Melbourne’s villa wars

Villa units have many identities, depending on which state or country you are in. In Melbourne, they are single level units, typically in strata complexes ranging from four to 10 in number, and they usually date back to the 1960-1980 period.

They smaller than houses, but bigger than most apartments and they have land on title.

Buyers like land. Whether it is to garden without fear of an owners corporation taking issue, or support the distinct view that capital growth potential is aided, the trusty villa unit gets plenty of buyers excited.

The other three reasons that underpin the rising popularity of villa units are;

• They are extremely well-located, almost always
• They can be adapted internally, (and sometimes externally), and
• They are single level

Our ageing population has joined the popular buyer demographic at villa unit auctions and these buyers are placing price-growth pressure on what is already a heated and competitive market. Down-sizers with limited budgets who wish to be centrally located to a local village and within close proximity to the CBD are opting for a villa lifestyle. A large contingent from this down-sizer category are divorcees who have recently separated and have halved the family pool of wealth.

By far the strongest cohort fighting it out for villa units, though are first home buyers.

Those with some help from The Bank of Mum and Dad, (now formally recognised as Australia’s fifth biggest lender), have the advantage of some turbo-boost to their budget. In our recent experience, they are not only taking the keys, but setting new records in their respective suburbs when bidding for villas.

Yesterday was no exception. with multiple bidders fighting it out, this villa unit in Coburg, (quoted $620K-680K) sold for a whopping $797K.

There is no doubt that the clerestory windows and beautifully presented interior tugged at people’s heartstrings, but the magic of this villa is also in its location. The Grove is one of Coburg’s finest streets, featuring some superb period houses, and offering close amenity to all of its inhabitants.

Three hours later we were unsuccessful again at this superbly renovated villa unit in Carnegie. Quoted $720K-790K, we had already prepped our investor client for a result into the eights. Comparable sales for products like this all pointed towards an eight-something result.

We didn’t anticipate the hammer falling on a bid of $891K, but true to past experience, the buyer was young and the parent by her side was visibly aiding every single bidding effort.

The question becomes… How good is a villa, when contrasting against a small house?

The discrepancy between houses and villas has usually represented about a 66.6% differential.

In any given suburb with good amenity, this ratio broadly holds true. As this ratio increases though, usually buyers will ask themselves whether it’s more feasible to buy a modest house, whether it be slightly further out, in more rugged condition or on a subdivided block.

This ratio is an indicator of a heated market segment.

Carnegie, for example has a median house price of $1,221,500. The going rate for a renovated villa in this pocket is circa early $800,000’s. That represents the 66.6% ratio.

Sunshine West has a median house price of $600,000 and villas will likely sell around $400,000, again making the 66.6% ratio sound logical.

However, if we take Coburg with a median house price of $889,500, yesterday’s result seems incongruent. Despite the fact that the property was beautifully presented and the clerestory windows were unique, the 89% ratio suggests that something else is going on when it comes to Coburg villa units.

Undersupply? Maybe. Gentrifying area? We’d argue it’s already expressed it’s gentrification journey some 10-20 years ago.

For those who feel overwhelmed by Coburg’s increasingly difficult villa unit market, there are certainly alternatives. The ratio diminishes somewhat in Brunswick, with higher median house prices reducing the ratio. Nearby Brunswick West and Pascoe Vale South offer some exciting villa options, however buyers will need to be discerning when it comes to public transport links. Both have a few more PT blackspots than popular Coburg, and for some, the reliance of tram over train will need to satisfy them.

Reservoir, supported by a thriving Main Street, a great train line an easy access to popular Northcote, Thornbury and Preston is also a cost-effective alternative.

With a stable villa:house ratio around the target 66.6% and the promise of continued gentrification, Reservoir can’t be sneezed at as an option.