern capital has long been the favoured destination of offshore Chinese buyers, but demand has softened this year following changes to lending criteria for foreigners and forced sales of properties purchased in breach of Foreign Investment Review Board regulations.
Despite this, Melbourne’s prestige market remains strong, with a new house price record for the city set in Toorak at $24.1 million and Victoria’s highest residential sale ever occurring in South Yarra, with the exchange of three homes in one line for $33 million.
Both occurred this year.
Sales above $25 million are expected for penthouses in South Yarra’s glamorous Capitol Grand development, which would break the national apartment record.
Melbourne is facing an oversupply of apartments, which currently represent 49% of stock for sale compared to 42% a year ago and 29% in 2011^^^.
CoreLogic figures show a pipeline of 80,500 new apartments due for completion over the next two years, when only 61,500 apartments (old and new) are usually sold over this timeframe###.
This presents a great opportunity for owner-occupiers with a long term view, but they need to choose wisely.
* Global Liveability Ranking 2016, The Economist Intelligence Unit, published August 18, 2016
^ Regional Population Growth, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016
# Hedonic Home Value Index, CoreLogic, published September 1, 2016
** Top of the class: School zones boost prices in 2016, Real Estate Institute of Victoria, published June 27, 2016
^^ Population Projections, Australia 2012 to 2101, Australian Bureau of Statistics, published November 26, 2013
## CoreLogic; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year
^^^ Units are increasingly making up a higher proportion of overall stock available for sale, largely driven by the nation’s two largest capital cities, CoreLogic, published August 2, 2016
### Record high unit construction increases settlement risk, CoreLogic, published May 16, 2016
For more information, please visit the website https://www.mcgrath.com.au/about