Market Supply, Market Demand: Market Imbalance. Will Melbourne Apartments hold their value?

Melbourne apartments have been growing strongly since the millenium, but lack of appropriate planning and stakeholder management has given rise to a series of problems, culminating in the city having an excess of multi-dwelling residences. Market equilibrium has been slipping since 2010-11 (see chart 1 and 2). As many developments in Melbourne's Docklands approach completion ( Q1 2016-17 - the end of our current forecast series), Paul M. Ross forecasts that this area will contribute to Melbourne's already saturated apartment market. From a risk management perspective, capital gain yields on Melbourne apartments are likely to continue struggling, notably in and around Docklands, (postcode 3008); a prospect of continued concern to many investors, lenders and consumers.

Where did it all begin- and go wrong?

 In the aftermath of Melbourne's failed attempt to secure the 1996 Olympics in 1989, the Kennett Government (1992-1999) simply let property developers run riot and as a result, today, Docklands (the proposed Olympic site) is void of any sense of place. For almost 10 years (1999 - 2008) developers constructed Docklands as they saw fit. The Brack's Government (1999-2007) took a back seat on the premise that market dynamics would make things turn out right. They didn't. Things got worse.

Intervention of the State

State and Local Government intervention in Docklands has been more pronounced since 2008-09, but many pipeline projects and allocated lots are already ear-marked for development, so on the basis of potential demand's (population growth) relationship with potential supply (stock), there is an imbalance, as detailed in Chart 2 below.

A hopeless sense of void

Creating a sense of place out of nothing is difficult; almost contrived. But to fix this problem, the city of Melbourne has to get people 'to want' to visit this area, and more importantly, live in this area. The second point is more challenging; review of population statistics, which we have modelled for persons living in multi-dwelling residences (units and apartments), are not looking too rosy in the 3 years to September 2016; hence the imbalance.

Hosting a large workforce, many corporates re-located to Docklands on the back of State Government incentives, but only a small proportion of persons who 'work' in this area 'reside' in this area. Many more corporates and SME's were expected to flock to the Docklands area, but as this promotional 'push' was taking place, the events of September 11 occurred; an externality deterring many companies from re-locating to this water front location. Sentiments have eased in the 12 years since, but Docklands remains a commercial real estate under achiever and a residential community of vertically constructed houses, not homes.

Date posted: 2014-01-14 | posted by: paulr

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