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THE R E P O RT B AY S I D E


Directors’ Summary

Welcome to the 2018 edition of The Report – Jellis Craig's exclusive annual insight into Melbourne’s property market. After five years of exceptional growth and stunning prosperity for Melbourne property owners, we are now entering a new phase in the city’s property cycle. Even in this softening market, on a national level, Melbourne is well positioned. The city’s brand is incredibly strong, and population and economic growth will continue to drive the market forward in the long-term. This year’s edition of The Report features commentary and analysis from some of Australia’s foremost authorities on the real estate market, and where they see Melbourne’s strengths and weaknesses in the current climate. REA Group Chief Economist Nerida Conisbee investigates the effect the current economic environment will have on property in the coming months and years, and the factors that will have the greatest impact. Domain’s Nicola Powell takes a look at how population and demographic factors will influence the Melbourne market and your local area over the next 12 months.

WELCOME

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And we also discuss the important issue of affordable housing in our city, and the ways in which Melbourne might better cater for its more vulnerable residents. Of course, we have also included a wealth of key property insights, data and results targeted at your local suburbs, to assist you in making informed property decisions moving forward. It would be our pleasure to discuss your real estate needs in the near future. We look forward to the opportunity to do business with you. And to our many clients across Melbourne, thank you for your continued loyalty. Jellis Craig wish you all every success in Melbourne’s property market over the coming 12 months.

M AR K S TAP L E S Di r e c t o r N I C K RE N N A Di r e c t o r


THE REP O R T 2 0 1 8 BAYS I D E

Is Melbourne the new Sydney? Melbourne well-placed as market changes Overseas solutions for housing accessibility The market has changed significantly in the last 12 months Bayside in numbers Exceptional sold property

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1 3 5 7 9 11 13

CONTENTS

Directors’ Summary


NI CO LA POWELL Data S cie ntist, D o mai n

Is Melbourne the new Sydney? A property cycle defines the movement of home values through four phases, from the boom to the bust, through to a price bottom and then recovery. They tend to exist roughly every seven years, although Australia has bucked this trend with multiple cycles occurring over the past two decades. Since the millennium the Melbourne housing market has experienced numerous cycles, with peak growth rates occurring in 2001, 2007 and 2010. An unprecedented set of circumstances has created the foundations for the recent and longest upswing in Melbourne’s house price history (the series began in 1993). Melbourne, as the double-digit growth passes and the market moves on to the next chapter. This is the normal ebb and flow of a property cycle. Even though historically Melbourne price cycles have differed in duration and ferocity, each was followed by a price pullback that equally varied. That said, not all price cycles result in a period of negative growth; often it can result in a more moderate pace compared to the boom but still remains positive, for others declining prices can ensue.

The upswing was characterised by consecutive quarters of house price improvement that commenced towards the end of 2012. During this time Melbourne house prices experienced a phenomenal growth of 72.3 per cent and provided an annualised rate of return of 10.9 per cent. The upswing reached a house price peak at the end of 2017 that surpassed $900,000. Sydney house prices were unable to achieve this continuous quarterly growth spell, with prices softening at the end of 2015 and mid-2017. Even though the Sydney median house price remains above $1 million, Melbourne has narrowed the gap in home values to a near four-year low.

With Melbourne house prices softening over the quarter it has slowed the annual rate of growth to the lowest pace since 2012. Tighter lending standards, reduced borrowing capacity, lower investor activity and hesitations resulting from the Royal Commission have contributed to the slowdown in the city’s property market. Illustrating the evident relationship between credit availability and price appreciation.

There is an intrinsic association between the performance of the housing market and the availability of credit. During the period of price advancement, the property market was supported by flowing housing finance and rising purchasing activity, sparked by low and falling interest rates. However, 2018 has brought a speed change for

From a housing market perspective, population growth is one of the fundamental drivers for demand.

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Overseas migration comprises the largest component of the Victorian population growth, accounting for 59 per cent, with natural increase representing 30 per cent and interstate migration 11 per cent. An even distribution between the three population drivers supports a broad demand for housing. Victoria’s net interstate migration has continued to gather pace, reaching record highs in recent years.

M ELB OURN E MEDIA N H OU S E P RI C E $1 ,0 0 0 ,000 $ 9 0 0 ,000 $ 8 0 0 ,000 $ 7 0 0 ,000 $ 6 0 0 ,000 $ 5 0 0 ,000 $ 4 0 0 ,000 $ 3 0 0 ,000 $ 2 0 0 ,000 $ 1 0 0 ,000 $0

30% 25% 20% 15% 10% 5%

MELBOURNE

Currently the Victorian population is tracking substantially above the long-term average for the state and Australia, setting Melbourne on track to become the largest Australian city by 2030. As the population excels it could provide a softer landing for the Melbourne housing market relative to Sydney.

