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Melbourne’s residential property market experienced strong levels of price growth in the 12 months to September 2010.

Key factors such as low interest rates, an under supply of new residential dwellings and strong population growth have remained positive influences on the local market. However, in recent months there are signs that the Melbourne market is beginning to slow with agents reporting lower levels of buyer enquiry, evidenced further by a notable fall in auction clearance rates to below 60 per cent.

Melbourne led the country with an 20.5 per cent increase in the city’s median house price over the year to September 2010, reaching a medium price of $565,000, according to the REIV. However, recent figures show that Melbourne’s unprecedented growth has subsided, increasingly only 0.9 per cent in the September quarter.  Similarly, Melbourne’s unit market perfumed well over the year, increasing 15.5 per cant and reaching a median of $470,000 in the 12 months to September. In the quarter prices remained stable with only minimal increase in the median unit price.  Unit Sales transactions during the financial year period were 31,424, which also increased strongly compared with the previous year, by an estimated 15 per cent. The Heal Estate Institute of Australia reported the maintenance of tight rental vacancy rates for Melbourne and modest rental growth over the year. Melbourne East Activity in Melbourne’s east appears to have settled following a softening of the local market in the previous quarter, which has lead to a leveling of demand and greater consistency in clearance rates.

However, the bottom to middle end of the local market is likely to remain stable due to continued strength of demand and sound economic conditions. The top end, however, is likely to continue to soften as markets correct following significant unsustainable growth in 2009 and the first quarter of this year. While not particularly sensitive to interest rate rises significant increases will ultimately affect affordability in Melbourne’s east. However, the lower and middle markets may still show some growth in 2011 despite further moderate rate rises.


Outer-eastern suburbs like Croydon continue to perform as strong demand across the eastern region, forces many buyers further east. With a current median house price of $481,750 Croydon has grown more than 20 per cent since September last year. Conversely, middle ring suburb Doncaster It is expected that Melbourne‘s west will remain relatively stable Over the next year, although i’t’s likely to remain sensitive to further interest rate rises. Given market stability, western suburbs may benefit from buyers seeking affordability when compared with Melbourne’s East, and the gentrification of inner-western areas such as Footscray, has tendered an impeded performance, largely as a consequence of change to foreign investment regulations earlier in the year, which resulted in reduced demand and attendances at auctions, particularly from Asian buyers. According to REIV figures, Doncaster’s median house price fell 2.3 per cent in the June quarter to $783,500. Units and apartment, however, have fared somewhat better. While there is still a high supply of new apartments entering the market in the Doncaster Hill area, off-the-plan prices remain high due to interest from foreign and non-permanent resident buyers, as well as due to added the depreciation benefits. Figures show that prices for established apartments have not increased at the same rate as those in new development, due to foreign investment incentives associated with new apartments.


Reportedly the fastest growing region in now the fastest growing region in Australia according to recent research by KPMG, the western suburbs of Melbourne offer greater affordability compared with other Metropolitan areas and are proving an attractive prospect particularly for first home buyers. The strong population growth has positive implications for local infrastructure development as the needs of the rapidly rising local populace increase. Supported by strong employment opportunity and growing infrastructure, the gap between Melbourne’s east and west is starting to narrow.

While recent supply has increased there has been a subsequent ease in clearance rates as buyers become increasingly selective due to greater choice. Many auctions continue to pass-in favor of post-auction negotiation unlike the characteristic frenzied activity of April, May and June this year. Essendon, in Melbourne’s north-west was a standout performer during the quarter with an increase of 14.4 percent in the median house value  to $1.15 million and an equally strong increase for the unit market with 13 percent. Also performing above expectation was outer western suburb Melton. With a median house price significantly lower than the city’s median at $285,000 Melton is expected to undergo significant development in coming years. It is expected that Melbourne’s west will remain relatively stable over the next year, although it’s likely to remain sensitive to further interest rates rises. Given the market stability, western suburbs may benefit from buyers seeking affordability when compared with Melbourne’s East, and the gentrification of inner-western areas such as Footscray, Seddon, Yarraville, Sportswood and Footscray West.


Demand for property throughout the outer south-eastern corridor slowed in the September quarter, following a surge in market activity in the first half of 2010. With an increase in stock levels, buyers are being prudent and selective, with less desirable or poorly marketed properties demonstrating prolonged listing periods. Properties below $350,000 continue to sell well, however, demand for properties within the mid $500,000 price range has decreased as growing affordability issues take their toll in this interest rate sensitive market. In particular, a trend has emerged in affordable markets like Dandenong and Doveton, with high demand for properties that offer the potential to subdivide. The increase in demand follows changes by the Dandenong City Council to the size of units sites. Now reduced to 200 sqm in an effort to increase housing throughout the municipality, many average ex-housing commission dwellings located on 500 to 600 sqm sites are now suitable for subdivision. Prices for an average circa 1950 concrete dwelling have been pushed into the $300,000 bracket, while remaining a thriving market for start-up developers.

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