Home News Melbourne apartment market set for solid recovery

Melbourne apartment market set for solid recovery

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Nila Sweeney

Investors who can look pass the current downturn are set to reap around 30% increase property value in Melbourne's inner city apartment market between 2009 and 2014, according to an expert.

Angie Zigomanis, senior project manager at BIS Shrapnel said the global financial crisis is setting the scene for the next upturn in the inner Melbourne apartment market.
"A sharp reductions in interest rates over 2008/09 to well below 6% has seen the gap between rental income and mortgage repayments narrow dramatically, which has significantly improved the equation for investors. Low interest rates and very low vacancy rates, which are driving rising rents and high rental yields, will entice investors back into the market from late 2009."

However, a lack of price stability had kept investor confidence down and held price growth back.

"Investors currently remain reluctant to re-enter the market and purchase off-the-plan apartments. Residential prices declined over 2008 and, although there have been signs of stabilisation in 2009, we believe that investors need to be confident that prices have bottomed out and growth is returning before they dip their toe into the apartment pool."

Zigomanis noted that a significant decline in the forecasted number of new apartment completions for Melbourne's inner city will be the key to further price growth going forward.

A recent report released by BIS Shrapnel forecasts an average of 1,500 apartments to be completed per annum over the three years to 2010/11 - which is well below the previous 10 year average of 2,650 apartments per annum.

"The shortfall is likely to lock in further rises in rents of between 5-10% per annum," says Zigomanis.

As rental growth continues and interest rates remain low, better buying conditions will improve demand for inner city apartments in Melbourne.

"Yield-seeking investors will lead the upturn," says Zigomanis. "Demand will pick up in 2010 as the economic outlook becomes more positive. It will then gather momentum in 2011 as the improvement in demand results in stronger capital growth. Ultimately, investor demand will continue to increase on the back of stronger price growth over the following two to three years, with BIS Shrapnel forecasting total growth in apartment values of around 30% over the 2009 to 2014 period."

However, Zigomanis pointed out that given the current weakness in the market, and the time taken for demand to pick up, price growth will be limited in the short term, and most of this growth will occur over the latter part of this period.

 

 

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