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A worrying glut of properties in Melbourne’s outer suburbs

Recently The Age reported a huge oversupply of properties in Melbourne’s outer suburbs.

They suggested that Melbourne’s urban fringe has been swamped with 35,000 unsold homes which could obviously trigger a further slump in property values in these areas.

This stockpile of unwanted housing in many of Melbourne’s newest suburbs has led to warnings by some planning experts that ”suburban ghettos” could emerge on the city’s fringe, creating a social divide.

How big is the problem?

Unfortunately over the past year two things have happened…

Demand has fallen and the number of outer suburban homes with ”For Sale” signs has jumped by almost 40 per cent leaving Melbourne with a record 55,290 unsold homes in June – the highest number of any capital city in Australia.

SQM Research says most of these were concentrated in about 50 suburbs on Melbourne’s periphery, including Hoppers Crossing, Tarneit, Cranbourne, Point Cook, Derrimut, Pakenham, Melton, Roxburgh Park and Epping.

We are building suburbs that are destined to fail

According to RMIT planning expert Professor Michael Buxton, ”We are now building suburbs that are destined to fail and ensnaring people in an economic trap.”

In the western suburbs of Truganina, Hoppers Crossing and Tarneit, more than 4,000 homes are on the market – a 54 per cent jump in sales listings on the same time last year.

About 3,700 homes remain unsold in the outer-northern suburbs of Doreen and Mernda, most in new estates built over the past decade.

”We’re just not seeing any end in sight to this glut of new supply coming into the market,” said SQM Research managing director Louis Christopher. ”It seems obvious there is only one direction for prices. That’s a frightening possibility if you’re a property owner.”

Even in established outer suburbs such as Epping, Caroline Springs and Deer Park, 2,000 homes remain unsold.

Yet promoters are still recommending these areas to property investors.

Despite some of these suburbs being like ghost towns, I’m still seeing real estate promoters recommend house and land packages in these areas to unsuspecting potential investors saying things like, “this is where people will move because of affordability.”

The problem is the old supply and demand ratio – too many properties and not enough buyers or tenants.

And the tough market conditions are expected to deteriorate even further, with research showing developers are poised to release another 75,000 new home sites at 126 existing housing estates in the city’s growth areas.

”In good times, that would be equivalent to a five-year supply. Right now, it’s more like a nine-year supply,” said Robert Papaleo, research director for property analysts Charter Keck Cramer.

We are designing the world’s worst suburbs.

The outer suburbs were usually the first and worst areas affected by an economic downturn, said Professor Buxton: ”We are designing the world’s worst suburbs, the housing stock is terrible and they have very poor liveability. We are going down the same path as the US, where areas outside major cities have become suburban ghettos.”

Marcus Spiller, a former president of the Planning Institute of Australia, warns a glut of land and unsold homes would contribute to social dislocation and resentment in the outer suburbs.

”This is a troubling scenario of a city divided. We will wind up with two Melbournes, one that is prosperous and well served with infrastructure and employment opportunities, versus a second one on the fringes which is dislocated with property prices that are far less buoyant,” Dr Spiller said.

Not surprisingly these claims of a housing glut were rejected by development industry groups, the UDIA and the HIA.

”There’s no reason for concern. The stock on the market tells you nothing about the fundamentals. It’s underlying demand that matters. Melbourne’s new homes market is in good shape,” said HIA economist Andrew Harvey.

My thoughts:

While the overall Melbourne property market has been reported as flat over the last few year, in fact it’s segmented.

While there is a huge oversupply of properties in the outer suburbs and a looming oversupply of new, especially inner city apartments coming on stream; some areas of Melbourne’s property market are still performing well.

In particular there is a shortage of well located established apartments in the inner eastern and south eastern suburbs and the latest RPData figures show Melbourne dwelling values rose 1.0% in June in what is usually a seasonally-weak month.

Now one month of rising property values does not mean the Melbourne market has bottomed, but the property cycle is moving on and it’s a time when startegic property investors are getting a foothold, ready for the next stage of the cycle.

This doesn’t mean the next boom is upon us.

Typically the next stage of the property cycle is the stabilisation phase.

Buyers come back and slowly more sellers, including some who couldn’t move their properties over the last few years, put their properties on the market and we’ll have a period of unspectacular growth.

Over the next year strategic property investors are going to set themselves up for the next stage of the Melbourne property cycle by buying the right type of property at the right price.

They will have learned from the last few years and rather than speculating, will buy a property with an element of scarcity that will be in continual strong demand by owner occupiers (because they are the ones who push up property values) and tenants. And in particular the type of property to which they can add value and manufacture capital growth.

I’ll be sharing my thoughts on the Melbourne property markets at my upcoming National Property Market and Economic Updates around Australia. Click here for more details.

The 4 types of knowledge you need to seize control of your financial future:

To make the most of our current schizophrenic economic and property markets strategic property invetsors will need:

1. Unbiased economic insights

2. Education based on proven property investing principles and strategies

3. Guidance from expert investors who have been there, done that

4. Insider information so you can spot market trends that are “hidden” from the average investor

That is why it is critical to learn from experienced and successful property investors, from someone who has already achieved what you want to achieve and has retained their wealth in the long term.

And that’s precisely what you’ll get at our upcoming Property & Economic Market Update 1 day trainings I will be holding around Australia next month.

I won’t be conducting similar seminars until well into next year, so please click here now and get the full details and reserve your place.

Economic and finance specialist Rolf Schaefer, accountant Ken Raiss, as well as local experts and myself plan to give you straight forward, no nonsense, practical steps and honest answers to improve your property performance this year and into the future.

To reserve your place or to find out more, simply click here now and I’ll give you my personal guarantee your time will be well spent.

I’m looking forward to seeing you on the day.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'A worrying glut of properties in Melbourne’s outer suburbs' have 2 comments

  1. Avatar for Property Update

    July 19, 2012 @ 7:03 pm opinder

    Great Article Michael.
    I know lot of ppl who went out and just bought properties like crazy in western suburbs basically house and land packages and that on 300sqm plus blocks and now all of sudden the prices are not going up.
    They are regretting the decisions they made but I guess everyone thinks differently along with the amount of knowledge they possess.
    A lot of them were lured by FHBG and also special offers by builders.
    Repeating your words Michael Within every market lies another market..:)

    Reply

  2. Avatar for Property Update

    August 2, 2012 @ 2:37 pm james squire

    At the end of the day, demand is price driven. Thats why its nonsense to say inner east suburbs “in demand” can not come unstuck. Poepl will always prefer to live there, but not necessarily be prepared to pay crazy sums. At 1.5-2.5% gross yields, houses in melbourne’s east are obscenely overpriced and reflect rampant speculation driven in part by a belief that you cant lose value in those areas (funny how it used to be that you could not lose value anywhere, and then only apartments could lose value, and now outer suburbs can lose value). If you can rent for 25-40% the costs of buying then something is seriously amiss regardless of how nice an area is.

    Reply


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