1. Insight T h e S t a t e o f V i c to r i a ’ s
H o u s i n g M a rk e t
Opteon Research August 2011
Dwelling Prices Page 1
Demand Page 2
Supply Page 3
WELCOME
Outlook Page 4
The Opteon Property
With Australia’s economic recovery faltering, possible interest rate rises, falling
clearance rates and deteriorating housing affordability; buyer sentiment has Group is Australia’s
weakened in recent times. However, with low unemployment levels, tight rental largest truly national
vacancy rates and new housing starts remaining below underlying demand, house independent property
prices should be supported from falling significantly in the short term.
services group.
Dwelling Prices
This document contains
Over 2010, Victorian house and unit prices rebounded strongly after two consecutive
years of modest growth. According to the Victorian Valuer-General, the median house the latest research from
price increased by 16% to $420,000 in 2010 with the unit median price rising 12% to Opteon.
reach $400,000. Much of these house price increases were as a result of fiscal and
monetary stimulus with dwelling price growth now showing signs of softening.
Richard Jenkins
The total number of dwellings transacted over 2010 in Victoria declined by 21% Research Manager
compared to 2009, its lowest level since 1996, as affordability continued to
deteriorate.
Key points:
• Dwelling price growth now showing
signs of softening.
• Although median house price
increased in the June quarter, they
remain below their peaks of
December 2010.
• Housing finance levels appear to be
recovering from the impact of the
natural disasters of early 2011.
• Owner-occupier finance remains
near 11-year lows.
• Prices of Victorian first home
mortgages returning to record
heights.
• Victorian dwelling commencements
recorded in 2010, 28% higher than
2009 levels.
• Victorian residential vacancy rate
still low.
• Shortage of housing stock should
underpin house prices in short
term.
• Residential rents and yields
expected to grow.
T: 1300 786 022 F: 03 5223 2309 E: vic.info@opteonproperty.com.au W: www.opteonproperty.com.au Value made visible

2. Insight
Opteon Research
August 2011
Page 2
The latest ABS house price index
Annual Capital
Growth (%)
Victorian House & Unit Price Growth showed that national house prices
25%
fell by 0.1% in the June 2011
quarter; to be 1.9% lower over the
12 months. The ABS house price
20% index has now recorded three
quarterly declines in the past four
15% quarters. The decline in house
prices was most likely driven by the
weakening consumer confidence
10% with living costs continuing to rise.
House prices have fallen over the
5% past 12 months in all capital cities
except Hobart and Canberra.
Compared to the Residex and
0% RPData house price measurements,
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 similar results were found, with
Houses Units 2000-04 average 2005-11 average house price growth easing over the
Source: Valuer-General / Opteon Property past six months.
Within Victoria, house prices fell by 2.5% in the March quarter but remain 1.1% higher than the corresponding date the
previous year. Over the past five years, house prices in Victoria have out-performed all other capital cities with the
exception of Darwin.
Latest results from the Real Estate Institute of Victoria also indicate that 2011 has been a mixed year to date. Although the
median value for houses in Melbourne rose over the June quarter to reach $590,000, the current median price remains below
its peak of $601,500 recorded in December 2010. As at the June 2011 quarter the median price for Melbourne units was
$474,000.
Demand
Australia’s housing finance continued to increase, with finance approvals having risen by 4.4% in May, taking the total rise
over the past two months to 9.1%. Housing finance levels appear to be recovering from the impact of natural disasters over
the Australian summer with the value and number of loans approved at their highest level since December 2010. Despite the
increased levels of April and May, finance to owner-occupiers remains near an 11-year low.
Australian Housing Finance Approvals
Billions
$140
$120
$100
$80
$60
$40
$20
$0
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
May-10
May-11
First Home Buyers Investors Upgraders
Source: Australian Bureau of Statistics / Opteon Property
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3. Insight
Opteon Research
August 2011
Page 3
By purchaser type, despite first home buyer activity rebounding strongly in May, the number of first home purchasers is
just 1.6% higher than 12 months ago. Currently, first home buyer finance accounts for 15.4% of all housing finance
approvals, well down from their peaks of 2009 but close to long term averages. Investor housing finance also rose in May,
but levels remain substantially down over the year. In contrast, upgrader (non first-home buyer and investor) housing
finance activity contracted over the month and remains 4.5% below 2010 levels.
By State, housing finance grew in most states, with growth in Queensland still subdued following the summer floods, while
finance approvals in Victoria increased by 2.6%. Victoria continues to remain attractive for first home buyers with 27.7% of
first home buyer finance occurring in the State, above its population share.
Whilst incomes have risen and house prices have eased, affordability pressures remain. Victorian first home mortgage
levels are returning to record heights. The average new mortgage in Victoria increased to $281,400 in May, 1.5% higher
than April.
