2025 Melbourne Property Boom: Where Savvy Investors Are Buying Now

The Australian property market has always been a hot topic for investors, and Melbourne’s housing market is shaping up to be one of the most fascinating for 2024 and beyond. Despite its recent underperformance compared to other capitals like Brisbane or Perth, Melbourne holds untapped potential for strategic investors ready to navigate the complexities of this dynamic city. Let’s dive into what makes Melbourne’s property market a smart choice and how you can take advantage of the growing opportunities.

Understanding Melbourne’s Property Market in 2024

Melbourne’s real estate market hasn’t been as strong as other capitals in the last couple of years, but that might just be good news for savvy investors. While other cities experienced double-digit growth, Melbourne’s property values remained stable, creating an attractive entry point for those looking for long-term capital growth.

According to the latest figures from CoreLogic, as of October 2024, Melbourne’s median price for all dwellings sits at $777,390, down slightly by 1.1% over the last quarter. Houses in the capital city are priced at a median of $925,762, while units come in at $612,215. Meanwhile, regional areas are seeing prices around $561,990. These numbers highlight an opportunity to buy properties below their intrinsic value while the market continues to stabilize.

This price softening is likely temporary, as Melbourne is poised for recovery by 2025, driven by a combination of population growth, new infrastructure, and economic resilience. So, where should investors look?

Key Growth Areas for Melbourne Investors

Investing in the right suburbs can be the difference between an average return and extraordinary growth. Melbourne’s gentrifying middle-ring suburbs are seeing increased demand from both homebuyers and renters. Here’s a breakdown of some top-performing regions:

  • Mount Waverley, Glen Waverley, and Ringwood: These eastern suburbs have seen a surge in demand due to infrastructure upgrades, increased family migration, and proximity to schools and parks.
  • Essendon and Moonee Ponds: Situated in Melbourne’s western region, these areas offer affordability and access to the CBD, making them attractive for professionals and families.
  • Canterbury and Balwyn: Known for their prestige, these suburbs in the inner east are experiencing steady growth, particularly for houses. Canterbury’s properties have increased by $160,638 over the past year, making it one of Melbourne’s top-performing suburbs.

Why Investors Should Consider Melbourne for 2024 and Beyond

  1. Population Growth: Melbourne is experiencing a population boom, with over 181,800 people moving to Victoria over the last year. The state government aims to increase the city’s population to 8 million by 2050, ensuring continued demand for housing and potential long-term price appreciation.
  2. Infrastructure Investment: Large-scale infrastructure projects, such as the Metro Tunnel and Suburban Rail Loop, are enhancing Melbourne’s public transport system and accessibility, particularly in the outer suburbs. This is expected to raise property values in connected regions.
  3. Affordable Opportunities: Compared to Sydney, Melbourne properties are 41% cheaper, offering a significant discount for investors. The typical house in Sydney commands a 70% premium over its Melbourne counterpart, which translates to a $600,000 difference in median house prices.

Melbourne’s Rental Market: High Demand, Low Supply

Melbourne’s rental market is currently experiencing historically low vacancy rates. With vacancy rates sitting at 1.5% as of October 2024, demand for rental properties is outstripping supply, driving rental prices upward. This tight rental market, coupled with rising demand, makes Melbourne an attractive option for investors seeking strong rental yields.

The rental squeeze is particularly noticeable in inner-city areas, where young professionals, students, and downsizers are looking for modern, well-located apartments. Investors can capitalize on this by targeting properties in high-demand areas with good rental returns.

Top Tips for Property Investors in Melbourne 2024

  1. Buy Below Market Value: Focus on suburbs where properties are undervalued. This gives you immediate equity and long-term growth potential.
  2. Leverage Melbourne’s Infrastructure Boom: Areas benefitting from transport and infrastructure developments are prime for capital appreciation. Look for suburbs connected by the Metro Tunnel and Suburban Rail Loop.
  3. Invest in Family Homes: Gentrifying suburbs with family-friendly amenities, such as Ringwood, Blackburn, and Mount Waverley, are likely to perform well in 2024 due to the demand for larger homes with good schools and parks.
  4. Consider Townhouses and Units: With affordability still a major issue for many buyers, townhouses and low-rise apartments in middle-ring suburbs are becoming popular. Suburbs like Reservoir, Preston, and Bentleigh offer excellent options for these types of properties.

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As we move further into 2024, Melbourne’s property market presents investors with both challenges and opportunities. While the market has been underperforming compared to other capital cities like Sydney and Brisbane, smart investors can take advantage of current conditions to make significant gains. In this part of the article, we’ll explore how to overcome some common hurdles and maximize your property investment in Melbourne.

