Commercial Property Outlook 2009 - Victoria

Outer Melbourne leads price growth in both homes and units. Victoria remains more affordable than
NSW and Queensland.

Melbourne and Surrounds

Melbourne’s median house price is forecast to decline by 3 per cent for the 2008/09 year, but increase by 4 per cent in 2009/10, as a rising deficiency of dwellings and increasing rents place pressure on prices.

Toorak remains Melbourne’s premier suburb, being the city’s most expensive, but its median price recorded one of the biggest falls in the state, slipping 14.5 per cent.

It is predicted in 2009, Toorak, along with East Melbourne, and Warrandyte in Melbourne’s outer east, will experience further declines of between 9 to 10 per cent.

Melbourne’s eastern suburbs of Canterbury, Camberwell, Balwyn, Surrey Hills and Hawthorn East are expected to decline by about 8 per cent, as are Glen Iris, Elsternwick, Hampton and Beaumaris in Melbourne’s south-east and south.

Other municipal localities where house prices climbed quickly last year include Avondale Heights (25.7 per cent) and Sunshine West (22.3 per cent); Templestowe (21 per cent), Kalorama (23.1 per cent), Mt Dandenong (20.3 per cent), Clayton (23 per cent) and Springvale (22.4 per cent).

Housing starts in the City of Wyndham, incorporating Werribee, throughout November, December and January were at record levels and the trend is continuing upward.

As a recognised first home buyer market, Werribee will continue to attract first home buyers in 2009, as well as retirees looking to downsize but still have money in the bank with which to enjoy their retirement.

The strong Werribee property market is not likely to abate in the coming years, with strong population growth forecast. Currently, more than 7,000 people move into the Werribee corridor every year and this figure is expected to increase. The area has excellent primary and secondary schools, tertiary education, entertainment, tourist and retail facilities. The huge development planned for Wyndham Harbour will be a huge boon to the area with a marina, retail, restaurants and residential developments.

Home affordability levels in Melbourne had deteriorated to long term poor levels by June 2008, with mortgage repayments accounting for 35.7 per cent of average disposable income per household.

However, continual high inflows from overseas migration, which is expected to support robust levels of underlying demand, is likely to place further upward pressure on rents and house prices, especially as demand continues to outpace supply in Melbourne’s already tight housing market. This strength in demand is forecast to drive a rebound in purchaser sentiment pushing price growth of 3.9 per cent over 2009/10, lifting the median house value to $454,000.

Gippsland

Victoria’s most affordable oceanfront locations are in Gippsland or East Gippsland. Loch Sport, 45 km east of Sale tops the list with a median house price of $149,250.

The inlet towns of Paynesville and Metung will continue to experience growth as Victorians pursue their habit of holiday home purchases and the sea change phenomenon.

Other affordable oceanfront locations include:
• Toora with a median house price of $149,250
• Golden Beach with a median house price of $163,750
• Seaspray with a median house price of $185,000
• Port Albert with a median house price of $190,000

Mornington Peninsula

Homes in Portsea, at the tip of the Mornington Peninsula, booked a stunning 60.4 per cent rise – three times their 10 year trend – to claim Victoria’s second most expensive address.

Portsea prices are expected to increase another 13 per cent over 2009. McCrae median house prices also climbed quickly last year gaining 27.7 per cent. While the financial crisis is expected to have some impact on holiday houses, Victoria is unique with Melbournians having a high percentage of second houses and this is represented by the buoyant markets on the Mornington Peninsula.

Bellarine Peninsula

Geelong, like Werribee, is already experiencing the positive impact of government grants, which is expected to continue and strengthen throughout 2009.

The Drysdale/Clifton Springs region on the Bellarine Peninsula also bodes well for the future for those looking to adopt a lifestyle change at an affordable price. While the market is expected to remain flat for most of 2009, buoyed by the first home buyer sector, it will begin to pick up by 2010 and 2011, when prices will increase.

The expected announcement that Avalon Airport will become Melbourne’s second international terminus is anticipated to reinvigorate the top end of the market.

With the development of the Geelong Ring Road and the growth of Geelong as a base for industry, the Bellarine Peninsula is in a prime position to capitalise on the market when top end buyers and consumer confidence return.

The coastal market of Lorne and Torquay also reflects Melbournians love of second homes.

Pakenham and Berwick

Large parcels of land have been earmarked for development in the Berwick-Pakenham growth corridor, enhancing the property outlook for the region into 2009.

New master-planned communities, complete with state and private schools, new industrial precincts and further development within existing commercial centres are to be developed for the rapidly expanding Officer-Pakenham corridor.

Strong demand for homes below $400,000 is currently being experienced, a trend which is expected to continue into 2009.

There has been some softening in demand for higher priced rental properties, particularly upper end townhouses, but competition for more affordable rentals is still strong, so the sector will continue to perform into 2009.

