By Brendan Smith
Residential Valuations Manager

When talking about real estate, Melbourne seems to be the name on everyone’s lips. Following a tumultuous period in Australia’s residential property markets, Melbourne strengthened further in 2009, outperforming all other capital cities, yet again.

According to the Australian Bureau of Statistics, property values in Melbourne grew by 19.7 percent in 2009. With a current median of $524,500 according to the Real Estate Institute of Victoria, Melbourne ranks only second in value to Sydney.

With a well placed start to 2010, Melbourne’s property markets are buoyed by significant demand. However, although this demand continues to fuel the city’s growth, it is also responsible for the increasing strain on Melbourne’s already unaffordable property.

As the supply of new dwellings fails to keep up with market demand Melbourne’s chronic housing shortage continues to support investment property prices. While vacancy rates are on the decrease, currently estimated to be a low 1.4 percent, there is increasing upward pressure on rental rates. The vacancy crisis is even worse within a 4km radius of Central Melbourne, with just 0.5 percent of rental homes in that zone remaining vacant.

While clearance rates remain above 70 percent, recent auction results indicate a distinct lack of interest and enthusiasm in some properties. This has been particularly evident in lower end stock following the expiration of first home owner incentives and rising interest rates, which have determined a reduction in the number of lower end buyers.

Further predicted rate rises will place additional pressure on the mortgage belt areas, which are largely represented by the lower end property market. This may inhibit growth in these areas in 2010-11. Conversely, Melbourne’s top third most expensive suburbs have seen significant growth, which is expected to continue in the short to medium term despite continued rate rises.

While the market in general has tendered a solid performance, the eastern suburbs of Melbourne have been described as exhibiting boom like conditions, well above the general performance trend.

Characterised by low stock levels and enormous demand, Melbourne’s East has achieved strong sales results across the region. While current conditions cannot be sustained in the long term amidst fears of a crash, values in the east show no sign of wavering. Although the property market in this area is likely to stabilise in the coming 12 months, values are unlikely to diminished or correct.

However, it’s not all good news for the eastern suburbs. Building development, often seen as a positive driver of property values, has seen an increasing number of high density residential developments in eastern suburbs including Doncaster, which may reduce the appeal and value of nearby houses. As apartment supplies continue to grow, there may be a reduction in capital growth in this type of property in the area.

Melbourne’s west, although traditionally outperformed by other areas of the city, has benefited from strong demand and stable clearance rates during the first quarter of 2010, consistent with other metropolitan Melbourne areas. This growth has been underpinned largely by the relative affordability of the western region leading to a subsequent and significant increase in demand from first and second home buyers and investors alike. In particular, vacant allotments have witnessed significant demand with values increasing steadily as competition for a limited supply push prices up.

The outer western suburb of Melton, located within 45km of the CBD, although increasing three percent in the year to March remains one of the top five most affordable suburbs in Melbourne, with a median value of $230,000.

Neighbouring suburb, Toolern, located to the south and south east of Melton Township, constitutes one of the largest growth precincts across metropolitan Melbourne, and it is expected to transform Melton Township into a major urban centre with new regional infrastructure and services to support existing residents of Melton Township.

These improvements are expected to also benefit future residents from Eynesbury and surrounding areas. Major features of the urban development will include a new activity centre, rail station and a regional employment precinct. A further driver for the outer western area is the recently completed Deer Park Bypass, which links the outer western suburbs of Caroline Springs to Melton providing reduced travel times to the CBD.

Western suburb Altona, located 20km from Melbourne and traditionally considered a lower socioeconomic area, has seen tremendous growth in the last 12 months, the median value increasing more than 40 percent since March 2009 to $625,000. Riding on the coat tails of popular neighbouring suburb Williamstown, buyers are attracted by the affordability of the area, when compared with other suburbs of similar proximity to the Melbourne CBD.

As affordability issues worsen, Melbourne’s western suburbs will strengthen further as buyers acknowledge the benefits of reduced cost and travel time to the CBD afforded by the region.

Back to magazine contents page