Overall the risk for houses in VIC is low-medium and for units is medium-high according to the findings in our recently released Quarterly Riskwise Residential Risk and Opportunities Report
The Victorian market, and particularly the Melbourne property market, has enjoyed a very strong property boom until mid-2017, due to the combination of strong population growth and strong investor activity.
Lending restrictions, unaffordable houses and poor investment serviceability ratio have led, in the second half of 2017, to a reduction in investor activity.
This has resulted in overall decreased aggregated demand for residential properties, reduced buyer sentiment regarding residential property and lower auction clearance rates.
This may deliver some price reduction in some areas.
Overall, however, while the market has cooled, houses still enjoy a healthy capital growth and units are delivering moderate capital growth.
Overall, VIC, and particularly Melbourne, enjoys strong population growth.
With exceptional levels of net overseas and interstate migration, its property market will likely experience sustained demand, particularly in the middle suburban rings.
This is coupled with strong economic growth of 3.3 per cent and increasing private capital expenditure.
However, the growth is projected to be greatly varied across the state, meaning the risk and the potential growth should be assessed suburb-by-suburb and based on the property type and configuration.
Houses vs Units
In many areas of Melbourne there is an under-supply of houses.
The relative affordable middle suburban rings, and particularly the western corridor, are in high demand and houses in these areas are likely to deliver healthy growth, particularly in the medium and long-term.
These areas present similar growth patterns to those that have been seen in Sydney’s western corridor.
On the other hand, many inner-Melbourne areas are facing significant unit over-supply resulting in significant capital growth losses.
The Docklands area, for example, has brought notable losses upon many investors in the unit market.
The risk associated with units is higher, particularly in high-supply areas such as inner-Melbourne.
In particular, off-the-plan units in high rises, that are unsuitable for families, carry the highest level of risk.
Premium units that appeal to s small numbers of buyers also carry a high level of risk due to projected lower demand from both investors and owner-occupiers.