Melbourne: Investing in the world’s most liveable city

Higher living standards, top quality education and a more favourable exchange rate are helping to drive Melbourne’s property market.

By Romesh Navaratnarajah

If you happen to flip through the newspaper, you would have noticed many advertisements marketing residential properties in Australia, particularly in Melbourne.

The high demand for housing units in Australia’s biggest-growing city comes from the increasing number of Singaporeans residing there.

This is primarily due to the close geographical proximity and English-speaking environment of both countries, said Philip Tan, Chief Business Development Officer at Australian firm Auswell Group.

Dan Toh, Chief Executive Officer of property consultancy RunningStream International, said: “The large contingent of Asian migrants also means many Singaporeans have relatives, if not friends, who have migrated to Melbourne, and Asian culture is alive and celebrated (there).

“But if I had to pick one reason why Singaporeans are more focussed on Melbourne than other Australian cities, it simply comes down to marketing.”

Best place to live

Melbourne prides itself as having been the most liveable city five years in a row, according to the Economist Intelligence Unit’s (EIU) Global Liveability Index, which is a strong endorsement of its “world-class education, healthcare, transportation connectivity, and most importantly, a balanced lifestyle that allows youth to maximise their creative energy within a conducive environment”, according to Tan.

Property assets in Melbourne have also been growing steadily over the last 50 years, and the city has braved the storms of the last Global Financial Crisis, he noted.

In addition, property financing in Australia is relatively easy to obtain, as all four major Australian banks (ANZ, Westpac, NAB, and CBA) have offices in Singapore, noted Toh.

“Local banks such as OCBC and UOB, as well as offshore banks such as Citibank, HSBC and Stanchart, all lend on Australian properties to varying degrees and with different conditions.”

He shared that most banks limit lending for locations in the city to between 50 and 65 percent, while lending in the outer suburbs range from 70 to 80 percent.

Shift in supply

Real estate consultancy Charter Keck Cramer expects newly completed apartments in Melbourne to rise from about 116,000 units this year to almost 164,000 units in 2018, with 70 percent of that supply located in the city.

“To put that into perspective, the current resident population in the Melbourne city precinct stands at 122,207, and the number of resident dwellings was 58,395 in 2012 (latest figures available). The population of greater Melbourne is about 4.4 million, staying in about 1.8 million homes.”

As such, more apartments are “starting to come up in the inner and middle suburbs (20km from the city), particularly in the south-eastern region, where houses are commanding a significant premium.”

By 2018, around 53,200 apartments are expected to be completed in the inner and middle suburbs, while 106,100 new apartments will be completed in the city and city fringe areas, added Toh.

On housing costs in Melbourne, Tan noted that prices have increased 52.3 percent since the Global Financial Crisis. Data from Domain Group shows that median home prices climbed 2.2 percent to A$638,445 in March and to A$707,415 in September this year.

The continued strong growth is “partly contributed by the low interest rate and favourable exchange rate. Overseas demand, especially from Singapore, has been strong as the Sing dollar is on par with the Aussie dollar, and that certainly increases the sales of off-plan properties,” he said.

Rise of the suburbs

Growth has occurred mainly in the eastern and inner south suburbs. These include places such as Malvern, Glen Waverley, Prahran, Elwood, Toorak, Hawthorn and Doncaster.

“Inner city prices experienced a 4.6 percent surge in the June quarter, but shrank 0.3 percent to average A$434,436.

“I am of the opinion that such growth in the city is not sustainable, given the supply glut to come. While the city does offer higher yields, it has always been challenged when it comes to capital growth,” said Toh.

Meanwhile, the rental market across Melbourne has also been on the downtrend, as rents struggle to keep pace with price growth.

“While in 2006 / 2007 we were seeing rental yields of above six percent, it is down to four percent for apartments in the city and three percent for houses these days,” stated Toh.

Data from SQM Research shows the vacancy rate in Melbourne’s central business district stands at 4.4 percent, three percent in Docklands, 3.5 percent in Southbank, and 3.3 percent in South Yarra. Outside the city, vacancy in Richmond stands at 1.8 percent, St Kilda East (1.9 percent) and Bentleigh (2.6 percent).

“With significantly more projects completing over the next three to five years, we do expect the vacancy rate in and around the city to worsen, and the suburban market to hold its ground well,” shared Toh.

Spot the hotspots

As for which hotspots investors should look at, Tan points to Box Hill, Balwyn, Richmond, Bundoora, Malvern East, Cranborne, Werribee and Tarinet.

Aside from offering good educational institutions, these areas attract high demand from local and overseas property buyers.

Toh, on the other hand, picked the eastern stretch between the city and Glen Waverley, such as Hawthorn, Kew and Doncaster. “We are also bullish about the south-eastern corridor, with suburbs such as Bentleigh, Moorabbin, Mentone, Highett and Cheltenham.

“These are great bayside suburbs with good public transportation, highways, and amenities within short walking distance.”

Meanwhile, areas like Footscray, Sunshine and Maribyrnong could surprise the market in the next five years, added Toh.

CITY FAST FACTS
(MELBOURNE)

Population: 4.4 million

Total area: 9,990 sq km

Currency: Australian dollar

GDP per capita: US$39,441

GDP growth: 1.7 percent

Future transport: Melbourne Metro Rail Project to finish in 2026

Home values: Up almost eight percent in the past year

Distance from Singapore: 6,028 km

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