ME’s Household Financial Comfort Report found that most property investors believe that the worst of price falls has already come and gone and that in the next 12 months, values are likely to remain stable or increase.
Even Sydney and Melbourne investors are confident that values will not decline further in the year ahead. Instead of fearing a market crash, most investors are merely waiting to ride out the current correction.
According to ME’s Jeff Oughton: “[Values have] already fallen significantly and they’re looking for a bottom in the property market over the next year … and I think that’s a reasonable forecast.”
“There’s still downward pressures there, but there’s no traditional triggers of any crash. The great bulk of investors have made a lot of money over the last 10 years and are happy to ride out a correction.”
“At the moment, you can still see prices falling, but they’re looking for some turn around now after the correction of the last year so. Keep watching, because if you are looking for more property, there could be a buying opportunity here over the next six months or so.”
Ultimately, investors are advised to avoid ‘irresponsible’ media reports to be able to focus on their long-term goals and support the recovery of the property market.
Plant Barry Group’s Barry Plant said that current mainstream reporting might be exaggerating the softening conditions of the property market, thus affecting investment activities across the board.
“Headlines such as ‘Property market falls off a cliff’ are just irresponsible. Yes, if you do read the whole article there may be some qualifying data buried in it, but the danger is that people are not delving deeper for their information,” Mr Plant said.
“This headline driven reporting makes buyers nervous and unwilling to buy. The lack of properties selling means that not only the real estate industry is depressed but there’s a flow on effect to conveyancers, lawyers, landscapers, hardware stores, furniture stores and, of course, state government revenues.
“There’s also a general uneasiness that develops with all homeowners that the value of their asset is being eroded and so they curtail spending.”
The property expert advised investors to do their own research instead of depending on media reports so they can maximise their ability to capitalise on the property market regardless of its current conditions.
With declines recorded at 0.1 of a percentage point and 0.2 of a percentage point during the last week of February, respectively, Sydney and Melbourne continue to drive declines across capital city markets, according to CoreLogic. Only Adelaide and Brisbane were able to see home values hold steady during the timeframe.
While property price falls may now be moderating, there are still no signs that the market has bottomed out, experts said.
Over the month, Darwin saw the largest median value decline at 1.7 per cent to $397,867, followed by Perth at 1.5 per cent to $438,952, then Sydney and Melbourne at 1 per cent to $789,339 and $629,457, respectively.
Brisbane and Canberra, on the other hand, saw more modest declines at 0.3 of a percentage point to $490,635 and at 0.2 of a percentage point to $594,351, respectively.
Annually, Sydney recorded a decline at 10.4 per cent while Melbourne recorded 9.1 per cent, with the largest declines focused on more expensive suburbs.
The more affordable suburbs, meanwhile, have been declining at a slower rate. While the expensive quarter declined by 10.7 per cent in the last 12 months, the affordable quarter declined only by 2.6 per cent.
According to CoreLogic’s Tim Lawless: “As lenders become increasingly focused on reducing their exposure to borrowers with high debt levels relative to income, a natural consequence may be even tighter credit availability across these more expensive regions.”
“The stronger conditions across the more affordable properties can be explained by the surge in first home buyer activity in these cities, as these buyers take advantage of stamp duty concessions available in NSW and Victoria,” he said.
“Another factor could be that lenders are likely reducing their exposure to borrowers with high debt levels relative to their incomes which could be skewing demand towards the middle to lower end of the housing market in the most expensive cities.”
The Inner City suburbs of Melbourne, located five kilometres from the CBD, has median values at around $558,000 for units and $1.4 million for houses, while middle-ring suburbs such as Doncaster, Nunawading, Blackburn and Ashburton has stand-alone dwellings selling for around $1.2 million and townhouses for $950,000.
To the north of the CBD, the inner and outer northern suburbs of Melbourne has a median house price of $1.3 million and a median unit price of around $717,000.
Western suburbs, which have seen solid growth over the past two years, have properties selling for a median of $840,000 to $532,000.
Recently, the suburb of Carrum saw a 10 per cent growth in its house price, spurred by the growing demand due to its bayside location as well as existing and new infrastructure. Carrum is one of the newest suburbs to be added on the list of suburbs priced at $1 million or more, according to the Real Estate Institute of Victoria (REIV).
The number of Victoria’s million-dollar suburbs have risen for the past decade, with a slight decline over the past year – down to 129 suburbs from 170. Out of these 129 million-dollar suburbs, 125 can be found in Melbourne.
Supply and demand
Listings fell in most capital cities during the final week of February, with Sydney and Melbourne recording the biggest declines at 25.3 per cent and 24.2 per cent, respectively. Only Hobart, Canberra and Darwin saw listings grow or hold steady.
Houses remained more popular than units. Hobart houses and units recorded the fastest time on market at 45 and 33 days, respectively, while the slowest days on market are recorded for Brisbane house sat 90 days and Perth units at 104 days.
Vendor discounting was between 5.7 per cent and 8.6 per cent for houses and between 5.9 per cent and 7.5 per cent for units, with Canberra as the low-end exception for both houses and units, Sydney as the high-end exception for houses and Perth as the high-end exception for units.
Sydney and Melbourne are expected to have a record volume of new apartments for sales this year, ultimately attracting first home buyers, according to Housing Industry Association’s Tim Reardon.
As buyers consume the new supply, Mr Reardon then expects another wave of investment to follow, which will stabilize the markets and ultimately create an overall favourable market cycle.
“There’s been a record volume of supply, significantly above the long-term average or at least 20 to 30 per cent above the long-term average. Now, that pent up demand in Sydney and Melbourne has been met, we’ll see the volume of homes being built each year return to stabilise.”
“It’s expected to still be at very strong levels but it’s going to be more at historically averaged levels than what they’ve been over the past four years,” he highlighted.
Strategy: Should you sell now?
Despite the possibility of recovery for the Melbourne property market over the next few years, experts strongly advise investors to take caution when making investment decisions.
For investors looking to sell their properties, LongView’s Evan Thornley said that the right decision comes down to their long-term goals and strategies.
Over the next two years, Mr Thornley expects the Melbourne property market to start its upward climb after a period of correction – a positive movement spurred largely by population growth, particularly across the northern and western suburbs.
“More people, same amount of land, prices will rise. Even now, the downswing is patchy. In many lower-priced outer suburban areas, particularly the fast-growing North and West, prices are still rising modestly. This is where the population growth is heading and it’s boosted by attractive first home buyer support from government.”
Over the past two decades, the Melbourne property market has undergone four corrections, and while this most recent one turned out to be harsher than the previous three due to the effects of the banking royal commission, the tighter lending regulations and the reduction of overseas buyers, he foresees the long-term upward trend to begin in the next 12 to 24 months.
Mr Thornley encouraged investors to think about their future plans before ultimately selling their properties in Melbourne.
If they are selling to buy something bigger, now is a great time to sell because ‘you will sell in an ordinary market and buy in a worse market, so you come out in front.
It may also be a good time to sell as soon as possible if the investors wants to exit the market for reasons related to finances or family because he predicted prices i to drop further before the recovery.
However, if the goals is simply to leave the Melbourne market, Mr Thornley recommended waiting for at least a couple of years, until the expected recovery of the market.
Ultimately, investors are encouraged to do their best risk mitigation by establishing strong cash flow and safety buffers, as well as implementing long-term strategies.
Right Property Group’s Steve Waters: “The very first thing I’d do is be liquid. It’s not just risk mitigation for you, but it’s your opportunity to execute opportunities, so to speak. Investors with the most cash will always do well.”
“What the market is today is going to be different tomorrow, but if you sit there and try and look at how much money you’ve made each day or how much has fallen, you’re not going to get anywhere with it. It is a long-term game. You need to be buying with a long-term strategic focus,” Keshab Chartered Accountant’s Munzurul Khan added.
“Hold on to the longer period of time. Make sure your mitigation factors are there, your cash flow is there. While we listen to all sorts of noises, it's the real information in the long-term that should we rely on,” Mr Khan concluded.
Melbourne’s inner suburban ring and eastern suburbs are expected to see signs of stabilisation in the latter half of the year, particularly Port Melbourne, South Melbourne, South Yarra, Hawthorn, Kew, Balwyn and Glen Waverley, according to the February issue of Herron Todd White’s Month In Review.
Dingley Village, located 22 kilometres from the Melbourne CBD, is also expected to experience a rise in demand and a significant improvement in the local economy following the establishment of Zagame’s Wild Water Park, ‘the southern hemisphere’s largest indoor waterpark’ being planned by companies Pellicano and Zagame.
The $100 million project will create 1,184 new full-time jobs in Dingley Village and the area of the city of Kingston—a large-scale workforce to serve over one million visitors per year.
Barry Plant Group’s Michael Care said: “Ultimately it's going to draw more attention to the area, more residents to the area to obviously come and enjoy the facilities of Dingley, so the infrastructure should continue to improve.”
“The demand for the area becomes more of a draw card for people to come.”