Melbourne property may have ebbed, with investment opportunities emerging

Melbourne has cemented its position as the nation’s weakest property market while Perth and Adelaide — where median dwelling values recently eclipsed those of the southern capital — continued to grow their historic leads.

A surge in property listings, high property taxes and a moribund economy are continuing to weigh on Melbourne, where prices have fallen for the seventh consecutive month, down 1.1 per cent for the September quarter.

Yet experts say it’s a great time to buy – it just depends on where.

“We’re at the bottom of the cycle, so now we’re about to start heading up, whereas the others are at the top of their cycles,” said Sam Lally of Buyer’s Advocate, in Melbourne’s Kew.

“So, now’s a great time to buy — if you can get in now, get in now.”

According to CoreLogic’s Home Value Index, Melbourne prices eased 0.1 per cent in September, down 1.1 per cent in the three months to 30 September.

Nationwide, prices rose 0.4 per cent in September, 1 per cent in the September quarter and 6.7 per cent over the past 12 months.

The mid-sized capitals, Brisbane, Perth and Adelaide — which have underpinned the current national upswing — continue to post strong gains but at a slower pace to last year’s peak growth.

In August, median dwelling values (houses and apartments) in Perth and Adelaide passed those of Melbourne — Perth for the first time since 2015, and Adelaide for the first time on record — and those gains have continued.

Perth notched up a further 1.6 per cent in September — up 4.7 per cent for the quarter — while Adelaide prices grew 1.3 per cent in the month, up 4 per cent for the quarter.

According to Core Logic, over the 12 months to September 30, median dwelling prices in Perth, Adelaide and Brisbane surged by 24.1 per cent, 14.8 per cent and 14.5 per cent respectively.

The nation’s second most populous city, Melbourne was traditionally also the nation’s second most expensive property market behind Sydney, but in January last year was pipped by Brisbane.

The Brisbane market has surged in part due to lower levels of construction in recent years, with workers tied up in the mining boom.

As of 30 September, Melbourne’s median dwelling value was $777,390, behind Sydney ($1,188,912); Canberra ($844,882); Brisbane ($881,901); Adelaide ($802,075); and Perth ($797,184).

Premium suburbs a lower risk option

Ray White Group chief economist Nerida Conisbee said Melbourne was being hit by multiple headwinds, including high unemployment, high interest rates and some of the highest property taxes in the nation.

“The additional taxes are the straw that broke the camel’s back,” Ms Conisbee told Australian Property Investor Magazine.

According to the Australian Bureau of Statistics, Victorians paid $12.6 billion in property taxes in 2023, or $1,825 per capita.

NSW was 24 per cent lower, at $1,382 per capita; followed by Western Australia ($1,391); South Australia ($1,411) and Queensland ($1,319 per capita).

Only residents of the ACT paid more than Victorians. There, residents were slugged $2,633 per capita in property related taxes in 2023, raising $1.05 billion overall.

Ms Conisbee said investing in Perth was typically riskier, with its housing fortunes tied to the resources sector, but those who had bought several years ago had done very well.

The Brisbane market had performed well due to its former relative affordability and strong population growth, buoyed by interstate migration during the pandemic.

Melbourne dwelling prices were still significantly down on their peak since the outbreak of Covid — prices are currently 5.1 per cent below their peak in March 2022 — while prices in Sydney, Adelaide, Brisbane and Perth were all at their peak levels, according to CoreLogic.

The southern capital now presented opportunities — particularly apartments in established markets.

“Some of Melbourne’s premium suburbs are looking good at the moment,” Ms Conisbee said.

“Apartments will see faster growth than houses, mainly in tightly held inner-city properties where there are no high-rises, inner suburbs outside the CBD.

“It comes down to your view on the outlook of the economy,” she said.

There were many new cheaper houses being built on Melbourne’s outer fringes, but relatively few apartments in established, inner-urban areas, adding to their attractiveness.

“One thing Melbourne does well is planning; it’s led to tons and tons of new houses, but it hasn’t been as successful for apartments,” Ms Conisbee said.

The increase in cheaper new housing stock also weighed down the reported home values, as the data reflects only the prices of homes sold.

Mr Lally said Melbourne — currently the third cheapest of all capital cities — presented good value for buyers.

“There’s two prongs to it, there’s government policy, land tax, but compared to Perth, Brisbane, Sydney etcetera it’s still very good value,” he said.

Currently it was owner-occupiers, rather than investors, who were most active, but now was a good time for investors to wade back in.

Buyer’s agent Tonya Davidson, of Davidson Property Advocates, said she expected the Melbourne market would turn the corner early next year.

“I think market sentiment will pick up in February, March,” Ms Davidson said.

It was currently weighed down by a surplus of stock, exacerbated by the traditional spring surge in listings.

Adding to the stockpile was Melbourne’s social calendar, which had limited auction weekends.

“There’s been a few dates, the Spring Racing Carnival, the AFL Grand Final, which condenses campaigns into these envelopes of time that can lead to somewhat of an oversupply,” Ms Davidson said.

The market was “struggling” in the $4 million-plus range, and Melbourne had “lost the investor sector” — but both would bounce back.

“There are some that see the purchase opportunity and have more of a long view of capital gains,” Ms Davidson said.

“I’ve been here for 30 years and it’s a cycle — so hang tight!

“If you’ve got the means and the funds and the insight, now is a great time to buy.”

Property size matters

New research has found that Melbourne is currently seen as the best capital city for property investment, but investors should tread carefully with their asset selection, according to a national buyers’ agency.

According to the 2024 PIPA Annual Investor Sentiment Survey, 26.2 per cent of survey respondents indicated it was the best place to invest right now – the number one result.

Michael Pell, Managing Director, Propell Property, said with property prices in Melbourne now considered affordable compared to other capital cities that didn’t necessarily mean it was an ideal market for all investors to target.

“There are multiple reasons why the Melbourne market is so depressed, with the new land tax regime a big reason why, with the policy set to remain in place for a decade.

“Victoria has also introduced a raft of rental reforms that are generally perceived as being anti-investment by investors.”

Purchasing counter-cyclically is often a smart property investment strategy, however, Mr Pell stressed that there must be a number of market fundamentals to support future capital growth.

“Rather than relying on market conditions to do all of the heavy lifting, which may take some time in Melbourne given the current policy handbrakes, savvy investors can create their own capital growth by constructing new dwellings, such as duplexes,” he said.

“By doing so, investors are not only adding to rental supply, but they are constructing dwellings that generally have a combination of higher price points and strong yields on completion.”

Mr Pell said investors should also target properties that featured a number of key attributes to increase their chances of future capital growth.

“In Melbourne, they should be looking for three- to four-bedroom houses with good land size, as well as being close to infrastructure, such as shopping centres, schools, and childcare,” he said.