Population drivers

MELBOURNE’S P O P U L AT I O N DR I V E R S

x60

Over the next two decades, an additional 2.57 million people will reside in Victoria, pushing the population to a projected 8.88 million by 2038. Evolving from the midst of this rapid increase – a greater proportion of residents choosing to call metropolitan Melbourne home compared to a decade ago.

0% -5%

MEDI A N HOU SE PRI CE

-10% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

S o u r c e : Dom ai n , 2 018

ANNUAL PRICE CHANGE

MEDIAN HOUSE PRICE

POPUL AT ION PROJEC T I O N

$ 882K

MELB OU RN E

$ 8 8 2 , 0 82

11 ,0 0 0 ,000 10 ,0 0 0 ,000 9 ,0 0 0 ,000 8 ,0 0 0 ,000 7 ,0 0 0 ,000 6 ,0 0 0 ,000 5 ,0 0 0 ,000 4 ,0 0 0 ,000 2 01 3 2 01 5 2 01 7 2 01 9 2 02 1 2 02 3 2 02 5 2 02 7 2 02 9 2 03 1 2 03 3 2 03 5 2 03 7 2 03 9 2 04 1 2 04 3 2 04 5 2 04 7 2 04 9 2 05 1 2 05 3 2 05 5 2 05 7 2 06 1

$1m+

S o u r c e : AB S, 2 018

MELBOURNE

SYDNEY

SYDN EY

Re m a i n s a bo v e $ 1,000,000 S ou r c e : Dom a i n, 2018

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NERI DA CONI S B E E Chief Economis t , R E A Gro up

Melbourne well-placed as market changes

After years of unprecedented growth, Melbourne’s property market is entering a new phase. Though there are predictions of a softening in the market, for many reasons this is a phase that will still ignite interest from property buyers, homeowners and investors. Borrowing money has become more challenging for homebuyers, as lenders tighten their purse strings with the banking Royal Commission marching towards its conclusion later this year. Meanwhile, mortgage rates are on the rise despite the Reserve Bank continuing to keep the cash rate on hold, as lenders face increases in their costs for obtaining wholesale finance from international capital markets such as the United States.

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In comparison to other Australian capital cities, Melbourne is betterpositioned to weather any real estate slowdown.


While anecdotally and officially there has been a shift in real estate market sentiment, there remains an upside to what we are likely to see in Melbourne in the coming months and years.

to drive employment and infrastructure spending. While prices are declining in Melbourne, these long term drivers will support demand for housing over the medium to long term.

Melbourne continues to swell in size, population and popularity, which will continue to strongly support property demand. In fact, the city is growing faster than official estimates have predicted, which is also helping

The low interest rate environment in recent years has underpinned much of the growth in house prices, as well as supercharging the number of buyers entering the market.

Cash Rate %

%

20%

20%

15%

15%

10%

10%

5%

5%

0

0 1990

1995

2000

2005

2010

2015

YEARS Sou rce : R B A , 2018

There is no question that interest rate rises will put pressure on many households, as well as limiting some people’s ability to buy property. However, higher interest rates and new restrictions on lending may also have positive effects. While lower interest rates have helped people take on debt to enter the market, many have taken on more debt than they otherwise would have, so a tightening on lending will restore some balance and ensure buyers are borrowing within their means.

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Certainly we can all expect a much calmer and more predictable property market in the coming months, which will present a better market for most buyers. For first homebuyers or upgraders, when prices are galloping ahead it can be a very difficult market to transact in, so a steadier market will give people more time, as well as the ability to make sounder decisions. S ou r c e: R E A , 2 0 1 8


ELI ZA BETH MOREL L O General Manag er, J el l i s Crai g F o un d at i o n

Overseas solutions for housing accessibility

Insights for Australia

Much of the recent conversation around Melbourne’s property market has understandably centred on just how far values have risen in recent years.