Why Has Melbourne Underperformed?

Several factors have contributed to the underperformance of Melbourne’s property market. The most significant reasons include:

  • Economic Challenges in Victoria: Victoria has faced significant economic hurdles over the past few years, particularly due to the effects of prolonged lockdowns and government policies. The state saw a net reduction of 7,606 businesses in 2022-23, a direct result of increased payroll taxes and post-pandemic economic recovery.
  • Government Policies Targeting Investors: Victoria has introduced several tax increases and reforms that have impacted property investors. Changes to rental legislation, stricter tenancy laws, and higher land taxes have made property management more complex and costly for investors. These factors have led to a cooling of investor interest in Melbourne, especially in inner-city areas.

Despite these hurdles, investors should not overlook Melbourne’s potential. The market is currently undervalued, which means there are opportunities to buy at a lower price and benefit from future capital growth as conditions improve.

How to Overcome Challenges and Maximize Your Investment

  1. Focus on Affluent, Gentrifying Suburbs

While Melbourne as a whole may have underperformed, certain affluent inner and middle-ring suburbs are poised for growth. Suburbs such as Glen Waverley, Mitcham, Blackburn, and Ringwood in the east, and Essendon and Moonee Ponds in the west, have remained popular with buyers and renters due to their proximity to schools, parks, and other family-friendly amenities.

Gentrifying suburbs, where new infrastructure and amenities are being developed, will likely outperform cheaper, outer-ring suburbs. These areas offer long-term capital growth and solid rental yields due to high demand.

  1. Invest in Townhouses and Villa Units

With affordability continuing to be a major issue for many buyers, townhouses and villa units are becoming increasingly popular options for both buyers and renters. These property types are seen as more affordable alternatives to standalone houses, while still offering more space and privacy than apartments.

Some of the best locations to invest in townhouses include Bentleigh, McKinnon, and Glen Waverley. These middle-ring suburbs offer a compromise between affordability and access to amenities, making them attractive to both investors and tenants.

For more detailed insights into high-growth suburbs, visit our High-Growth Suburbs Guide.

  1. Target Family-Friendly Homes in Established Areas

The demand for family-friendly homes in established suburbs is expected to rise as Melbourne’s population grows. Suburbs like Canterbury, Balwyn, and Mount Albert are experiencing strong demand for 3-4 bedroom houses with larger land components. These homes are particularly attractive to families who want proximity to reputable schools, parks, and transport links.

With Melbourne’s population projected to hit 8 million by 2050, there will be sustained demand for larger homes in family-oriented suburbs. Investing in established homes with renovation potential can offer both capital appreciation and increased rental returns.

  1. Take Advantage of Undervalued Markets

As of October 2024, Melbourne’s housing market is 41% cheaper than Sydney’s, with a $600,000 gap in median house prices. This makes Melbourne an attractive alternative for investors looking for undervalued properties with strong potential for long-term growth. By investing in Melbourne while prices are relatively low, you can benefit from capital growth as the market recovers.

Buying properties below replacement cost is another strategy for savvy investors. With construction costs having risen by up to 40% since COVID, many properties are selling below their intrinsic value. As the economy improves and interest rates eventually fall, these properties are likely to experience significant capital growth.

Future Outlook for Melbourne’s Property Market

The future of Melbourne’s property market looks bright, despite the current challenges. Population growth, infrastructure investments, and tight rental markets will continue to drive demand for housing. As interest rates stabilize and buyer confidence returns, Melbourne’s property market is expected to catch up with other capitals by 2025.

Additionally, Melbourne’s property market is likely to see upward pressure on prices due to recent changes in stamp duty regulations. With significant discounts on off-the-plan properties and incentives for downsizers, the demand for Melbourne real estate could increase sharply in 2024. Investors should act quickly before these price hikes fully take effect.

According to ANZ Bank, house prices in Melbourne are forecasted to grow strongly over the next few years. Oxford Economics predicts that both houses and units in Melbourne will see significant capital growth as the market reverts to its long-term mean growth rates.

Conclusion

Melbourne’s property market is undergoing a period of transformation, but for strategic investors, this represents a golden opportunity. By focusing on high-growth suburbs, undervalued properties, and family-friendly homes, you can position yourself for long-term capital growth and strong rental returns.

For more in-depth analysis on Melbourne’s property market, visit our Market Insights page or explore Australia’s top investment hotspots for 2024.

Disclaimer: The information provided on this blog is for general informational purposes only and is not intended to be financial advice. The content is not a substitute for professional financial advice, diagnosis, or treatment. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your personal finances. Reliance on any information provided by this blog is solely at your own risk.

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