Solid auction results, strong population growth (the highest in Australia), good economic growth and APRA’s decision to lift home-loan restrictions on investor lending make the Melbourne housing market far less risky than its alternatives, according to research house RiskWise Property Research.
While this appears at odds with recent research by one real estate and investment group, which is predicting unit prices to fall less than 5 per cent and house prices to ‘flatline’, RiskWise’s most recent Residential Opportunities & Risks Report, clearly shows that the housing market in Melbourne is in a far more healthy position than many experts believed.
Auction clearance rates – which are a strong short-term indicator to buyer sentiment – remain, overall, solid, in the beginning of 2018, particularly considering the end of the housing boom, negative media coverage and the beginning of autumn.
The city enjoys strong population growth and exceptional overseas and interstate migration, meaning houses there are likely to continue having sustained demand, particularly in the middle suburban rings and affordable areas with good access to Melbourne CBD, such as the Western Suburbs.
This is coupled with strong gross state product growth rate of 3.3 per cent and increasing private capital expenditure.
RiskWise Property Research CEO Doron Peleg said while the residential property market had cooled recently in Melbourne, overall houses in the Victorian capital city carried a low-medium level of risk and were projected, in the long-term, to deliver healthy capital growth.
“The Melbourne property market is being looked at unfavourably by many so-called experts and this is having a dramatic impact on ‘mum and dad investors’ as well as policy makers,” Mr Peleg said.
“However, our research has shown that, in fact, Melbourne is a good option for investors, particularly the housing market in affordable areas, such as the western suburbs.”
The report based its conclusions on the analysis of 30 variables grouped into seven categories to assess the short and long-term risk for houses and units in each state in Australia.
Mr Peleg said while it was true the Melbourne unit market carried a relatively high level of risk, housing in key areas, particularly the western suburbs, would enjoy healthy capital growth.
“However, it seems the perception appears to be one of negativity due to people making generalisations about the market, over-reacting to slight fluctuations and taking a short-sighted approach instead of a long-term view,” he said.
“While many property experts are tipping price weakness in 2018, they fail to acknowledge there are many different markets, all with their own idiosyncrasies,” Mr Peleg said.
“They also fail to distinguish between houses and units, rather using the term ‘dwelling’ for an all-encompassing view, ignoring that these property types are so different that RiskWise had to create separate heat maps for them.
“It also doesn’t help that some commentators are suggesting there will be ‘5 to 10 per cent price falls in 2018’. This just causes an over-reaction by investors who then become afraid to enter the market.”
In addition, he said some forecasters were ignoring that about 78 per cent of the houses in Melbourne were owner-occupied and had an estimated median net equity of $467,000.
“It is far more likely that with such equity they will get finance for an investment property, rather than being forced sellers,” he said. “Therefore, the likelihood that houses in Melbourne will experience a significant correction is low.”
Mr Peleg said many property investors were looking to “exotic investment opportunities”, such as North Queensland and Perth that, based on the RiskWise report, carried a high level of risk and were projected to deliver a lower level of return.
“Others have a short-sighted approach focusing on quarterly, and in one case even weekly, data, applying principles that are common in the share market of short-term transactions,” he said.
“That approach ignores the fact that a typical house in Melbourne is held for 11.9 years.”