Melbourne’s first-time homebuyers get a leg-up

It took a decade of trying for Melbourne native Suzanne Pianezze to make it on to the housing ladder. For years, working as a contractor, she could not get a mortgage. Three years ago, she found a permanent job but with her deposit ready and a mortgage available, every time she found a property it was sold before she could make up her mind. “They were all snapped up, either by investors who could name their price and didn’t care what the property looked like or desperate first-home buyers just trying to grab a property from a limited supply.”

Driven in part by heavy investor buying, Australian Bureau of Statistics data show median prices in the city gained 48 per cent over the five years to the final three months of 2017, to reach a peak of A$ 752,000 ($ 524,000 USD).

Recently things have changed. In the first three months of 2019, median sale prices for detached homes in Melbourne were 11 per cent down year-on-year, according to BIS Oxford Economics. Falling prices and the reform of mortgage lending practices have seen a drop in investor buyers. The removal of stamp duty for first-time buyers on homes pricedM below A$ 600,000 ($ 420,000) in July 2017 has given this group a leg up (first-time buyers also pay a lower rate of stamp duty on properties up to A$ 750,000).

Finally, with the time she needed to make a purchase, Pianezze, 40, bought her first home in January, a new A$ 439,000 one-bedroom flat in a development in Heidelberg, roughly 13km north-east of Melbourne’s centre.

Pianezze is not the only first-time buyer for whom the changes have made it easier to get on the property ladder. Mortgages held by first-time buyers in Victoria as a proportion of all mortgages increased from 21 per cent in June 2017 to 28 per cent in September 2017, according to the ABS. After the stamp duty waiver boosted buying from this group, lending reforms that favour first-timers maintained it. In March this year the proportion was 30 per cent.

A central neighbourhood that has become particularly popular with first-time buyers is Collingwood, where price falls and the stamp duty waiver have brought apartments back into budget, says Luke Piccolo of Woodards, a local agent. Apart from its proximity to the central business district, Piccolo says the secret of the area’s appeal is that it has “the best restaurant precinct in Melbourne, located along Smith Street on the border of Fitzroy and Collingwood”. As with Richmond, a short taxi ride to its south, Collingwood has also been a focus for the growth of Melbourne’s popular tech hubs and co-working spaces, he says. “We are selling far more apartments to owner-occupiers now than in the past.” But perhaps not quite enough — the number of sales in Collingwood fell 15 per cent in the year to April, according to Hometrack Australia.

Woodards is selling a two-bedroom flat on Bedford Street for A$ 565,000, which Piccolo says he is marketing to first-time buyers. In neighbouring Abbotsford, the same agent is selling another two-bedroom flat for A$ 660,000. Bigger spenders might consider a two-bedroom apartment on Oxford Street, for sale with Jellis Craig, for A$ 1.165m.

The lending reforms came early last year and were a pre-emptive move by the banks following the launch of a public inquiry into misconduct in financial services launched in December 2017, says Sarah Hunter of BIS Oxford Economics in Sydney. By February and March 2018, the inquiry started to uncover “damning revelations” about mortgage lending practices, she says — in particular around the lax scrutiny of borrowers’ outgoings, notably discretionary spending, when measuring mortgage affordability.

With smaller outgoings, first-time buyers (like all buyers of cheaper homes) were less affected by the banks’ reforms, she says. Accordingly, Melbourne’s pricier detached homes have fallen further and faster than the cheaper apartment market.

With further price falls likely, first-time buyers are being warned about the risk of negative equity traps — overstretching themselves with a large mortgage only to see prices fall and their house worth less than they paid. BIS Oxford Economics estimates Melbourne’s detached homes have another 4 per cent to fall, with flats expected to lose a further 1.5 per cent in value.

Back in Heidelberg, Pianezze is unfazed. She has her sights on the future and joining the next wave of Melbourne’s property investors. “The property is modest in size and price, so I hope to pay the property off faster and once paid, either use the property as a rental or use the collateral to purchase an additional investment property, and go from there.”

Buying guide

• The median price of an apartment sold in Collingwood in the year to April was A$ 540,000 ($ 377,000); the price for a house was A$ 1.1m, according to Hometrack Australia
• Prices for Melbourne detached houses fell 14 per cent between their peak in the last three months of 2017 and the first three months of 2019; in that time apartment prices fell 4.5 per cent, according to BIS Oxford Economics
• Regular flights connect Melbourne to Sydney in 1hr 25min and Tokyo in 10 hours

What you can buy for . . .

A$ 330,000 A second-hand one-bedroom apartment in Heidelberg
A$ 750,000 A two-bedroom house in Collingwood
A$ 1.5m A three-bedroom new-build apartment on Wellington Street, Collingwood

More homes at propertylistings.ft.com

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