Though Victoria continues to show strong economic growth, Melbourne’s residential property market has been falling by over $1,000 a week.
It may seem puzzling to some as commercial property construction and infrastructure development in the state remains strong. Furthermore, Victoria’s labour market is healthy with unemployment at only 4.5%.
However, according to some property market specialists, Melbourne’s housing market could plunge as much as 20% next year.
Rising household debt, tighter lending conditions, lower demand for housing, and a huge uptick in real estate listings are the reasons why the residential property market is turning. In particular, the demand and supply issues with apartments are a cause for concern.
Demand and supply concerns in Melbourne’s residential property market
In terms of demand, apartment sales volume in inner Melbourne has decreased by 12% over the last year. A major driver for this decrease in sales is the removal of stamp duty concessions for investors in July 2017 which negatively affected off-plan property purchases. The removal of stamp duty concessions reduced pre-sales of new apartment projects.
Apartment supply has also dried up with a 41% decrease compared to last year. Some apartment projects have even been converted into student accommodation or more profitable office towers.
However, there is a difference between investor demand and owner-occupier demand, along with inner vs. greater Melbourne. Lending to first home buyers has increased by 30% year-on-year. Banks offering lower interest rates for first-time customers attributed to this increase.
In addition, stamp duty payments are also relevant as they have been removed for property purchases under $600,000 and discounted up to $750,000. Stamp duty payments that are inapplicable to properties under $600,000 have helped greater Melbourne apartments which have an average price of $535,000.
Melbourne’s residential property outlook looks like the demand could shape as the primary market mover especially if interest rates continue to tighten. Australia does have the second highest household debt to GDP ratio in the world, and this amount of leverage looms as a considerable risk.
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