Melbourne’s median unit price has ticked over $500,000 as demand for apartments in middle to outer ring suburbs intensifies.
Even in the CBD, a market many consider to be overheated, prices for apartments climbed 1.9 per cent over the December quarter, according to the Domain Group’s State of the Market report released on Thursday.
It also showed the south east region, which included Clayton, Oakleigh and Dandenong, had the highest unit price growth in the city, reaching a median of $460,000 – up 8.2 per cent from the previous quarter.
The inner region, which included areas between Essendon North, Thornbury, Armadale and Elwood, as well as the CBD, recorded a median of $540,000 and Melbourne’s lowest growth for units.
BIS Oxford Economics senior manager Angie Zigomanis said crackdowns on investor lending and a high number of apartments built in the CBD contributed to the slower growth in inner Melbourne.
“The inner-city area is where there are the most new apartments being built and therefore the most competition between apartments for purchasers,” Mr Zigomanis said.
An over supply of apartments in Melbourne’s CBD could cause unit prices to cool, experts say. Photo: Graham Denholm
Building approvals for units and apartments rose by 5.6 per cent in the month to November 2017, according to Australian Bureau of statistics data.
NAB chief economist Alan Oster said Melbourne’s CBD had too many units, and that this would eventually cause prices to fall.
“What we have been concerned about in Melbourne for a while is essentially an overbuild in units,” he said.
An over supply of apartments in Melbourne’s CBD could cause unit prices to cool, experts say. Photo: Joe Armao
He predicted unit prices in Melbourne overall to fall 2 per cent by 2019.
Mr Zigomanis said the oversupply of units in inner Melbourne and the potential drop in prices were “typical market forces at work”.
“You can argue that property prices in general have escalated a fair bit in recent years, and this is probably a good time for a breather to be happening,” he said. “Those apartments will eventually get soaked up and then that drives the next round of development.”
Despite predictions of market downturn, Domain Group chief data scientist Nicola Powell said the inner area of Melbourne had still seen quarter on quarter price increases.
She said Melbourne’s rapid population growth would create demand for currently unoccupied apartments.
“The population growth in Melbourne is seeing an accelerated level of growth and that’s driven by natural increase, positive overseas migration and positive interstate migration,” Dr Powell said.
University of Melbourne professor of urban planning Carolyn Whitzman said even if unit prices in the CBD dropped, it would still not make them affordable for low and middle income earners.
“Developments are being heavily marketed and developed as investments rather than as places for people to live,” Professor Whitzman said.
She said stamp duty savings for first home buyers spending less than $600,000 could contribute to urban sprawl, as even units in the inner suburbs were hard to come by at that price.
“People are definitely putting themselves in situations of housing stress and mortgage insecurity by buying at the $600,000 mark – it’s not super-affordable for a lot of households,” she said.
Dr Powell said the strong growth in the south east, higher for units than houses, was likely due to affordability.
“We know families are opting to live in medium to high density dwellings more so than they have done before,” she said. “A unit is a much more palatable price point than a house.”