Melbourne flat prices dip 2.3% in Q2

Rents are also expected to see downward pressure as vacancy rises.

CoreLogic’s Home Value Index showed Melbourne apartment prices grew 10.2% over the year to June 2020. However, JLL notes prices have fallen 1.1% m-o-m to June and 2.3% on a quarterly basis. With the economy now in recession, we will likely see further decline, particularly from September when job keeper and the mortgage repayment holidays from banks expire.

Inner Melbourne vacancy rose to 2.9% in May, and will likely rise further as short-term rentals are converted to longer-term rentals. This will apply downward pressure on rents.

Median rents across Inner Melbourne declined for both 1 and 2-bedroom apartments. From April to May, 1-bedroom median rents fell from AUD 370 to AUD 350 per week and 2-bedroom rents declined from AUD 470 to AUD 460.

Here’s more from JLL:

Lower population growth to have a big impact on demand

Melbourne’s economy and housing market has been underpinned by particularly strong population growth the past decade, but COVID-19 has all but stopped the inflow and dented broader confidence. After just starting to re-open, recent secondary outbreaks in Victoria have started to see the housing market slow once more and this trend is likely to intensify now as further lockdowns have been imposed.

Melbourne has seen a considerable number of off-the-plan apartment sales fall over since April. Lower market valuations resulting from lower demand and oversupply has seen banks refusing buyer finance. The pre-sales market will be further impacted with little to no population growth.

Melbourne’s supply pipeline stalls

JLL’s 2Q20 Melbourne apartment supply data has seen some new or existing projects that were currently being marketed be deferred for an undetermined period of time due to weaker buyer demand. The economic slowdown has generally not affected developments already under construction, except for signs that settlement defaults are starting to appear.

A soft pre-sales environment is likely to keep Melbourne apartment supply muted for at least several years, with construction finance pre-sale hurdles a key barrier for projects progressing. Social distancing and lockdowns could also affect productivity on construction sites and in turn, project programs may be delayed.

Outlook: More uncertainty lies ahead for the market

A second wave of the COVID-19 pandemic presents an ongoing risk. Victoria is now in Stage 4 lockdown, with only essential businesses in operation and the border between

Victoria and NSW closed for the first time in 100 years. It is too early to provide any detailed assessment of the economic impact of this resurgence in outbreaks, but it is likely that housing demand will be further impacted.

Melbourne will be hit harder than other states due to its reliance on international education and tourism. With borders closed and population growth expected to be low, it is unrealistic to think that the housing market will emerge unscathed. Longer-term, high levels of unemployment will have a significant impact on demand, with buyer and sellers remaining cautious due to economic uncertainty.