Commercial and Rental

In Melbourne, BIS Shrapnel says, a tight rental market in 2006 has underpinned stronger rises in rent over 2007 (4.1 per cent) and 2008 (6.2 per cent). Median rent growth in Melbourne is forecast to increase at the second greatest rate of 23.2 per cent over the three years to June 2011.

According to Residex, the median yield for Melbourne units was 4.73 per cent at September 30 2008.

Melbourne’s vacancy rate tightened to below the balance market rate in 2005, averaging 2.3 per cent, and has continually firmed since, due to an easing in new dwelling construction and high levels of rental dwelling demand from buoyant overseas migration. Vacancy rates dipped below 2 per cent in March quarter 2006 and by June quarter 2008 were just 1.0 per cent.

After remaining flat in 2006, median rents in Melbourne have accelerated over the last two years, increasing by 8.7 per cent in 2007 and 12 per cent in 2008.

Despite new dwelling activity remaining healthy over these two years, completions have not been able to keep up with strong population growth, reflected by vacancy rates being under 2 per cent since March quarter 2006. This has driven strong investor demand of late, although, it is not expected to prevent further solid rental increases in the forecast period. As a result, median rent growth in Melbourne is forecast to increase at the second greatest rate of 23.2 per cent over the three years to June 2011.

Over the four years to 2007/08, indicative rental yields have struggled to improve from their low levels of 2003-2004 (3.1 per cent). This has been mainly due to the solid rental increases in 2007 and 2008 being matched by similar growth rates for prices. This has resulted in yields remaining at 3.2 per cent at June 2008.

Greater rises in rentals compared to prices is forecast over the two years to 2009/10, pushing indicative rental yields up to 3.8 per cent by June 2010, before rental returns stabilise the following year.

Hot Spots

Safety Beach and Frankston North are considered to be Victoria’s capital growth suburbs for apartments at June 2008.

RP Data Property Pulse reports that Melbourne suburbs Prahran and Carlton represent the best places for buyers seeking value and are expected to outperform during 2009 along with Deer Park, Kensington, Collingwood, Reservoir, Oakleigh East, Flemington, Brunswick West and Abbotsford.

Melbourne’s highest growth areas include: Broadmeadows, Narre Warren, Keysborough, Coburg, Lalor, Frankston South, Mornington, St Albans, Cranbourne and Glenroy.

Suburbs with the best outlook for prices over the coming year include: Sunshine West, Braybrook, Avondale Heights, Gladstone Park, Brunswick East, Coburg, Fawkner, Glenroy and Broadmeadows.

The Victorian Government has indicated it will provide infrastructure support, in terms of new and/or improved transport services to the key growth corridors which take in many of the above suburbs.

Regional hot spots include:

• Cape Woolamai on Phillip Island. The current median house price of $267,500 and the wide variety of different housing options caters for most buyers’ needs and tastes.
• Ocean Grove located within the Greater Geelong area represents great value for those seeking an affordable coastal location. It boasts a number of restaurants and cafes as well as major retail including department stores and specialty stores situated nearby.

The big gainers in median house price increases in country Victoria include Donald (52.9 per cent), Nhil (31 per cent) and Charlton (36.8 per cent).

Regional hubs including Ballarat, Bendigo and Shepparton are all expected to record falls this year. However, Bendigo is anticipated to see improved confidence levels in the latter part of 2009, as interest rates fall even further.

SOURCES:

BIS Shrapnel – Residential Property Prospects 2008-11
BIS Shrapnel – December Update (Residential Property Prospects 2008-11)
Real Estate Institute of Australia (REIA) Focus Group Final Report
REIA – Media Release “Signs of Positive Activity in the First Home Owners Market,
Let’s Keep it Going (10 January 2009)
Real Estate Institute of Tasmania (REIT)
November, Tasmanian Property Market (23 December 2008)
REIT – Tasmanian first home buyers up 10 per cent in December, 2 February 2009
Real Estate Institute of Victoria (REIV) – State of the Market
RPData – Top Performing Rental Yield Areas
RP Data Media Releases – Property Hotspots for 2009 (26 December 2008)
Property Pulse – Industry Market Wrap Up
Macquarie Real Estate Economic Research
Weekend Australian Financial Review (Weekend AFR) articles over November and December 2008
Sunday Tasmanian, Boon in Burnie’s Upper Echelons (4 January 2009)
Money, Your Home – Property Outlook 2009-01-14
BRW – Top 500 Private Companies, August 28-October 1 2008
BRW – November 6-12 2008
The Australian, Darwin Goes Through the Roof as Rental Hotspot (26 January 2009)
Realestate.com.au – Rental Yield 2009 Winners
The Australian Financial Review – Special Report (January 23-26, 2009)
Real Estate Institute of South Australia Market Update – SA Property Market
Reliable in Long Term (23 January 2009)

Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.