– According to the RP Data Home Value Index, the Melbourne median house price has surged by 9.3 % over the financial year 2013/2014 and 11.7% in the year to August 2014, coming in second after Sydney and proving strong house price growth.

– While major banks claimed there is no bubble in the market, RBA flagged housing risks.

– ABS’s September release stated that loans to property investors in Australia jumped to a record high as a proportion of total home loans, excluding refinancing.

– Baby boomers have been dominating in the investment property market.

– In addition, foreign investors have been very active in the Melbourne residential market.

– Melbourne comprises 34% of the A$17.2 billion worth of foreign investments into Australia’s residential real estate approved by the Foreign Investment Review Board (financial year 2013).

– Demand for housing is predominantly sustained by strong population growth.

– Melbourne’s population is expected to grow almost twofold to 7.7 million by 2051.

– An average 2.1% population growth has been recorded for the past ten years and a 2% per annum growth is forecast for the next three decades.

– Besides overseas migration, interstate migration is a major driver.

– According to ABS, Victoria had the highest number of interstate migrants in the past year.

– New housing, particularly higher density residential developments, is needed to accommodate the increase in population.

– The number of residential dwellings rose by 139,900 throughout the year in Australia and more than half of these were in Victoria (42,400) and New South Wales (31,200).

– However, there is concern over the rental vacancy rate which might rise above market equilibrium if population growth falls short of expectations.

– The financial and professional services industries in Melbourne have continued to grow and are catching up with Sydney.

– However, Melbourne’s GDP growth was the slowest since 2001.

– There is a possibility that Melbourne is undergoing unaddressed structural challenges, particularly as it moves away from its core manufacturing base.

– Employment opportunities in healthcare are anticipated to increase over the next few years with the completion of the Bendigo Hospital and the Northern Hospital precinct in Epping, which leads to a forecast of strong housing demand in these regions.

– On the other hand, manufacturing is considered a sunset industry as car manufacturers such as Toyota, Ford and Holden have decided to quit manufacturing in Australia.

– The closure of car manufacturers will likely have a direct impact on the demand for housing in nearby suburbs such as Altona and Geelong.

– The Victorian unemployment rate was 6.7% in September this year, at its highest since December 2001.

– The outlook for the Melbourne property market remains positive in the short term, although investors should be aware of macro market risks such as rising  unemployment, sluggish household income growth, affordability issues and cost of living pressures.

– As the RBA is anticipated to keep the cash rate constant until mid 2015 and together with the depreciating Australian dollar,  modest growth is expected in housing prices, especially for property in prime locations and with a point of difference.

– The outer eastern suburbs are strongly attracting buyers due to their affordability.

 

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Thanks to Therese from Alphabroker