Local experts weigh in with their predictions of the key
drivers for Melbourne’s property market in 2019.
RPM sought some expert views from key industry leaders on predictions and key drivers of Melbourne’s new housing market in the year ahead. These perspectives are from Cressida Wall (CW), Victorian Executive Director from the Property Council of Australia, Mark Stone (MS), Chief Executive of the Victorian Chamber of Commerce and Industry (VCCI), Craig James (CJ), CommSec Chief Economist and Kevin Brown (KB), RPM CEO.
1. What does the Andrews government re-election and policy platform mean for the development industry and property market in 2019?
CW: First, a government with a clear majority is a good thing for business confidence and certainty in Victoria, and this is especially true for the property industry.
Voters responded to a positive plan for investment in a growing city through the major infrastructure projects now underway which are reshaping Melbourne – in fact, comparing population growth rates and electoral swings demonstrates that six out of 10 of the highest growth suburbs had swings to Labor above the state average swing of 4.7 per cent.
MS: The Andrews Government has a strong track record on economic management, project delivery and involvement of local business, and we expect this to continue into 2019.
Over the past four years the government has overseen significant growth in Victoria’s economy and employment as well as the implementation of an ambitious infrastructure agenda. While this is a credit to the government, it also reflects the hard work and innovation of Victoria’s 590,000 private sector businesses.
The government has a continued commitment to sound financial management and, while debt is forecast to increase over the next decade, this is not expected to compromise Victoria’s AAA credit rating. International credit agency Moody’s re-confirmed the State’s AAA credit rating and stable outlook following the election.
Victoria’s economy has been supported by strong population growth in recent years, driven by high levels of overseas and interstate migration. This reflects Victoria’s strong credentials as a place to live and work. While Victoria’s population growth is expected to moderate slightly over the next four years, it should remain at relatively high levels and continue to support both consumer spending and demand for housing.
KB: The Andrews government deserved their landslide win as they have been getting on with the required infrastructure to support a growing and prosperous Melbourne and Victoria. They have a clear mandate to invest in an $80 billion infrastructure pipeline to accommodate and sustain Victoria’s population growth, which is welcome.
2. What are your key predictions in terms of how the property market and economy will perform in 2019?
CW: The Victorian Pre-election Budget Update suggested that Treasury views the issues affecting residential markets at the moment as a short-term correction, with the downturn to last 12 months. Our members are concerned that challenges will be more pronounced and last longer – although of course we hope the Treasurer is right.
Melbourne’s commercial market remains particularly strong, with decade-low vacancy rates in the CBD. This is great for now, but we’ve seen a near shutdown of the development pipeline since the introduction of C270 planning controls in November of 2016. Commercial stock coming to market between now and 2020 is heavily pre-committed and, with the pipeline beyond then non-existent, rents could be expected to rise.
MS: Victoria’s economic fundamentals are strong. Victoria is leading the nation with an economic growth rate of 3.5 per cent in 2017‑18, the strongest increase of all the states. While this strong performance should moderate slightly 2019, we expect the Victorian economy to continue to perform well in 2019.
Victoria is experiencing robust jobs growth with unemployment at a seven-year low. Labour market conditions are expected to remain solid, with further falls in the Victorian unemployment rate expected.
While there is some uncertainty regarding the short-term outlook for the residential property market, continued solid population growth should help support underlying demand for housing over the medium term.
Across the wider economy, Victorian business is performing strongly and we are confident about growth prospects in 2019. For example, Victorian tourism is experiencing significant growth arising from the growth of the Asian middle class and increasing levels of disposable income available for international travel.
The significant pipeline of new infrastructure projects underway or planned will provide a boost to many other Victorian businesses in industries as diverse as construction, training, finance, ICT, transport, manufacturing and engineering.
KB: We expect market conditions to improve towards the second half of 2019. Some sub-markets, such as vacant land, will likely recover more quickly as first home buyers come back in larger numbers and lending conditions stabilise.
The land market will recover to a normalised level, which is 30% below the peak in 2017 of in excess of 25,000 lots sold which was unsustainable.
CJ: Our view is that 2019 will be a time of adjustment in the Sydney and Melbourne housing markets. Supply is lifting to meet the previous strong demand. Exposed are the high prices paid for property in 2016-2017, especially compared with other states and regional areas.
The good news is that interest rates are low and can be reduced if the adjustment process became too painful for the broader economy. But it is important to stress that the adjustment is for Sydney and Melbourne. In fact, Victorian regional areas like Geelong still have healthy housing markets with rising prices. Low unemployment rates will also support the adjustment process.
3. What does the property and development industry need to do to succeed in a challenging market?
CW: Our industry works incredibly hard to provide outcomes for customers and the community and even in difficult economic times, a quality development will attract end-consumers. But we also know some people in the industry have not previously faced economic conditions like the ones we are currently experiencing, and it is not always easy to get the finance and approvals that are required to make a project a success.
We, as the body representing our industry, look forward to advocating strongly to government for the industry’s needs to make sure that policy settings are right to respond to the current conditions. We know the ‘old hands’ in our industry have lots of wisdom about how to face these conditions effectively and as times change, we also know that our industry needs to continue to be responsive to the communities in which it operates.
KB: Developers are slightly adjusting pricing to meet market expectations given the substantial price growth in recent years. They will also continue to offer a diversity of high-quality housing that buyers can afford and aspire to live in.