Is it a good time to buy property in Melbourne?

Demonising Melbourne for the fact it has delivered the least price growth of all capitals since Covid - just 11 per cent compared to top performer Adelaide with 57, is an opportunity waiting to happen, say local real estate experts.

In a case of slow and steady wins the race, Melbourne’s property commentators are confident that despite interest rate uncertainty and state-imposed taxes stagnating the market, investors who get in now will ride the wave of a rebound in the next couple of years.

NSW-based property buyer Kate Hill, of Adviseable, said too many investors were piling into Perth when the market had most likely passed its peak.

“Perth is overcooked, with many investors overpaying for inferior dwellings because seemingly the Western Australian capital is still the ‘new property black’, meanwhile, the smartest investors are cherry-picking the best opportunities in Victoria that offer superior upside potential for anyone prepared to look past the current rental reform and tax agenda.”

Real Estate Institute of Victoria (REIV) President Jacob Caine acknowledged Melbourne’s current challenges, including the need to increase housing supply.

“There is certainly a strong case for confidence and optimism, with prices stable and auction and transaction volumes high.

“Transaction volumes have returned to pre-pandemic levels, reflecting greater confidence among vendors and buyers and vacancy rates across the state are at record lows, so there is significant opportunity for investors to return to the market,” Mr Caine said.

The latest CoreLogic data revealed Melbourne property prices slipped backwards by 0.1 per cent in April, to be down 0.3 per cent in 2024. The median dwelling value of $783,261 is the fourth highest capital city price in the country. Units this month generated small price increases but houses were weighing on the market.

On Melbourne’s 20 km southeast fringe, long term growth was dominated by suburbs in the City of Monash, where Glen Waverley, Mulgrave, Burwood, Mount Waverley, and Wheelers Hill saw growth between 4.8 and 11.8 per cent.

The rich get richer is a truth unfolding in two of the most expensive suburbs for houses, Malvern and Brighton, which both exceeded 35 per cent growth in the quarter, to respective medians of $3.2 and $4.1 million, inching closer their 2023 values.

CoreLogic’s Hedonic Home Value Index released Wednesday (1 May) also identified 12-month uplifts in its top five areas for growth, in Darebin North (up 7.4 per cent), Moreland North and Nillumbik-Kinglake (both 6.9 per cent), Maroondah (5.3 per cent), and Bayside and Knox (5.2 per cent).

Melbourne-based new housing development platform OpenLot.com.au founder Qi Chen agrees with Caine, saying in the long term, Melbourne’s slow price growth could provide a great opportunity.

“There’s often a reversion to the mean that occurs with price growth in our major capital cities, for example, Australian Bureau of Statistics data reveals over 20 years to December 2023 that Melbourne’s 163 per cent median house price growth was virtually identical to Sydney’s 162 per cent.

“Yet, from March 2020 to December 2023, Melbourne’s median house price growth was 15 per cent, behind Sydney’s 44,” Mr Chen said.

Good investment locations are suburbs within the 10 km inner ring, which have infrastructure and good local character, Melbourne-based developer Hirsch and Faigen Property Director Daniel Faigen said.

“I expect suburbs like Elsternwick, Thornbury, Ashburton, and Vermont to continue to be sought after and provide consistent house price growth and for apartments my pick would be South Melbourne, which has the amenity of Albert Park Lake and the Botanical Gardens, walkability to cafes, retail, markets and great access to public transport.

“Unlike its neighbours like Southbank and the CBD, it’d had very little development.

“The demand for rental is extremely high and investors should monitor this market closely for opportunity over the next 12 to 18 months.”

Buying at the bottom of the property cycle

“If you’re going to play in a market, you play in a market that’s hit the bottom where there’s opportunity for growth, so that’s now, while Melbourne dwelling prices have stagnated,” Southbank-based property research company RPM Managing Director Luke Kelly said.

“There’s a lot of very motivated developers willing to do deals at the moment too, and as a result of that there’s good incentives to be had right now and there’s a little bit more supply than there is immediate demand.

“We believe there’s the opportunity to buy now; go in and get yourself a good deal because that shift is going to come where demand will outpace the supply over the next 12 to 24 months,” Mr Kelly said.

That demand will come from new arrivals who rented while settling in to Australian life and will start making a move as buyers and investors.

“In the last 12 months, 150,000 migrants arrived in Melbourne and the city anticipates another 120,000 in the next 12 months, then 85,000 per annum annually over the fives after that,” Mr Kelly said.

“It’s the highest of all the states and the reality is we need to house them, and that population normally comprises a couple who rent while they first get settled, get a job, and tick a few boxes before they can get finance to buy.”

The undersupply of rental properties is currently matched by an oversupply of properties for sale, which Mr Kelly says signals the opportunity waiting to happen.

Melbourne’s focus on infill development

Housing the influx of people drives the Victorian Government Housing Statement, which identified 30 per cent of new development would be allocated to outer areas and 70 per cent would be infill within Melbourne.

An example is the Victorian Planning Authority’s inner northwest Arden Precinct to house 15,000 residents and a business district around the new Metro Tunnel’s Arden Station.

“When the government identified those areas, they became hot property because developers know the government will support them from a planning and infrastructure perspective,” Mr Kelly said.

“These include Broadmeadows, Camberwell Junction, Chadstone, Epping, Frankston, Moorabbin, Niddrie/Keilor Road, Essendon North, Preston High Street, and Ringwood, all about 20 km to Melbourne, but typically where infrastructure already exists, on train lines, tram lines, and are good areas for schools.

“In the outer areas, Clyde has infrastructure being built now, then Clyde South is eight years away from an infrastructure perspective, but where you’d get a three bedroom townhouse for under $600,000,” Mr Kelly said.

At 50km from the CBD, where a large number of estates are in various stages of development in the Melbourne South East Growth Corridor, Clyde North had the second highest number of approvals to build (1,399), according to OpenLot.com.au research.

Stockland Evergreen, for example, offers three-bed townhouses from $549,900 and the area’s rapid growth is highlighted by the forecast of a population increase in Clyde South, Casey Fields South and Devon Meadows from 565 in 2016 to 37,445 by 2041.

“Building approvals and dwelling starts have been trending down for the past couple of years, in part due to higher interest rates but these are likely to start falling over the next six to 12 months, which should lead to an increase in approvals and commencements for the new homes sector,” Mr Chen said.

Victoria’s property outlook

Mr Caine said the Government has made clear its intent to supply 800,000 homes in 10 years and the REIV believes mum and dad property investors are a key stakeholder in this process.

“In the lead-up to the 2024-25 State Budget on 7 May, we’ve advised the Victorian Government to consider implementing new tax measures that seek to incentivise and reward investors for supplying rental properties to the market.

“All-in-all, we see a case for confidence, and we remain optimistic about opportunities for investors for the remainder of 2024.”

Mr Kelly said if investors buy now there are good capital growth opportunities in highly populated areas with existing infrastructure, pointing out Melbourne’s affordability compared to Sydney.

Ms Hill said even though the Victorian land tax is a “hideous and outrageous cash grab”, it’s important that people stop demonising Victoria.

“The key is to recognise that Victoria continues to be a sound property investment location with solid prospects for cash flow and capital growth over the years ahead,” she said.