Melbourne Market Overview

A highly regarded city, Melbourne’s charms have been globally recognised.

Melbourne has been ranked the world's most liveable city for seven years in a row by the Economist Intelligence Unit's Global Liveability Index. The survey assesses five factors and Melbourne achieved perfect scores in healthcare, education and infrastructure and outranked Sydney in terms of stability, culture and environment.

The quality of life experienced in the city attracts high calibre employees who contribute to the strong local economy. Melbourne is the capital city of Victoria, which accounts for almost a quarter of economic activity in Australia, second only to New South Wales.

Victoria is one of the fastest growing states in Australia. In the last 10 years, the population of Melbourne has increased by nearly one million people to a total of 4,750,000. This has significantly added to the demand for real estate in the area. Unlike Sydney, Melbourne does not have physical barriers, such as mountains and national parks, constraining expansion. This means Melbourne's growth is less restricted.

City Data and Property Data

Residential market

Melbourne has seen strong growth in property values over the past decade, second only to Sydney, as prices are supported by robust jobs and population growth.

These significant price increases have continued in the house market with house prices in Melbourne rising by 16.1 percent over the year to March 2017. This has been driven by fierce competition amongst buyers for a low level of available stock.

Attached dwelling prices have seen lower levels of growth than houses with an increase of 3.9 percent over the year to March 2017. This underperformance has been a feature of the market for several years because there is more available stock in the apartment market.

Much like Sydney, the property market in Melbourne faces a number of challenges. The new mortgage lending regulations, which target investors, are a national policy and purchasing costs for international buyers are some of the highest in the country. On 1st July 2016, an additional seven percent stamp duty was applied for overseas buyers. Like Sydney, the impact of this is mostly confined to the new build market given foreign buyer restrictions.

However, a significant difference with Sydney is the price point. While property affordability in Melbourne has been stretched, prices remain on average 30 percent lower than in Sydney.

Rental market

Rental values in Melbourne are on average 25 percent below Sydney, less of a discount than property prices as rental values tend to correlate with wage growth.

This means yields in Melbourne are slightly higher than those in Sydney at an average of 3.3 percent and 4.1 percent for houses and units respectively.

Outlook

The outlook for the Victorian economy is very positive at present. Although economic growth figures are below those of NSW, key indicators such as job advertisement numbers and employment growth figures are positive and point towards continued outperformance.

The strong population growth experienced in Melbourne is anticipated to continue with some estimates suggesting it will overtake Sydney to become the largest city in Australia over the next 20 years.

While affordability in Melbourne has been stretched, the issue is not as pressing as in Sydney as prices remain on average 30 percent lower. However, following on from rising prices, both first home buyers and existing home owners need to either stretch their finances further or save for longer. This means there is little potential for owner-occupier demand to push prices up at the same rate as seen previously.

Following regulatory measures implemented to slow the volume of bank lending to investors, it is widely believed that the proportion of bank lending to investors will reduce. However, given the historically healthy returns, tax benefits and the limits placed on superannuation contributions, investing in residential property is likely to remain an aspiration for many.

Overall, Melbourne can be described as a high demand and high supply market. While there has been much rhetoric surrounding an oversupply of units, few appreciate the relative population growth performance.

In line with Sydney, property price growth is likely to slow this year, with prices remaining on a ‘high plateau’ perhaps  for some time. However, as Melbourne’s population continues to increase, the long-term prospect for the residential markets remain sound.

Demand drivers

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Melbourne demand drivers

Melbourne Sales Snapshot

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Melbourne sales snapshot

Key contacts

Ged Rockliff

Ged Rockliff

Head of Residential

+61 (0) 2 8215 8861

 

Sophie Chick

Sophie Chick

Head of Research, Residential

+61 (0) 2 8215 6097

 

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