NEW YEAR NEW MARKET
The word on everyone’s lips is: what will the market be like in 2018?
Having sold a high 22 properties in its last quarter, Integrity Real Estate has cruised into an expected ease after the holiday season. Many homeowners are uncertain about selling, largely because they are unsure where to invest or make their next move. This is largely because Melbourne’s market grows from the city outwards, making relocating closer to urban centres challenging. Many homeowners feel they have to achieve very high prices to justify moving.
For many residents this has been made possible by the strong results they have achieved, allowing them to comfortably downsize or relocate, but the question about the plateau in the market is not a matter of if but when.
In 2007, Melbourne had approx. 17 suburbs in the “million dollar club.” Currently that number is 154, according to Richard Simpson, President of the Real Estate Institute of Victoria (REIV). Furthermore, Simpson claimed that the average capital growth rate for Melbourne was 14% per annum—this means that for whatever a person purchased their property for, they were making 14% of that figure back in value each year. Bear in mind this is an average.
For the last 12 months at least, the Kinglake Ranges has sat within this average. Simpson gave voice to the idea that the market growth will moderate in 2019, as such high growth cannot sustain itself, which gives us a small window. This is impacted by a number of factors; government taxes on banks, harsher loan/value ratios, and a general cut back on interest-only loans all contribute.
But what does this mean for Kinglake?
Annual growth figures for Kinglake have been very strong, but the main reason for this strength is comparative affordability to other suburbs. This is how Kinglake was “discovered”. If Kinglake is to continue to grow, however, it needs more services. This happened with Yarra Glen when natural gas arrived and Yea with mains water. However, that is not on the horizon in the Kinglake Ranges.
Based on Integrity Kinglake’s last five sales, the Kinglake growth story has been this:
For a 3 bedroom home with a secondary dwelling on 5 acres, the growth between 2000 and 2018 has been 12.5% year over year. This is generally higher than larger homes on smaller acreage allotments, with the standard growth rate being 9.6% each year for large family homes on 2.5-3 acres. The growth for larger acreage properties with family homes and ample shedding on approx. 50 acres has shown to be quite high, fetching 19.7% between the years 2005 and 2018. But the real hero of this growth story is homes on small residential blocks – 4 bedrooms on 1500 sqm recently showed 17.8% growth, climbing a staggering $150,000 in just 2 years.
Property A – 3 bedrooms 5 acres
$235k in 2000 - $770k in 2018 - 12.5% yearly growth
Property B – 5 bedrooms 3 acres
$317k in 2002 - $805k in 2018 - 9.6% yearly growth
Property C – 4 bedrooms & warehouse approx. 50 acres
$220k in 2005 - $740k in 2018 – 19.7% yearly growth
Property D – 4 bedrooms 2.5 acres
$480k in 2012 - $760k in 2018 - 9.7% yearly growth
Property E – 4 bedrooms 1500 sqm
$420k in 2016 - $570k in 2018 – 17.8% yearly growth
It is worth noting briefly, vacant land still holds its value, but only just—apart from Integrity achieving a 20% spike in a few months in one case, we anticipate that land will not hold the value it once did. This is due to increased complications in building owed to recent changes in the Bushfire Management Overlay and council regulations. Prior to this, land was a preferred choice to established as it was perceived cheaper to build than buy.
So what does this all mean?
The average yearly growth rate taken from this sample of properties is almost identical to the Melbourne average—13.8%. This means that the Kinglake market has now met the Melbourne market. People expecting the market to continue growing from here should be aware that it is not likely to grow in the ways we have experienced over the last two years. Kinglake cannot outperform Melbourne, as Melbourne is the setter of the trend.
Small houses on small blocks will continue to be the real heroes of this story. There is still a section of the market for lifestyle on small acreage, but homeowners should be aware that the real results will be won by the skill of the agent, and not overwhelming demand.
That being said, this is by no means the end of the line. Strong results are still out there to be won, but homeowners should be aware of what is required to get those results. Among these, homeowners should have confidence in the honesty of their agent and their communication and negotiation skills. Beyond this, they should show a strong track record and knowledge of the market. Without this backup, promises are just words.
It is worth recognising where we have come from in such a short space of time. After all, the Kinglake Ranges is a wonderful place to live, and buyers have now realised this. The growth has been phenomenal. But as stated earlier, if we anticipate the market to slow in 2019, homeowners need to make some quick decisions. It is hard to tell when interest rates will be this low again, so if you are hesitating over selling, the best advice is to sell now while the seller still has the advantage.