Property Prices Surge In Melbourne's Inner City and Bayside Suburbs

No change in sight
Author: Marc Pallisco Date: September 12, 2007
Publication: The Age

Melbourne's real estate market will continue its push into record-breaking territory this spring.

Property values in almost every suburb have surged this year, with the big winners being the prestige residential market, and inner-city suburbs.

Figures released by the Real Estate Institute of Victoria this week show Melbourne's median house price for the year is $395,000 - up 6.8 per cent since last year and 23.1 per cent since 2002.

The unit and apartment market also fared well, with a median price of $331,000 - also up 6.8 per cent for the year and 31.3 per cent since 2002.
These REIV statistics compare Melbourne's median house price for the year until August.

According to the REIV, the bayside suburb of Middle Park reported the strongest annual median house price growth for the year, increasing 48.2 per cent to $1.32 million. It was followed by Mont Albert (46.4 per cent increase to $890,000) Armadale (38.1 per cent increase to $1.07 million), Carlton (33.8 per cent increase to $706,000) and Hawthorn (30.8 per cent increase to $990,000).

Other suburbs to perform strongly include St Kilda (29.9 per cent increase to $717,500), Balwyn (29 per cent increase to $1.05 million), Port Melbourne (28.9 per cent increase to $757,500), Brighton (28.3 per cent increase to $1.5 million) and Fairfield (27.3 per cent increase to $630,000).

While the 10 best-performing suburbs this year were within 10 kilometres of the CBD, the 10 worst-performing suburbs were all a substantial distance from town.

Median house values in the outer north-eastern suburb of Warrandyte went backwards to the tune of 13.6 per cent for the year, making it Melbourne's worst-performing suburb in terms of growth, according to the REIV. It now has a median house price of $570,000.

It was followed by Keilor (4.4 per cent drop to $382,500), Skye (4.2 per cent drop to $272,000), Cairnlea (3.8 per cent drop to $327,000) and Westmeadows (3.2 per cent drop to $266,500).

The coastal town of Point Lonsdale, where the Bass Strait meets Port Phillip Bay also reported a drop in median house price, according to the REIV. Its median house value is now $485,000, a drop of 9.3 per cent since last year.

Analysts agree that a strong economy is driving demand in both Melbourne's prestige residential, and inner-city unit and apartment market.
Healthy economic conditions have resulted in substantial salary bonuses, and strong sharemarket returns - and this money has been invested in real estate.

But, as well as driving prices at the top end of the market, investors are also prevalent at the bottom end. Agents say cashed up investors have contributed to a surge in the unit and apartment sector, regularly muscling out entry-level first-time buyers.

It is now commonplace for the final three or four bidders at an apartment auction to be investors wanting to boost their property portfolios in preparation for retirement, agents say.

"There is so much money chasing investment property at the moment, and nowhere for investors to park it," says Greg Cusack, director of Barry Plant Brunswick. "We're seeing prices for updated two-bedroom apartments in Brunswick selling for more than $350,000. This is more than houses were fetching two years ago."

This trend is supported by the REIV, which ranks Brunswick as the sixth best-performing suburb for units and apartments, based on median value growth during the year. Unit and apartment values in the inner-northern suburb now average $321,000 - an increase of 27 per cent since the same time last year.

The REIV ranks the southern suburb of Beaumaris, which reported a 43.4 per cent rise in median unit and apartment prices this year, as the strongest-performing suburb for unit and apartment growth.

It was followed by Kew East (34.7 per cent increase to $495,000), Footscray (33.9 per cent increase to $220,000), Northcote (33.6 per cent increase to $350,000) and Ascot Vale (28.4 per cent increase to $320,000).

Surprisingly, units and apartment values have outperformed houses over five years, recording an average 31.3 per cent increase compared to a 23.1 per cent increase for houses.

Using these longer-term statistics, the best-performing suburb for units and apartments was Caulfield South, where there was a 12.7 per cent yearly growth rate, and a median value of $508,750. It was followed by Caulfield (11.3 per cent annual growth rate a year, to $513,500) and Black Rock (11 per cent annual growth rate to $590,000).

The recent boom-like performance of the unit and apartment market, particularly in the inner city, is raising concerns that many first-time buyers may no longer be able to afford the great Australian dream.

Anecdotal evidence following the Reserve Bank of Australia's recent decision to lift interest rates (for the second time in a year), is painting an alarming picture for a Federal Government heading into an election.

"Investors simply aren't dropping out of the market because of rising interest rates," says Robert Broadhurst, senior sales consultant with Hocking Stuart Albert Park. "Most were able to recover last November's interest rate rise by raising rents and expect they'll be able to do the same should it happen again, so it doesn't really affect them at all."

"When interest rates go up, more first home buyers defer buying - and this keeps them in the rental cycle," said Mr Broadhurst. "When there are more renters than properties to lease, as has been the case recently, landlords are able to bump their rents up."

Both Mr Broadhurst and Mr Cusack say home buyers are competing not only with mum-and-dad investors from Melbourne, but also from investors interstate, particularly from Perth.