Melbourne Property Market shows investment potential amid new reforms in 2024

A body that represents hundreds of people working in the property investment space says the first six months of 2024 have seen a continuation of “robust market conditions” in most of Australia’s major markets, with the notable exception of Melbourne.

The latest Property Investment Professionals of Australia (PIPA) National Market Update report pulls together insights and analysis from market experts and association members.

However, the organisation’s leadership says the current negative sentiment about Melbourne tends to overlook the fact that the southern metropolis offers “sound property investment potential.”

The details

The Chair of PIPA, Nicola McDougall, says over the past year, double-digit home price growth has been recorded in Perth, Brisbane and Adelaide, while signs have emerged of a resurgence in the Sydney and regional New South Wales markets. 

“Melbourne continues to be the talk of the property town – but not in a good way,” Ms McDougall says.

The median dwelling value in Melbourne increased just 1.3% over the past year, according to CoreLogic, but recorded a reduction of 0.6% over the most recent quarter.

“The anti-market sentiment about Melbourne has resulted in the city not only becoming a buyers’ market but one where investors are either selling up or giving it a very wide berth,” says Ms McDougall, an author and writer who’s also a director of Bricks & Mortar Media, a public relations and media consultancy that specialises in property and finance.

“This is predominantly due to its plethora of anti-investor rental reforms, as well its new land tax regime that is set to cost investors billions of dollars over the years ahead.”

However, PIPA’s handy “National Property Clock” measure for both houses and units shows that Melbourne has moved from 6 o’clock (bottom of the market) to around the 8 o’clock (start of recovery) position, joining the NSW Central Coast, Newcastle, the Illawarra, and the Sunshine Coast.

In recognition of that, Nicola McDougall says that “while the negative market narrative is prevailing at present, it is highly unlikely that our most populous city does not continue to offer sound property investment potential.”

“Indeed, now is the perfect time to invest in Melbourne if you can look past the current market negativity.”

Nicola McDougall’s analysis is backed up by Antony Bucello, a Director at National Property Buyers, who compiled the Melbourne analysis for the latest PIPA National Market Update report.

“With a vacancy rate of only 1.3% and weekly rents rising nearly 10% in the last 12 months, the rental market is tight, and properties are in high demand, providing investment owners with increasing rental yields and cash flow,” he says.

AMP Chief Economist Shane Oliver recently told the Financial Review newspaper that “history tells us that as the affordability deteriorates in other capitals and improves in Melbourne’s favour, that will eventually set up a sharper recovery in the Melbourne market relative to the other cities.”

In the same AFR article (Why Melbourne could beat other cities in the next housing upturn), I was asked to name undervalued Melbourne suburbs which could take off once a recovery in Melbourne picks up steam.

I listed the currently affordable outer suburbs of Melton, Coolaroo, Dallas, Broadmeadows and Meadow Heights as all being primed for ignition.

Short-sighted state governments

PIPA Chair Nicola McDougall is decidedly optimistic about the outlook for property investment in Australia, saying there’s “no question that rental markets around the nation continue to be severely undersupplied, with vacancy rates hovering around 1% for more than two years now.”

However, she indicates that many state governments seem to be actively discouraging potential new investors.

“The myriad new rental reforms being proposed or enacted are doing nothing to encourage existing investors to stay the course nor to motivate potential new entrants into the property investment market,” she says.  

“One really has to wonder if state governments understand how their unnecessarily restrictive policy decisions are worsening the rental crisis or, in fact, if they know what they are doing at all.”

A final Olympic thought

With the Olympics underway in Paris, data analysts at CoreLogic thought it might be fun to compare home value growth in France from around the time when the pandemic first hit to growth in Australia over the same period.

In that two-way race, Australia gets a clear gold medal, with median dwellings rising 34.3% in value Down Under, while they’ve put on just 10.5% in France during the same period.

What this graph doesn’t tell you, though, is that France’s population increased just 1.18% over those four years, while Australia’s jumped nearly five times that much—by 5.75%.

That’s despite international borders being closed at the height of the COVID-19 pandemic and at a time when we have seen one of the lowest rates of home building in a decade.

If you look back a little further, PIPA’s Nicola McDougall points out that Australia’s population has surged by “33% in the past two decades.”

Yet, as a nation, we consistently do not build enough homes to keep pace with our rapidly growing population.

This simple ongoing imbalance between supply and demand explains why Australian residential property will continue to be a gold-medal investment.