The year was 1901. Australia had been recently federated and the rivalry between Sydney and Melbourne was significant enough that neither city was chosen as the nation’s capital. That honour was bestowed on the not yet created Canberra some 26 years later, but that’s a discussion for another day.
More than 100 years later, the rivalry continues. As a proud Sydneysider It pains me to report that for the past five years Melbourne has been voted the world’s most liveable city! Sure it has renowned infrastructure, hosts globally significant sporting events and is considered the cultural heart of Australia. Still, the designation left me feeling like the Grand Final runner up, something I know all too well as a supporter of the tricolours.
Back to the market review. Most who have attended an Australian Property Update or another Blue Wealth event will be aware that when it comes to Melbourne, market segmentation is the name of the game. Blue Wealth has identified sub regions within the city that exhibit ‘opportunity’ and ‘value’ in a macro market on the precipice of ‘danger’. The dominant force behind Melbourne’s strong recent performance, however, has been growth in detached dwellings. Apartment growth in Melbourne has a tendency to lag behind housing growth and what we’re seeing now is the apartment market playing ‘catch up’ to the housing market. The figure below shows the year on year price growth for the median Melbourne apartment. As can be seen, the market is yet to approach its previous cycle peaks (even if we disregard the monetary policy induced volatility between 2009 and 2011), suggesting a strong value proposition remains in certain regions at least. In November 2007, year on year growth peaked at 16 per cent. Growth in the current cycle is yet to breach 7.5 per cent!
Dwelling quality, too, varies wildly. In a market where a 40 square metre one bedroom and 60 square metre two bedroom apartment is now common, and in some suburbs the norm, isolating the project or apartment with appeal outside the investor space becomes increasingly difficult. Thus, the ‘needle in the haystack’ analogy was born.
Gentrification and the diversification of micro economies is now a clear trend in Melbourne. City proximate suburbs once dominated by manufacturing and light industrial economies are in the process of evolving to multi faceted knowledge based economies, at the same time promoting long term stability. With the rise of Generation Y, developments in central locations with close proximity to public transport, work and retail amenities will be in higher demand. Consequently, this demand will see the number of infill apartment developments grow in Melbourne throughout 2015.