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The slipping homes values in the “premium markets” of Melbourne and Sydney have resulted in the “most substantial decline in housing demand’ in Australia. Is it still worth investing in Victoria’s capital?

After experiencing strong gains from 2012 to 2013 and benefiting from high investor demand, the house price growth in Melbourne is on track to recording a negative number this year as tightening credit conditions weaken investment activity.

Melbourne saw the third biggest fall in dwelling values this quarter at 0.4 of a percentage point, preceded only by Darwin and Perth, which are down by 1.1 per cent and 0.5 of a percentage point, respectively.

The more expensive properties in the capital city saw a bigger decline than the affordable properties. Dwellings at the more affordable price points are generally being supported by first home buyers.

In fact, over the past 20 years, the 10 per cent most expensive properties in Melbourne saw a decline in value by 3.5 per cent, while the 10 per cent most affordable properties rose in value by 10.3 per cent.

According to BIS Oxford Economics, no substantial house price growth can be expected in Victoria’s capital until the 2019 financial year.

However, low-interest rates, stable economic environment and strong population growth could make way for a slight correction in the market.

“Supply is running at record levels. While demand has also risen, with population growth expected to exceed 400,000 persons in 2017–18, its highest level since the peak in net overseas migration in 2008–09, this will still not be sufficient to meet supply,” BIS Oxford Economics’ Angie Zigomanis said.

Supply and demand

Despite the slow growth in home values, Melbourne still stands among the top performers for houses in terms of median time on market, recording 33 days on average. The capital city is preceded by Hobart, with a median time on market at 29 days.

In auctions, Melbourne properties are also deemed successful with an overall clearance rate rising to 61.6 per cent out of 1,079 homes, with 726 houses selling at a clearance rate of 58.3 per cent and 351 units selling at a clearance rate of 68.5 per cent.

However, stocks are still abundant, particularly in Greater Melbourne’s apartment market. Over 56,000 units dominate the markets near the central business district and the inner-city suburbs.

Settled transactions in Melbourne went down by 12.9 per cent over the past year mainly due to the inability of investors to secure financing.

Once off-the-plan properties are completed, transaction volumes are expected to trend upward.

Since there’s less urgency among buyers, property sellers are advised to rethink their expectations and strategies. Be willing to find a compromise of price to avoid being in the market for longer and craft a finely-tuned marketing strategy to sell your property at an appropriate price.

According to Housing Industry Association’s Tim Reardon: “Investor participation in Australia’s housing market is crucial in ensuring that enough rental accommodation is available. Any changes that impact on housing investment must consider the long-term impact on all parts of the market.”

“Ample rental supply in Sydney and Melbourne has been instrumental in allowing their workforce and economies to expand,” he highlighted.

Rental market

With the increasing demand for rental properties, median rents across capital cities continue to go up.

As the median house price in Melbourne sits at $855,000, median rents for three-bedroom houses rose by 2.6 per cent to $400 per week over the last 12 months.

Other house sizes in the majority of the areas also saw rents rise, except for four-bedroom houses in inner Melbourne, which declined by 0.5 of a percentage point.

Meanwhile, the vacancy rate in the capital city declined by 0.1 of a percentage point to 2.1 per cent over the quarter.

Across capital cities, the weighted average vacancy rate declined by 2.6 per cent, indicating a tightening rental market.


If you’re still looking to invest in Melbourne, experts advise looking into four demographic factors that indicate early stages of gentrification.

These demographic factors include:

  • a decrease of people 18 years old and under that is lower than the state average;
  • an increase of couples with children that is larger than the state average;
  • an increase of those who lived at a different address five years ago that is larger than the state average; and
  • an increase of females working in professional occupations.

According to Property Investment Professionals of Australia’s Peter Koulizos, identifying areas undergoing the early stages of gentrification is one way to secure significant returns on investment.

“The secret is to get in early before everyone else realises what is going on,” Mr Koulizos said.

Among the suburbs in Melbourne that show signs of gentrification are Braybrook, Footscray and West Footscray.

Investors are also advised to check out areas with good population growth, large volume of existing and upcoming work and high level of building approvals.

Despite its recent lackluster performance, the Melbourne property market is currently among the most prominent hotspots for investors due to job creation, population growth and new home construction, which are all contributing to its economy.

In fact, 12 of the 20 hotspots across Australia recorded by the Housing Industry Association (HIA) are located in or around Melbourne.

The Mickleham-Yuroke area of Melbourne stands on the number one spot, with a population growth of 35.3 per cent during 2016–17 and $222.9 million in building approvals.

Other Victorian suburbs included in the HIA Hotspots Report are Cranbourne East, Wollert, Docklands, Beaconsfield-Officer, Point Cook-East, Truganina, Cranbourne West, Melton South, Tarneit and Southbank.


Bianca Dabu, Smart Property Investment, 3 July 2018