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Melbourne, Docklands and Southbank: Capital Growth of Apartments

Secret Agent’s apartment capital growth index tracks price changes of the same apartments over time. Rather than simply using average price changes, basing the index on resales gives a better measure of true capital growth. The index tracks how apartment prices change when buying off the plan, as well as all subsequent sales of the property. This bulletin takes a closer look at apartments in Melbourne CBD, Docklands and Southbank. Note that when talking about annualised growth rate, we are referring to converting the growth rate over one quarter to an annual figure.

Since 2009, CBD and Southbank apartments have been growing in value at about the same rate, with the CBD slightly ahead for all but the first quarter of 2016 (Figure 1). Since the end of 2011, CBD apartments have grown in value by an annual average of 2.83%. while Southbank apartments by 2.60%. Over the whole time period, Docklands growth was well below the other two suburbs, averaging 1.40% over the past five years.

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If growth is broken down by number of bedrooms, we can see that three bedroom apartments have experienced much higher growth both before and after the global financial crisis than their one and two bedroom counterparts, managing an annual average of 3.56% growth over the past five years (Figure 2). Until last quarter, when one bedroom apartments saw a surge in growth, two bedroom apartments were growing at a faster rate, averaging 2.40% over the past five years, compared to 1.95% for one bedroom apartments.

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While it may be easy to conclude that a three bedroom apartment in the CBD or Southbank is the way to go, it is important to remember that these are aggregate statistics. This means that even within these categories an investor could experience a lot of variance. Achieving great returns over the long run depends on not just picking the right market, but also finding value in the form of quality and location. Other factors that need to be considered are rental returns and loan repayments.

These things aside, what the data seems to suggest is that there is a demand for larger apartments that is not being addressed by developers at the moment. On the other hand, the much smaller growth in Docklands, even though it is only one suburb away from both Southbank and the CBD, seems to suggest either an oversupply problem or a reflection that the area is less desirable for buyers.

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