Melbourne Steps Out Of The Spotlight

Posted by Daniel Joseph

As a property research house we constantly receive lots of questions from clients and business partners about where the “hotspots” are for property. On a daily basis we are questioned about the different markets around Australia and one of the most common questions is about the Melbourne market. As a service to our dedicated readers today we will go over our reasons that make Melbourne not the ideal market to be currently investing in. As usual, this is not to say that there are not great buys to be found in Melbourne, it is just the macro factors have pushed Melbourne below Blue Wealth’s approval line on our ratings model.

The Melbourne economy is not benefitting from the mining boom like many other states. Melbourne’s major exports such as education and services have been suffering with the high Australian dollar. For example it is now 20%-30% cheaper to go to university in the US over Australia for an Asian student.

Our current stance on the Melbourne market is that it is still over heating with supply issues to constrain price growth into the future.

The Melbourne market is fundamentally over supplied. The amount of dwellings to be completed is estimated to stand at 31,000 between 2012 and 2014. This is a large figure as the population in the area can’t absorb the stock at a fast enough pace. The oversupply is already affecting the rental market as according to SQM Research, the vacancy rate in the Docklands postcode is close to 9%. The CBD is a fraction over 9%, while Southbank has a vacancy rate of 11.5%. This is at a time when all capital cities other than Melbourne have vacancy rates below 2%. Melbourne overall sits at 3%, with its vacancy rate elevated by those inner-city areas.

Many commentators say the Melbourne is still a great market and to just stay away from inner city locations. This can be a false statement as even the housing market is suffering. A report released in late 2012 shows that 30% of purchasers who have purchased land are cancelling their contracts and forfeiting their deposits. This compares to an average of 5% just two years ago.

The building sector employs over 250,000 Victorians directly and after the construction of the many unit towers there is a chance for an increase in unemployment as the supply of stock depresses prices and reduces building activity. This will have adverse flow on effects to other industries that rely on a strong building sector.

In summary, a strong Australian dollar hurting the local economy, the prospect rising unemployment and over supply of stock are the main reasons that Bluewelth have avoided the Melbourne market in recent years.

Posted by Daniel Joseph, on 19th Jun 2013