Deep dive – Melbourne property in 2019

Melbourne property market has underperformed in 2018. The values have dropped significantly from the peak. While doomsayers would be creaming that this is the end of the world, we know that property prices correct, property prices go through cycles, property prices go up and down. At this stage Melbourne property is in the declining trajectory.

Melbourne property market did correct, as we can see from below graph Melbourne property market has declined somewhat from the peak. However it is not the first time it has corrected. Economies, prices, companies and property prices go through cycles. Property prices follow cycles of boom, bust and “sideways” rest phase. It is not sustainable to be on constant growth trajectory. If that does happen property prices would become out of reach and market would dry up. Let us look if this bust cycle is special.

Capital cities property prices

Population growth

VIC has exhibited the largest population growth in percentage terms among all Australian states and territories. Considering that this is the second most populous state, it is a rather impressive achievement. It is important to remember that VIC comes of a much larger base, so a small percentage increase in VIC is thousands of people.

Victoria remains a very attractive state to both internal and overseas immigration streams. Immigration would create a support for property prices. As people immigrate to Melbourne, they tend to look for places to live and these are usually properties. While internal migrants prefer houses, migrants tend to be less discerning. With Melbourne posed to overtake Sydney as Australia’s largest city we expect demand for properties in Melbourne to remain solid.

Economy

Melbourne’s economy is resilient. The growth is substantial and unemployment rate is some of the lowest in the country. These employment conditions tend to support property prices. Since Melbourne property is more affordable than Sydney property we also expect the state to benefit from lower entry costs.

Economical metrics by state

As long as we avoid oversupplied pockets, such as unit and apartment markets in the city we expect that economic factors would remain positive.

Supply

We have seen significant amount of supply coming in Melbourne over 2018 and this supply of both property and land is expected to continue into 2019. Victoria continued to release significant amount of land in and around Melbourne fridges, with more estate releases planned. However, we expect the added supply to be absorbed by the demand.

Verdict

Melbourne property is starting to turn a corner and would see declines in 2019. We don’t think Melbourne would see declines that Sydney is experiencing. 2019 might prove challenging to unit, apartment and greenfield market in Melbourne property market. Yet, the significant demand for Melbourne property from growing population, robust economy and better affordability would support the property market should prices start to decline. We do expect some areas to correct, and above mentioned areas to correct significantly. But we don’t expect established and demand property areas to experience as significant falls as Sydney.

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