From The Real Estate Conversation.
Recent data suggests Melbourne’s property market is beginning to outpace Sydney’s, and this trend is likely to continue as affordability, higher interest rates and migration patterns all favour the southern city, say experts.
In June, Melbourne’s median dwelling price rose 2.71 per cent, compared with Sydney’s increase of 2.21 per cent, according to CoreLogic.
In the year to 30 June, Melbourne price growth also outpaced Sydney’s. Melbourne’s median dwelling price rose 13.7 percent (to $913,060), while Sydney’s median dwelling price rose only 12.2 per cent (to a median price of $1,118,020).
And there are other signs the Melbourne market is outpacing Sydney’s.
Melbourne’s clearance rate last week was higher than Sydney’s. Last week, Melbourne’s clearance rate was 77.4 per cent, compared with 72.9 per cent for Sydney. A total of 753 properties went to auction in Melbourne, compared with 600 in Sydney.
And Melbourne houses are selling slightly more quickly than Sydney’s. Melbourne houses are selling within 29 days, while Sydney houses are selling within 31 days. Vendors are discounting houses to achieve a sale to the tune of 4.5 per cent in Sydney, compared with the lower discount of 3.8 per cent in Melbourne.
Cameron Kusher, senior research analyst with CoreLogic, says there are four reasons the Melbourne real estate market is likely to see prices grow more strongly than Sydney’s prices.
Firstly, Melbourne prices are much lower than Sydney’s, so Melbourne prices are unlikely to see any correction to the same degree as Sydney.
Second, interstate migration into NSW is waning, while it is continuing to strengthen in Victoria, partly because of housing affordability, says Kusher.
The 2016 Census revealed that Melbourne is growing more quickly than Sydney, with the southern city adding 1,859 people per week between the 2001 and 2016, and Sydney adding only 1,656 people per week. And while Sydney remains the largest city, with a population of 4.8 million, Melbourne isn’t far behind with a population of 4.5 million.
The third reason Kusher gave for Melbourne’s relatively strong performance is there are more properties advertised for sale in Sydney. “There are currently 13.3% more properties advertised for sale in Sydney than at the same time last year, while in Melbourne listings are just 0.1% higher than a year ago,” said Kusher. So people looking to buy in Sydney have greater choice, which keeps price growth contained, he said.
And finally, Kusher says that higher interest rates are likely to have more of an impact in Sydney, because a higher proportion of the market is made up of investors. CoreLogic’s May data showed that investors accounted for 55.1% of new mortgage demand (excluding refinances) in NSW, and 44.6% of new mortgage demand in Victoria.
“If the higher interest rates are discouraging investment (as they appear to be),” says Kusher, “it is going to be having a much bigger impact on market demand in Sydney than in Melbourne given their much higher level of participation.”
Rick Daniel, agent with Nelson Alexander Fitzroy, told SCHWARTZWILLIAMS the Melbourne market is seeing strong interest from interstate.
“Towards the end of last year, we saw quite an influx of interstate investors” into the Melbourne market, he said.
“Melbourne provides quite a lot of value,” he said, adding that buyers also see lifestyle benefits of buying in Melbourne, because transport is easy, and the inner-city suburbs are eminently walkable.
Daniel said that even though the Melbourne market is experiencing the seasonal slow down, “there still seems to be some activity,” he said, adding that unique properties, such as the one at 6 Oxford Street, Collingwood, are still attracting strong interest, including from interstate.
Chris Wilkins, principal of Ray White Drummoyne, told SCHWARTZWILLIAMS the Sydney market is in a “holding pattern”, and the “feeling [in the market] is worse than last year”.
Wilkins said he has had several potential sellers sitting on their hands because there is nothing for them to buy.
Rod Fox of 1st City Real Estate Double Bay told SCHWARTZWILLIAMS the “urgency” has gone out of the Sydney market. Fox said that six months ago, any property that came onto the market sold very quickly, and often for higher-than-expected prices. Fox said that previously, 80 per cent of properties were selling before auction, and that figure has now halved.
But Fox said good quality properties are still selling quickly and for good prices, but overall, Sydney “buyers are more cautious”.