Formalise regular and rigorous performance related reports on the country’s housing need, breaking it down to state and local levels

But it is important to take pause from time to time to acknowledge that home ownership and private rent is an increasingly difficult proposition for many people. The issue of affordable housing is an ever-present one in Australia, with the gap that separates our city’s most vulnerable residents continuing to widen. As we know through the Jellis Craig Foundation’s ongoing support of youth mental health organisation, headspace, the barriers to many people finding or even applying for affordable housing – let alone purchasing it – are significant. And they are not going away. When we look at the spectrum of affordable housing it is important to look at it within the Victorian context. Affordable housing is “housing that is appropriate for the needs of a range of very low to moderate income households, and priced (whether mortgage repayments or rent) so these households are able to meet their other essential basic living costs” (Homes for Victorians, DTF Vic). Having spent a significant part of the last decade overseas, I believe there are lessons Melbourne can learn and benefit from in relation to how other cities and countries are tackling the issue. And at the same time, new initiatives are now creating unique opportunities for people to access the property market for the first time.

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Standardise strategic planning to address the housing need and involve government, private and not-for-profit sectors to collaborate and facilitate the strategic action required

Ensure best practice in procurement and include resource allocation in monitoring and evaluation


32% 31%

NETHERLANDS HONG KONG

24%

SCOTLAND

18% 18%

SWEDEN ENGLAND

9%

IRELAND

FOUNDATION

Social & Affordable Housing

The Jellis Craig Foundation is a registered charity that proudly raises funds and creates awareness for a number of selected charity partners.

We would do well to look towards the United Kingdom and other parts of Europe, where more affordable and intermediate tenure solutions have become commonplace and are removing some of the walls that have traditionally prevented people from gaining a foothold on the property ladder.

4%

AUSTRALIA

0%

10%

20%

30%

40%

H o u si n g st ock f rom se l ec ted co untr ies S o u rce : CHF V we bsi t e , 2018

Initiatives like ‘build to rent’, which is yet to really take off in Australia, but sees apartments built specifically for renters only, with rents capped at a smaller percentage of the market rate, have made a meaningful impact in those cities. Shared equity arrangements, where government, a housing association or private organisation owns the majority of a property but allows people to buy a percentage of it and eventually ‘staircase’ out, have also proved beneficial and have removed one of the biggest impediments to home ownership: the necessity for buyers to have a large deposit up-front. But in order to truly change the housing affordability landscape in Melbourne and Australia, what we really need is an increase in unified support from those who can actually make a perceptible difference: the banks, the government, the private sector and not-for-profits.

In overseas markets, planning policy usually dictates what the affordable housing provision is and it can range between 10% and 40%. This is the percentage range that is allocated for the majority of new housing developments and if it cannot be provided onsite, that amount is ‘ringfenced’ for affordable housing elsewhere in the city. By way of incentive, developers receive lower planning and contribution dispensations to assist with meeting affordable housing supply. Proposals to do the same in Australia have met with substantial resistance, but the time may now be right to consider a similar approach here, lest our cities become destinations only for the wealthy.

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Over the last five years the Foundation has raised more than $1 million to help organisations such as Hands Across the Water, Very Special Kids (Victoria’s children’s hospice and respite facility) and headspace. With headspace, our staff volunteer their time mentoring young people and also providing interview skill techniques. The Foundation also supports programs and initiatives by donating funds to help educate schools about eating disorders and resourcing headspace centres in Melbourne.


ANDREW S TONE Dire c tor, P rop er t y A n al yti c s & B uyer A d vo c ac y

The market has changed significantly in the last 12 months We Melbournians love talking real estate, and there has been plenty to talk about in recent years. Since the nationwide growth cycle began in 2012, Melbourne house prices have boomed by more than 70%. If you bought for $500,000 then, the market value is likely about $850,000 now. But the boom we have experienced over the last several years had to eventually come to an end. The most responsible way to assess price movement trends over time is to compare year-on-year results on a quarterly basis: How did the Apr–Jun 2018 Median $ House Price compare to that of Apr–Jun 2017? This approach accounts for seasonal changes, volume fluctuations, etc. The below graph shows that year-on-year price growth across Melbourne peaked midway through 2017 and has gradually moderated since. While this is broadly in-line with our analyses of Jellis Craig’s 200+ suburb footprint, we have actually seen the Median $ House Price go backwards slightly in the most recent June quarter by -2.5% compared to the same period last year. Looking closer to home in Bayside, the Median $ House Price in the Apr–Jun quarter of 2018 was $1,700,000, up 4.0% from the previous year.

