A quick look at the current Melbourne market

Plenty has happened over the last few weeks in the Melbourne market. New legislation and fresh statistics has given us a glimpse of what your next move might be and whether you should be looking at buying or selling in Melbourne. Let’s take a look at the most recent developments in local property.

The increased challenge for foreign investors

One major change that will heavily affect the current market in Melbourne is the recent tripling of foreign investor taxes in Victoria. The Property Council of Australia has argued that this will damage the Melbourne market not just for foreign investors, but for the average Victorian as well. A great deal of foreign capital goes towards increasing housing supply across Australia and could be a major factor in the recent increased affordability in some cities that CoreLogic RP Data has reported.

You might be surprised at just how much of Australian real estate is funded by overseas capital – in fact, the most recent Foreign Investment Review Board report reveals that almost half of the $167.4 billion worth of foreign investment approvals went towards real estate in 2013-2014. This is a big change from just a few years ago in 2008-2009, where the majority of capital was going towards mineral exploration and development.

Clearly, the real estate sector is very attractive to foreign investors, but this recent increase in taxes could damage that. Considering that CoreLogic reports that Melbourne is still the top-performing capital city for value growth in Australia over the last 12 months, additional taxes might still not be enough to dissuade everyone. Regardless, we could be seeing a dip in housing supply and subsequent increased prices as a result of drained foreign investment.

Stability in affordable suburbs

Meanwhile, looking at Melbourne in more detail, we can see there is quite solid value growth across the board for suburbs, though there is a little bit of disparity. CoreLogic reports that our most expensive suburbs (such as Canterbury and Balwyn) are chugging along at a nice round 10 per cent value year-on-year growth, close to the strong 9.8 per cent for the city average.

However, affordable properties are continuing to catch up with a strong 9.7 per cent growth performance, while moderate suburbs are blowing both out of the water at 10.5 per cent. CoreLogic describes that value growth in the high- and medium-value suburbs is beginning to slow, but this could simply be a result of increased supply.

For example, preliminary data from the Australian Bureau of Statistics (ABS) shows us that construction work completed in the December 2015 quarter increased and has been increasing for the last six quarters in a row. The slight stagnation in expensive suburbs could just be a result of people being priced out and heading to the new, cheaper builds, creating the typical ripple effect you would expect.

That isn’t the end of the story, however. With the exception of February, ABS reports that Victoria has seen solid growth in building approvals over the last half year or so. While this doesn’t necessarily mean that all of these approvals will go ahead, we could be seeing a number of new homes come onto the market. This would develop supply even further, driving prices down as people demand less expensive housing – and get it.

Lessons for Melbourne buyers and sellers

So, what does this mean for current real estate investors and owners in Melbourne? The new foreign investor tax laws could thin out housing supply in the future as less capital flows in from overseas. However, we are unlikely to see the effects of this for a little while, as the supply pipeline lately has been quite strong with plenty of approvals. More affordable suburbs are offering a good chance for diversification with strong value growth, while more expensive suburbs still hold their ground with solid gains, indicating that the market may not have peaked just yet.

Your best bet to keep on top of the current real estate market is to engage with the experts at Nelson Alexander and find out how you can make the most of your investment capital.