Residential Review – Melbourne Prestige Market

December 2020

Melbourne’s housing market, well recognised as a strong barometer for most other facets of real estate, has been in a period of fluctuation over the past two years, although more recently there have been signs of cautious optimism.

Melbourne’s residential real estate market, particularly within the more prestigious suburbs, experienced strong sales activity and capital growth throughout 2017, characterised by a consistent volume of sales in excess of $5,000,000, several sales over $10,000,000, with two transactions in Toorak in excess of $30,000,000.

Despite some concerns from analysts that the market may be reaching its peak at that time, auction clearance rates and enquiry levels continued to increase, with properties in the medium to high capital value range acquired not only by locally‑based purchasers, but also offshore interests, primarily Asian-based.

The market began to moderate in early 2018 and continued to decline throughout the year.  We witnessed a significant reduction in the availability of stock together with general apprehension and reluctance amongst many participants, including the previously active offshore purchaser profile as a result of the change in State Government taxes and levies, and limitations to the asset classes that can be acquired by offshore interests.  The decline in values was difficult to accurately quantify due to the reduction in the number and continuity of transactions, but there was sufficient evidence to indicate a decline of at least 10%, in some cases more, from the market peak of 2017.

In early 2019 conditions further deteriorated, with many parties deferring commitment until the outcome of not only the Federal election, but also the Royal Commission into the banking sector.

Following the unexpected return of the Coalition Government, the landscape remained subdued as the market entered the quieter winter months.  More recently however, particularly over the past eight to ten weeks and therefore coinciding with the traditional spring selling period, the extent of sales activity and levels of optimism have improved, with auction clearance rates at around 70% (significantly higher than the reported average of 45% for November 2018).

We have seen some evidence of increases in value, although any upward momentum is clouded by the fact that supply levels are still low, particularly in comparison to previous years, increasing competition and fueling results.

To highlight the extent of activity, we refer to the following transactions which have occurred throughout the past two to three months:

·       9 Orrong Road, Toorak – $15,000,000·       11-13 Carmyle Avenue, Toorak  – $13,500,000

·       71 Kooyongkoot Road, Hawthorn – $10,175,000

·       9 Miller Street, Brighton – $9,500,000·       2B Kinane Street, Brighton  – $9,370,000

·       30 Balwyn Road, Canterbury  – $8,510,000

The low interest rate environment and affordability of Australian currency are positive catalysts which may provide impetus for further improvement in early 2020.

Notwithstanding the above, many market participants including vendors, purchasers, agents etc. remain uncertain in respect of the internal economic landscape going forward; in particular, the decline in the retail sector, the constant spectre of increased unemployment, international trading tensions (particularly with China), the historic volatility of the share market and the increase in the cost of living (which is not commensurate with wage growth) are all contributors to the presently cautious environment.

Charter Keck Cramer will actively monitor and analyse activity throughout the final weeks of 2019 and into 2020; in particular, sales results along the Mornington Peninsula, which has traditionally been a strong barometer as to the strength and depth of demand for prestige residential real estate in Melbourne.