City Beat May 2023: Prolonged growth cycle for Melbourne's off the plan apartment market?

Everything is pointing to a prolonged growth cycle in the Melbourne property market.

From immigration forecasts to supply issues, with a sprinkle of increase buyer demand now the RBA has signalled the official cash rate is close to its peak, the belief is that Melbourne property is ready to boom.

First and foremost, the markets look to have bottomed. CoreLogic's Home Value Index showed another month of stable values, a modest 0.1 per cent gain in unit values and 0.2 per cent in house values as markets recover from a near year long downturn.

And as quickly as the markets showed signs of recovery, buyers have been back in force. Melbourne was the busiest auction market this week, with a preliminary clearance rate of 78 per cent, the highest clearance rate the Victoria capital has seen since October 2021.

“There’s countless reasons to be confident about the short, medium, and long term prospects of the apartment market in Australia, particularly in Melbourne," Urban.com.au Chief Executive Mike Bird says.

"The immigration numbers forecasted will put huge pressure on the government to act, as there’s simply not enough housing, both currently and in the pipeline, to keep up with population growth. We've got a range of government incentives for buyers, but developers need to be incentivised to build.

Melbourne recently overtook Sydney as Australia’s most populous city, the first time since 1905 Melbourne topped the charts. Melbourne had been outpacing Sydney for the last decade, primarily down to international migration. The 2021 Census suggests there are 4.875 million who call Melbourne home, a number which will reach around eight million by 2051.

Projects by Buxton Director Heath Thompson says he doesn't believe we're having to look into a crystal ball anymore when predicting the next phase of the Melbourne property market.

"It takes about 4-5 years to realise a project, and that's if people are transacting on sites now, which we know they're not," Thompson says, suggesting we're around 5-6 years away from supply even remotely keeping up with demand.

"Cost of construction isn't coming down, development approvals are down, building starts are down, and there's no sign of that changing anytime soon. Any project being built now is gold really, because the next one has to be more expensive than the last, or it won't be built."

Sunkin's Head of Sales and Marketing, Scott Jessop, says in this current environment of low supply, it doesn't seem to matter where the projects are located, there's a strong response everywhere.

"There’s always key locations and blue chip suburbs, but currently there’s not an area of the market that isn’t seeing demand, which is evident in auction clearance rates consistently sitting over 70 per cent," Jessop says.

While rate hikes are all but over, Jessop says there are still some buyers who have issue with finances, many who have seen their budgets cut by 10 to 20 per cent in the last 12 months. He does however suggest more prospective buyers, who were maybe keen on sitting on their hands in the short term, have moved into "decision mode" following the pause from the RBA.

Sunkin have had a great response to their soon-to-be launched Highett masterplan, Highett Commons, with over 300 enquiries just through the project website. They'll be launching the sustainability-focussed project mid-May. 

Highett Commons will assist in Melbourne's chronic supply issues.

Charter Keck Kramer found that around 13,500 apartments need to be built each year in Melbourne to support the population growth. There were just 6,300 apartments completed in 2022 in Metro Melbourne, across 94 projects.

Marshall White Director Leonard Teplin says the population surge has created a supply and demand imbalance. 

"The immigration and housing crisis in Australia is worsening, particularly in Melbourne," Teplin says.

"The government has pledged to build 10,000 homes a year, but with millions of visa applications pouring in, more effective action is necessary.

Teplin believes that, while short-term fluctuations may occur, Melbourne's population growth and limited housing supply are expected to sustain demand for new construction and off the plan properties.

"The current market conditions present investment opportunities in Melbourne's property market.”

RPM Projects Director Nic Cuni says townhouses, or boutique apartment projects, have been in favour in 2023. Cuni says he's seen a large difference however in what has always been deemed as "inner-city".

"Typically inner-city has been between 2-10 kilometres from the city, but we’ve been finding recently, due to the affordability issues in Australia, that is now extended a little bit further out."

Cuni has found success in RPM Group's first project their newly formed project marketing division has launched, DM Property's Early 3191.

The 35 Rothelowman-designed townhouses are exactly what buyers want in Bayside, Cuni says.

"Buyers want the postcode without the price tag. They want to get into the suburb they love, that they can get their favourite coffee, food etc, but pay less than the average house price."

An uptick in enquiry and buyer presentations has been seen by Next Chapter Projects Director Tom Hirini, which is translating into a moderate increase in sales. Hirini however says there's still a small element of buyer hesitancy given how well researched buyers are nowadays.

"Buyers are still very alert to the challenges the construction industry is facing with increasing material costs and labour shortages," Hirini says.

"Confidence behind the developer and builder has never been more important to purchasers.

"I can see the sentiment towards off-plan purchases improving significantly once the headwinds the construction industry is facing abate."