Are we in a property bubble?

There has been a lot of publicity in the media about the dreaded “housing bubble”. But do many of us actually know what a housing bubble is and how they are created?

A housing bubble is made up of some key factors; reduced demand from high interest rates and a lack of lending from the banks, an oversupply of product on the market and sharp growth in property prices.

Melbourne is seeing none of these and here’s why:

Reduced demand. According to statistics reported by the Australian Property Index, demand for property is steady. A sharp increase in demand can often lead to a sharp increase in prices, which can eventually drive a decrease in demand when prices get too high. A drop in interest rates from the Reserve Bank of Australia is driving further demand in the housing market allowing people to fund their property purchase for less and therefore making buying more appealing.

Over supply of product. Population growth in Melbourne is higher than ever. As reported by The Age in March this year, Melbourne’s population is the fastest growing in the country, estimated to increase from 4.4 million to up to 10 million by 2051. Not only that but dwelling approvals in Melbourne typically reflect population growth, which can be seen in the graph below, to avoid the likelihood of an oversupply of dwellings on the market.

Sharp growth in property prices. Property growth has been steady over the past three years. In fact growth over the last quarter has been less than previous quarters dating back to 2013. Last week the Australian Bureau of Statistics published its Residential Property Price Indexes showing Melbourne’s prices rose 4.7% in the last year. No matter how you look at it, a 4.7% annual rise in property prices is far from a spike. As published by Terry Ryder on there has been no property boom and without a boom there can be no bubble.
Terry Ryder’s article published on

Those inner-Melbourne buyers who have been aware of the aforementioned facts and who have conducted sufficient research into which apartment building they should buy in have seen good capital growth over the past year. In fact, Melcorp have sold over 50 apartments in Southbank’s newest residential tower Prima Pearl achieving average capital gains of 6% for our clients since settlements began in August 2014.

We have also seen capital growth of over 5% in a number of other inner-Melbourne apartment towers that we manage the majority of listings in.

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