Supply
Despite not being a “resource” state, in recent years Victoria has achieved solid economic growth. In many ways one of
the State’s key successes was in attracting more people, with population growth lifting to its strongest pace in four
decades. In order to keep up with this strong population growth, new dwelling commencement levels are running at record
levels despite the overall slowdown in the housing market in Victoria. New Victorian dwelling commencements reached
58,706 homes in 2010, 28.6% higher than those achieved in 2009. Even though dwelling commencements levels showing
signs of having peaked in the short term, dwelling supply remains below Victoria’s underlying housing demand, based on
current population growth levels.
People Victorian Population & Housing Growth Dwelling
Completions
140,000 70,000
120,000 60,000
100,000 50,000
80,000 40,000
60,000 30,000
40,000 20,000
20,000 10,000
0 0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Vic Annual Population Growth (LHS) Vic Annual Dwelling Completions (RHS)
Source: Australian Bureau of Statistics / Opteon Property
The Real Estate Institute of Victoria reported an overall vacancy rate of 1.7% in Victoria at March 2011 with the Melbourne
vacancy rate also at 1.7%. Melbourne’s vacancy rate has been below 2.5% since May 2005.
By precinct, Inner Melbourne (0-10 kilometre radius of the CBD) recorded a vacancy rate of 1.6%. Middle ring suburbs
recorded a vacancy rate 1.8%, with the Outer Melbourne region vacancy rate sitting at 1.9%. As at March 2011, Regional
Victoria’s residential vacancy rate remains very low at 4% with several regions, including Bendigo, Warrnambool and
Mildura recording vacancy rates below 1.0%.
Data from the Victorian Department of Human Services showed that in the first quarter of 2011, the Metropolitan Rent
Index increased by 3.9% over the year, below the long term average of 5.7%. While the Regional Rent Index as at the
March quarter increased by 6.6% for the year, above it’s long term average of 5.5%.
T: 1300 786 022 F: 03 5223 2309 E: vic.info@opteonproperty.com.au W: www.opteonproperty.com.au Value made visible

4. Insight
Opteon Research
August 2011
Page 4
Looking further ahead, although Victorian dwelling approvals remain at high levels most Opteon Property Group
forward indicators of Victorian housing construction activity suggest building is likely to (Opteon) comprises 25 of
ease over 2011 and 2012. The share of units and apartment building approvals has
the most respected and
steadily grown over the past decade and now sit at their highest ever levels, accounting
for 40.5% of all housing building approvals in Victoria. Inner Melbourne based established valuation
developments dominate Victorian apartment building approvals accounting for more than firms in Australia, is
44% of apartment approvals across the State. wholly Australian owned
and, uniquely, services all
populated areas across all
States.
We combine the expertise
of our local people with
the power of our
Australia-wide network.
Opteon Property Group
provides property
valuations, services and
advice to a range of
clients including
governments, major
lenders, corporations and
trusts, individual property
owners, investors and
developers.
Outlook For more information on
this report or other
The unsustainable house price growth of the early 2000’s has slowed to average levels research areas please
with the Victorian residential market further softening in 2011. Prestige property in
contact Richard Jenkins
particular has experienced a slowdown in activity over the past six months. While the
Australian economy has lost some momentum recently, Australia’s medium-term using the details below.
prospects are solid albeit mixed across the country.
Rising household incomes stemming from low unemployment levels along with the
domestic economy strengthening, healthy population growth (albeit not as strong as it
was) and a shortage of housing stock are expected to help underpin house prices in the
short term.
However, stretched housing affordability with households’ capacity to drive dwelling
price growth by being able to borrow more has been impacted by higher interest rates
and rising prices for other household expenditure. Some price declines may occur in
areas that are experiencing oversupply with the Inner Melbourne precinct of particular
concern. Nonetheless, in the absence of a major economic shock it is expected that house
price growth will remain muted, rather than fall significantly over the next 18 months.
Dwelling completions are now expected to have peaked in 2010 but despite population Opteon (Victoria) Pty Ltd
growth moderating recently, Victoria’s underlying housing balance remains tight with trading as Opteon
rental levels expected to continue to rise. With dwelling prices forecast to remain stable,
ACN 140 547 600
low residential vacancy rates and deteriorating housing affordability, increased rental
demand should result in yields rising over the next 18 months. 222a / 757 Bourke St,
Docklands VIC 3008
T 1300 786 022
Contact: Richard Jenkins—Research Manager F 03 5223 2309
E richard.jenkins@opteonproperty.com.au E vic.info@opteonproperty.com.au
Contact: Chris Knight—Residential Director W www.opteonproperty.com.au
E chris.knight@opteonproperty.com.au
Disclaimer: The information contained in this report is provided in good faith and has been derived from sources believed
to be reliable and accurate. However, the report is not intended to be comprehensive or render advice and therefore
Opteon (Victoria) Pty Ltd does not accept liability for its contents.Reproduction of this report in whole or in part is not
Value made visible
permitted without prior consent.