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THERE is no bubble and Melbourne’s apartment market is not even close to reaching an oversupply.
Charter Keck Cramer national director, research Robert Papaleo said there has been noise and misinformation surrounding the issue.
“The structural tailwinds supporting Melbourne apartment market outweigh the cyclical headwinds,” Papaleo told attendees at the Australian Property Institute and REIV’s State of the Market 2017 State of Market conference in Melbourne on Friday.
“There is no apartment supply bubble and oversupply is not imminent. Melbourne is experiencing unprecedented supply but it not oversupplied,”
Papaleo said Melbourne’s housing market is performing strongly because it is at a 30% discount to Sydney, compared to 15% cheaper in 2011.
“This will drive more migration to Melbourne.
“Obviously, if interest rates move, there will be an impact on that price growth. What we are seeing at the moment, though, is the Melbourne housing market is truly reflecting its attractiveness to local investors, local owner occupiers, as well as, in particular segments – such as the apartment sector as well as the greenfield market – international investors as well as interstate investors continue to see relative value in Melbourne prices compared to the places that capital is coming from, whether that be Sydney, or whether that be Singapore,” he said.
Papaleo added that Australia also remains attractive to international students.
He said that one year ago, 24,000 apartments were expected to be completed in 2017 across metropolitan Melbourne, but the latest figures show 16000 apartments are now expected to completed.
“We are heading towards a situation where 16,000 apartments a year will be completed over the new few years to 2020. This comes off the supply peak of 19,000 apartments in 2016,” he said.
“Oversupply is not evident in the market. Two years ago, in 2015, 9,000 apartments were sold across Melbourne’s Central City Region. In 2016, 6,000 apartments were sold; despite the fall it was still a good result. And developers are holding back supply,”
Papaleo expects house price growth in 2017 to continue to be positive, although leaning back towards the 5% to 8% rate as opposed to 10%-plus rate seen recently.
“I still think that the underlying fundamentals of the Melbourne residential market are sound, and I would expect that positive conditions will continue to influence the market,” he said.
The number of Asian investors will only continue to grow, Papaleo said.
“What we witnessed in the last five years is not a flash in the pan. Recent economic power changes are structural, not only cyclical,”
He said new housing is becoming an international financial commodity, with greenfield sites likely to be next frontier for international investment.
In the new development and greenfield markets, Melbourne’s median price of $228,000 continues to be cheaper than Sydney ($466,000), south-east Queensland ($266,000) and Perth ($231,000).
At the same time, Melbourne’s lot sales exceeded 20,000 in 2016, compared to approximately 11,000 in south-east Queensland, 8,000 in Sydney and 6,000 in Perth.
“Supply is not a problem in Melbourne, with 40 years worth of developable Greenfield land available,” Papaleo said.
He added that Australia is in a unique position given 35% of the national population, economic activity and investments are concentrated in Melbourne and Sydney.
“In comparison to other countries, those factors are dispersed across a wider number of cities. In the USA it is 12% of the national population concentrated in major cities, and in China it is 4%, although Canada and UK have higher levels of 28% and 27% respectively.” Papaleo said.
Australian Property Journal
