Considering the economic doom and gloom that has been the focus of the media over recent months, it is perhaps surprising to some that an REIV analysis of the property market over the recent September quarter reveals that units and apartments have experienced less volatility in median prices than houses. 1
The rise in popularity of Melbourne apartments like this complex in the vicinity of St Kilda Road has strengthened despite global economic woes.
In purely broad terms, the unit and apartment market remains in a relatively stable condition with the median price recording a minor change of -0.4 per cent, from $370,325 in the June quarter this year to $369,000 this quarter. Over the previous twelve months the median has increased by 1.4 per cent from $364,000. 2
Hardly spectacular growth, but in light of the recent negative press, it makes a change to read some positive news for investors and budding investors. There are a many factors behind this strong result, but the stability of the unit and apartment market is partially a result of Melbourne still having a very tight rental market, which is providing some incentives for investors to be active in the market.
Ange Zigomanis of BIS Shrapnel stated: “Unless there is a shock to tenant demand, BIS Shrapnel believes the lack of new projects in the pipeline will ensure a deficiency of rental stock persists until 2010/11 with strong rental growth taking place in this period.” 3
This would indicate that rental demand for apartments in the Melbourne CBD, Docklands, Southbank and nearby blue chip suburbs will remain strong for atleast the coming years and likely beyond.
In addition to the tight rental market there are two significant reasons why demand in the unit and apartment market has remained stable. Firstly ABS data shows a long term trend towards smaller household sizes and this can be linked to underlying demand for smaller abodes which are generally located closer to the CBD and other centres of activity in the inner city. Also units and apartments are generally more affordable than detached properties and therefore are attractive option for renters who are buying their first property. 4
The explosion in popularity of apartment living in Docklands, Southbank and the Melbourne CBD has been underpinned by high rental demand and low vacancy rates.
So what kind of people are living and investing in these inner Melbourne apartments and what are the demographics and the proportion of owner occupiers? According to BIS Shrapnel, the profile of inner Melbourne apartment tenants is 30% students, 52% young apartment dwellers and 18% empty nesters. The buyers of inner Melbourne apartments comprise 58% investor-owners, 22% owner-occupiers under 45 years of age and 20% owner-occupiers over 45 years of age. However, the proportion of owner-occupiers is likely to have increased in the past two to three years, with the exit of investors from the pre-sale market. 5
By June 2012, BIS Shrapnel estimates inner Melbourne apartment stock will equal 48,700 apartments, which represents the construction of approximately 1,740 apartments per annum during the next five years. This is significantly below the average construction levels seen during the last 10 years. 6
Units and apartments sold by auction and private sale throughout the September quarter followed a similar trend, with the median price at auction dropping by 1.3 per cent and by 1.4 per cent when sold at private sale. 7
Similar to the houses market the volume of transactions in the private sale market was only slightly down on the June quarter at 2847 as compared to 2928. It is however down almost 1000 transactions compared to the September quarter of 2007 when 3843 units and apartments were sold by private sale. 8
The demand for apartments is also strong even in leafy Eastern Suburbs such as Kew
Brighton East and Brighton top the apartment list with median prices of $792,000 and $667,500 respectively. They are closely followed by Toorak, which has a median price of $650,000. This highlights that the suburbs that have a high demand for houses also have a high demand for medium density dwellings. This emphasises the fact that location is the prime driver in determining demand for a property in particular suburb, regardless of whether it is a detached house or an apartment. 9
Neighbouring South Melbourne and Port Melbourne follow with medians of $577,500 and $550,000 showing once again that property – in particular apartments - by the sea and close to the city are in strong demand. The same applies in Docklands where high rise apartments are the only form of housing. In Docklands the median price of a unit is just over half a million dollars. 10
The list of the most expensive units and apartments is rounded out by the perennially popular leafy eastern suburbs of Kew, Camberwell and Balwyn where the median price for apartments is between $545,000 and $516,000. 11 Despite offering more of an urban experience, the growth in popularity of apartments as an alternative to detached housing as a mode of living even in these traditionally well healed suburbs shows a marked trend towards medium density living.
In the absence of wholesale job losses and a blow out in unemployment (which is not anticipated), sharp drops in property prices are unlikely and the undersupply of dwellings will effectively put a floor in construction thus keeping apartment prices stable – even in formerly maligned precincts such as Docklands, Southbank and Melbourne CBD. In recent times we have seen the growth and popularity in apartments as a mode of investment and lifestyle choice especially amongst the 20 to 30 demographic and empty nesters.
1. http://www.reiv.com.au/news "Unit and apartment prices remain stable" - 15 November 2008
3. BIS Shrapnel “Melbourne rental market in recovery mode as vacancy rates decline” 10 May 2007
4. http://www.reiv.com.au/news “Unit and apartment prices remain stable” – 15 November 2008
5. BIS Shrapnel “Melbourne rental market in recovery mode as vacancy rates decline” 10 May 2007
7. http://www.reiv.com.au/news “Unit and apartment prices remain stable” – 15 November 2008
9. http://www.reiv.com.au/news “Melbourne’s unit and apartment market” – 6 September 2008