% Change in Median $ Property Prices in Australia’s Capital Cities

MELBOURNE SYDNEY

BRISBANE

ADELAIDE

WEIGHTED AVERAGE OF EIGHT CAPITAL CITIES PERTH

Sou rce : AB S, Prope r ty A naly tics & Buy er A d vo cacy, 2018

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HOBART

DARWIN

CANBERRA

J U N 18

MAR 1 8

DE C 17

S EP 17

J U N 17

MAR 1 7

DE C 16

S EP 16

J U N 16

MAR 1 6

DE C 15

-10 S EP 15

-10 J U N 15

-5

MAR 1 5

-5

DE C 14

0

S EP 14

0

J U N 14

5

MAR 1 4

5

DE C 13

10

S EP 13

10

J U N 13

15

MAR 1 3

15

DE C 12

20

S EP 12

20


Auction Clearance Rates & Median $ House Price Trends B AYS I D E

55%

$1,100,000

% AUCTION CLEARANCE RATE

JUN 18

$1,200,000

M AR 1 8

60%

DE C 1 7

$1,300,000

SEP 17

65%

JUN 17

$1,400,000

M AR 1 7

70%

DE C 1 6

$1,500,000

SEP 16

75%

JUN 16

$1,600,000

M AR 1 6

80%

DE C 1 5

$1,700,000

SEP 15

85%

JUN 15

$1,800,000

M AR 1 5

90%

MEDIAN $ HOUSE PRICE

Sou rce : R E IV, P rope r ty A naly tics & Buy er A d vo cacy, 2018

The most commonly published real estate statistic is Median $ Price Change. Unfortunately, the myriad number of ways to compile this makes for some confusing commentary. Here are a quick few tips on how to interpret. Firstly, is it the ‘Median’ of Houses, Apartments or All Residential? Our preference is to focus on Houses given that they more accurately reflect the underlying value of the land. Secondly, over what period are the results compiled – by month, quarter or year? We are generally sceptical of monthly results because of artificial fluctuations due to low volumes. Lastly, to what are we comparing? Is it the ‘change’ from the preceding period, from the same period last year, from the previous peak or trough? Each has its uses, but comparing to the previous year tends to provide a more accurate reflection of where a property’s true value is.

S ou r c e : P r ope r ty Ana l y ti c s & Bu y e r Adv oc a c y, 2018

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THE CHANGING GROWTH CYCLE:

The below graph illustrates the changed dynamic between buyer and seller. Auction Clearance Rates in Bayside have fallen significantly since mid-2017; over the same period, Median $ House Prices have remained relatively stable. Properties are selling, but as competition between buyers at auction has diminished, prices well above seller expectations are rarer.

What to expect

The biggest change occurring in the market can best be witnessed at auctions. Whereas four+ bidders was commonplace from 2014 to 2017, vendors are now facing fewer serious buyers who are increasingly reluctant to bid on the day. As a result, more and more properties are being sold in old-style negotiations before and after auctions.

The growth cycle had to end eventually, but its end does not automatically infer big price drops. Buyers are likely to enjoy some longawaited leverage through 2018 and early 2019, and prices might come back a bit more from their peaks, but realistic homeowners should not fear.


IN NUMBERS

Bayside Average House Block size (m2)

BAYSIDE 6 5 1 BE AU MA RI S 6 7 8 BL ACK ROCK 6 8 9 BRI GHTO N 7 1 9 BRI GHTO N EAS T 6 5 1 + Fi gu re s

C HE LT E N HAM + 5 7 2 HAM P TO N 6 5 0 HAM P TO N E AS T 6 0 3 HI G HE T T + 5 8 9 S AN DR I N G HAM 6 5 6

sh are d wi t h Ki ng sto n City Co uncil

S o u rce : P rope r t y An al yt ics & Buy er A d vo cacy, 2018

Method of Sale BAYSIDE

A UCT IO N

P R I VAT E

5 9 %

41%

S o u rce : P rope r t y An al yt ics & Buy er A d vo cacy, 2018

Properties Sold in each $ Price Range

PRICE RANGES OF PROPERTIES IN BAYSIDE

SANDRINGHAM HIGHETT + HAMPTON EAST HAMPTON CHELTENHAM + BRIGHTON EAST BRIGHTON BLACK ROCK BEAUMARIS BAYSIDE 0% UNDER $1M + Fi g u re s

20% $1M - $2M

40% $2M+

sh are d wi t h Ki ng sto n City Co uncil

S o u r ce : Prope r t y An al yt ics & Buy er A d vo cacy, 2018

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60%

80%

100%


Median Days on Market & Average Hold Period for Houses

BAYSIDE IN BAYSIDE, HOUSES TYPICALLY SELL WITHIN 31 DAYS. HOUSE OWNERS TYPICALLY REMAIN IN THEIR HOMES FOR 13.5 YEARS. DOM BEAUMARIS BLACK ROCK BRIGHTON BRIGHTON EAST CHELTENHAM +

