Table of contents
Melbourne’s property prices will soar to new highs - featured image
By
A A A

Melbourne’s property prices will soar to new highs

key takeaways

Key takeaways

A new report is forecasting Melbourne’s median house price will surge more than $110,000 to an almost $1.16m record high in the next 18 months – the equivalent of $200 a day.

And it’s not just house prices, unit prices will also reach a new record.

This means the window of opportunity will close sooner rather than later as more homebuyers and investors into the market.

A new report is forecasting Melbourne’s median house price will surge more than $110,000 to an almost $1.16m record high in the next 18 months – the equivalent of $200 a day.

Oxford Economics Australia forecasts that the price recovery will drive Melbourne’s median $1.04 million median house price to jump $110,000, or 5.5%, close to $1.157 million by mid-2026, driven by an expected resurgence in migration from both interstate and overseas.

And it’s not just house prices, unit prices will also reach a new record.

According to the report, Melbourne’s median unit price is also anticipated to increase 6.5% to an all-time $726,900 high.

Melbourne 2

The near-term outlook is more subdued

Melbourne's housing market outlook is less action-packed for the next 12 months, with median house values set to rise just 0.7% to $1,054,600 due to downwards trending clearance rates and an uptick of investors selling up due to increased state government and land taxes.

“The Melbourne market is not running hot,” Maree Kilroy, senior economist at Oxford Economics, said.

“Competition for properties is not as hot, more choice on the market means buyers aren’t trying to outbid a bigger pool of competing buyers.

Rising total listings have provided greater options for buyers in Melbourne, reducing the urgency to purchase, in turn leading to easing conditions,” she said.

“Slower growth in the upper quartile has become increasingly evident, hinting that, as affordability worsens, demand is being deflected from the more expensive price bracket to the middle of the market.”

Melbourne 3

Bank of Queensland also believes Melbourne will surge

Bank of Queensland chief economist Peter Munckton forecast shows Melbourne’s $916,000 typical house could gain $64,120 (7 per cent) in 2024.

And the Victorian capital is all but certain to be the nation’s best in 2025 as well according to the BOQ report.

The economist said Melbourne’s housing market’s lacklustre performance in 2023, which lagged behind every other major capital, meant it was better positioned for growth in the coming 12 months.

With the city’s median well below that of Sydney and values rising rapidly in Adelaide and Brisbane last year, he’s expecting other major capitals to underperform by comparison.

Melbourne’s property market faces headwinds and tailwinds

The Victorian government announced a slew of policy changes that impact property investors.

These include expanding the Vacant Residential Land Tax, adding an extra 1% tax on residential land left undeveloped for more than five years in established areas of Melbourne, and reducing the tax-free threshold for land tax payments from $300,000 to $50,000, which took effect on January 1.

The VIC government estimates that around 600-700 extra homes will be affected by the expansion of the tax, generating about $6 million in revenue annually.

The move is planned to ignite construction and tackle the housing supply shortage.

But the new land tax increases are the final nail in the coffin for many investors.

It may mean that many investors feel they can no longer afford an investment property in addition to their residence, and instead, there could be an uptick of investors selling up and exiting the market.

But thankfully, migration is expected to prop up prices in the longer term, the report states.

The resurgence in migration inflows will be a key support to housing demand in the recovery from 2025 onwards.

In addition to the sharp rebound in overseas arrivals, Melbourne’s net interstate migration has returned to an almost balanced position.

Melbourne 4

Units will outperform

Oxford Economics’ report suggests that deteriorating affordability in Australia’s housing market combined with increased stock is expected to cause price growth to moderate across the country.

And this will cause many buyers who are priced out of the market into the unit market instead.

Overall house price growth across the combined capitals is expected to remain relatively subdued in 2024, but unit prices are expected to grow at a faster pace the report reveals.

All new apartment buildings will have to come to the market at considerably higher prices than the current market price because of significantly increased building costs.

This means established units currently have an intrinsic built-in equity as these will also be pulled up in price as new developments come online.

Investment Property

Investment-grade properties are the key…

When it comes to property investment, lower prices or predictions of out-of-the-ordinary price growth (or falls) aren’t enough to warrant a good investment opportunity.

You should never follow a trending, hotspot, or growth area without it meeting other investment criteria.

Moving forward over the next decade, townhouses, villa units, and family-friendly apartments will be great investments, especially considering their current affordable entry price compared to houses.

And with soaring construction costs it is likely that all new apartment projects will cost 25%-30% more than currently completed projects and this causes the value of established apartments to rise as well.

There is no doubt the shortage of dwellings both for sale and for rent, at a time of skyrocketing population growth is going to continue in Melbourne into 2024.

And as buyers and sellers realise that we have reached a peak of interest rates and that inflation is coming under control and consumer confidence returns, buyer and seller activity will pick up.

So I currently see a window of opportunity to get into the property market before the crowd does.

With predicted price growth in Melbourne being equivalent to $200 a day, the cost of waiting to invest in 2024 became even more real.

If you look back at previous cycles, when the market turned property prices surged rapidly – look at what happened in the post-Covid property rebound in 2020 or in 2019 when the market suddenly turned after the Federal election.

Of course, those who acted then and purchased quality investment-grade properties are possibly of thousands of dollars ahead and have set themselves up for financial security.

The media are catching onto what’s happening and reporting more good news property stories.

This means the window of opportunity will close sooner rather than later as more homebuyers and investors into the market.

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
3 comments

I do feel bias with these reports. I feel a disconnect with east and west. With Perth being the standout capital for the next 2 years @ 20% growth, you would still recommend buying in an area with no growth for at least 12 months with twice the outla ...Read full version

0 replies

Thanks Michael. It would also be good for you to routinely report on the other major Capitals in the detail you frequently provide for Melbourne. Just a thought that's all and enjoy all the posts. Cheers, Mark

1 reply

Guides

Copyright © 2024 Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts