State of the Market May 2011
Published on 01/05/2011
The Victorian property market is in the midst of a lull, the clearance rate has cooled down significantly from that of this time last year when clearances were averaging 75% to now where they are hovering around the 60% mark, and the prices in some areas have remained stagnant and even fallen. However, contrary to the belief of some other market spectators there is “no property bubble” and it is most certainly not going to “burst”.
What we are experiencing right now is nothing new. Melbourne went through a very similar market in 2004, history has shown that we always come out of the trough and property prices continue to increase in value as markets are self correcting. To add to this Melbourne and Sydney are the only two cities that have remained in the black on an annual basis. There are a few factors to disprove the above statement of the “bubble bursting” one of which is our mining sector and we are fortunate to have China. Another factor to consider is that our big banking sector bailed us out of going into a recession by being prepared from the last recession and had systems in place so we didn’t crumble like the US market.
We should also take into consideration that another factor of the housing market is unemployment, which currently sits at 4.9%. Full time employment is growing more quickly than part time and wages are growing at a level above inflation. The most compelling reason for me which further strengthens the motion that the “bubble” theory is unfounded, is that demand is still high in the inner suburbs of Melbourne, with many first time buyers opting for apartment living rather than buying and living in the outer suburbs due to the lifestyle it affords them. Investors are also purchasing in lifestyle rich areas as overtime by purchasing in the “right” locations they will benefit not only by achieving good capital growth, they will also achieve higher rental returns.
The Victorian State Government has delivered on their November campaign promise to reduce stamp duty for first home buyers, eligible pensioners and farmers. The cut to Stamp Duty payable has been announced in the 2011-2012 fiscal budget with a 20% cut to first home buyers on properties valued up to $600,000 commencing 1st July 2011 and increasing to 50% by 1st September 2014. The good news is that the cut to Stamp Duty payable for first home buyers will be in conjunction with the $7000 grant (existing dwellings).
This new initiative to first home buyers who have dropped off by 35% in the last 12 months will most likely result in property demand increasing and prices rising again, however there is one other possibility, the additional government assistance may not be enough to coax more first home buyers into taking the plunge and the market will continue along as it is until consumers regain confidence in spending again.
Some positive factors are that right now is a great time for investors and savvy buyers to purchase property due to the decrease in buyer demand. This decrease in buyer demand in particular from first home buyers has resulted in an increase in the rental market, which has driven an increase in rental yields.
On the commercial front, strong office tenant demand coupled with a tightly held city market will see a rise in activity on St Kilda Road in the next 12 months. Capital-growth rates and yields in the precinct are set to continue strengthening, according to Colliers International's latest analysis of investment sales data.
The market is most certainly not all doom and gloom as Melbournians we have opportunities to take advantage of, Our land is still relatively cheap in comparison to Sydney and it is also well structured making Melbourne “the place to be”.
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“The Property Lady”
Keyhole Property Investments
Co-Author Property Rich
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