Green shoots set for spring growth

WITH GARETH KENT, DIRECTOR PRESTON ROWE PATERSON 

Over recent years investor sentiment toward the Victorian property market has been soured. Increased taxation, decreased demand, rising rental compliance costs for investors and in most areas a decrease in market value since Q1 2022. The start of this new cycle has been the decrease in values followed by a short recovery and then a stabilisation phase that I think has either started or is on the precipice of starting.

Victoria has moved very differently to other states – West Australian property prices have been increasing, Perth’s median house price is up by 20 per cent over the past 12 months – Brisbane has also been experiencing growth of about 10 per cent. So where are the green shoots within our market?

Inflation: Although the recently released figures show that inflation rose by 1 per cent in March quarter, the overall trend has been down, with a significant decrease since the peak of 7.8 per cent in December 2022. One of the main drivers of this inflation figure is the increase in rental prices, which have risen 7.8 per cent in the quarter and insurance at 16.4 per cent. The rise in insurance premiums is also a delayed response to the increase in construction prices over the latter half of 2022 and early 2023. This phenomenon has begun to correct. As people reset their limit of liability, they are forced to increase the replacement cost at the higher rates of last year, which in turn increases the insurance premium. So as construction prices begin to ease, and rental demand begins to slow, the inflation number looks more and more overinflated.

We are still cheap: When comparing the prices of the Geelong region, I first look to similar located areas such as those cities of similar size which are commutable to major capital cities – Wollongong (median house price $981,136), Newcastle ($893,826), Sunshine Coast ($1,025,000), Gold Coast ($1,030,000). Yet the Geelong region’s median house price remains at $730,000. Hence our region is significantly cheaper than similarly located Australian regions.

Continued population growth: Geelong region population growth continues to exceed expectations and forecasting, in recent statistics listed by the ABS Geelong’s population rose by 2.2 per cent to 289,272, and this is predicted to continue to 400,000 people by 2041. Continued growth will equate to continued demand and if supply cannot keep up, this will equate to increases in the median house price.

Planning: A lot is going on behind the scenes that should put our region in a far better position for growth and development. The recent council vote to support the Pakington Street North Urban Design Framework is welcome news to property developers who have been starved of suitable high-density development sites. The Northern end of Pako is set to transform into a vibrant community of high-rise living with high limits of up to 10 storeys permitted. This on top of the completion of plans for the CBD, Highton Urban Design frameworks, Marchall PSP, Lara West, Armstrong creek, etc. The planning is done and development in the region should follow.

Infrastructure: this is also a big one, and I think we are still well behind the eight ball on this one, a comprehensive Transport plan would be a welcome start, but at least our state Government has finally committed $250m worth of spending in our region via the Commonwealth Games legacy funding.

The planning is in place, we are growing, and we are still relatively cheap, so there are a lot of Green Shoots, and the Geelong region is well-placed for the next phase of this cycle. While it remains a buyers’ market, a few slow months, followed by a bumper spring may turn the tide very quickly. Stay positive everyone, the tide is turning.