DOM

AHP

32 15.3 37 13.5 32 12.1 32 13.8 30 15.5

AHP

HAMPTON 35 14.3 HAMPTON EAST 29 12.0 HIGHETT + 26 13.2 SANDRINGHAM 26 13.7 DOM - DAYS ON MARKET AHP - AVERAGE HOLD PERIOD

+ Fi gu re s

sh are d wi t h Ki ng sto n City Co uncil

S o u rce : Prope r t y An al yt ics & Buy er A d vo cacy, 2018

Property Type Mix and Median $ Prices*

H OUS ES A CCO UNT FO R 5 4 % O F A L L R E SID E NT IA L S AL E S . TH E MEDI AN $ PRI C E O F H O USE S IS NE A R LY 3 T IM E S G R E AT E R T HAN APAR T M E N T S AN D AB O U T 1 . 5 T I M E S G RE AT ER

TH A N TOWNHO US E S.

% YOY CHA N G E I N M ED I AN $ P R I CES

PROPERTY TYPE MIX

7.9% 8.4% 21%

-3.1% -4%

25% -2%

0%

2%

4%

6%

8%

10%

MEDIAN $ P R I CES I N F Y1 8 $1,017,500

54% $1,735,000

$621,000 $0 HOUSES

$0.5M

$1.0M

TOWNHOUSES

$1.5M

$2.0M

APARTMENTS

S o u rce : P rope r t y An al yt ics & Buy er A d vo cacy, 2018

Median $ Price of Houses in FY18

BAYSIDE

3 BED / 1 BATH

3 BED / 2+ BATH

$1,335,000

$1,615,000

S o u rce : Prope r t y An al ytics & Buy er A d vo cacy, 2018

4 BED / 2+ BATH

5+ BED / 2+ BATH

$2,000,000

$2,260,000

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Fi gu r e s ba s e d on fi na nc i a l y e a r 2 0 1 7 / 2 0 1 8


A SELECTI O N OF BAY SID E SA L E S

Exceptional sold property

BRIGHTON 42a Black St

BRIGHTON 11 Montclair Ave $3,925,000 S O LD

BRIGHTON EAST 44 Camperdown St $3,200,000 SOLD

BRIGHTON EAST 10 Lockwood Ave $2,625,000 SOLD

BRIGHTON EAST 9 Violet Cres

BRIGHTON EAST 12A Comer St $2,205,000 SOLD

BRIGHTON EAST 8A Hodder St $2,200,000 SOLD

BRIGHTON EAST 16 Bruce St $2,050,000 S O LD

BRIGHTON 11 Munro St

BEAUMARIS 6 White St

BRIGHTON EAST 30B Pine St

BRIGHTON EAST 2B Barkly St $1,980,000 SOLD

SOLD

SOLD

S O LD

S O LD

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SOLD


SOLD

BRIGHTON 42 Ebden St $1,826,00 0 SO L D

HIGHETT 22 James Ave $1,805,000 S O LD

HAMPTON 9 Fewster Rd S O LD

DIRECTOR WORDS

BRIGHTON 134a Male St

"Quoted prices are now giving buyers more confidence." N i ck Re nna , DI REC TOR

BRIGHTON 122 Cochrane St $1,975,00 0 SOLD

BRIGHTON EAST 90 Thomas St $1,840,000 S O LD

"Buyers are now showing stronger signs in the market that they are more prepared to act and buy." Ma r k S ta pl e s , DI REC TO R

BRIGHTON EAST 3b Thomas St SOLD

BRIGHTON EAST 10 Billson St $1,490,00 0 SO L D

HIGHETT 50 Donald St $1,225,000 S O LD

BRIGHTON 1 Edmanson Ave S O LD

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jelliscraig.com.au

‘The Report’ has been prepared by Jellis Craig in good faith, as a general guide to the performance and outlook for particular areas of the Melbourne real estate market. The data and information provided in ‘The Report’ is provided by third parties for information purposes only and does not constitute advice or recommendations. It does not intend to predict future performance of particular suburbs, areas, properties or property types. You should consider your personal circumstances and obtain independent professional advice before making any financial or investment decisions.

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The Report is Jellis Craig's exclusive annual insight into Melbourne’s residential property market and the factors that drive demand, house...