Melbourne Property Market News [UPDATED OCTOBER 2021]
Published 12:43 am 8 Sep 2021
Melbourne has gone through a rollercoaster throughout the COVID-19 pandemic. So is now a good time to invest in the Melbourne property market?
Melbourne has one of the richest cultural histories of any Australian capital city. Melbourne was the filming location for the world’s first feature film, was home to the first set of traffic lights in Australia and was in fact the capital city of Australia for 26 years until 1927 when Canberra became the capital.
In 1850, during the Victoria Gold Rush, Melbourne became the richest and largest city in the world.
Now, Melbourne is a popular destination for tourists and residents alike, home to sprawling nightlife, (Melbourne has the highest number of restaurants and cafes per number of people of any city in the world), and has served as the birthplace for many of Australia’s most iconic names, like the Minogues, the Hemsworths and John Farnham.
Melbourne is Australia’s second-largest city in terms of population, and is also home to the second most expensive property market of any capital city in Australia.
Melbourne Property Market News October
While Sydney has just emerged from a 107-day lockdown, Melbourne’s total time in lockdown far exceeds that of Sydney and any other place in the world. Since the beginning of the pandemic, Melbourne has spent 267 days in lockdown.
These lockdowns have delivered a blow to Melbourne’s economy and the Melbourne property market, which suffered more than any other capital city during the pandemic.
The persistence of lockdowns in 2020 caused a 54.3% withdrawal rate of auctions when the initial lockdowns were introduced, reflecting a stark increase from the 2.7% withdrawal rate from Melbourne auctions seen pre-covid.
However, it’s beginning to look like things are finally turning around for the Melbourne property market.
At the beginning of October, Melbourne recorded its second-highest auction clearance rate all year at 84.4%.
On top of this, it seems as though Melbourne will be leaving lockdowns earlier than expected as fully vaccinated rates begin to exceed 70 percent.
Given that attending auctions in person in Melbourne is not currently permitted during lockdowns, we may see a spike in the number of properties listed for auction as well as a continued rise in auction clearance rates once lockdowns end.
Melbourne Property Market Growth & History
Alongside Sydney, Melbourne homes have seen some of the largest price increases over the past few decades of any part of Australia.
Over the past 25 years, 41 of the top 100 price increases of any suburb were located in Melbourne, with 25 based in Sydney.
The median house value in Melbourne has skyrocketed over this same period, climbing from $129,000 in 1996 to now $1.01 million as of the June Quarter according to REIV.
Annual income to house price ratio. Source: Savings.com.au
If we look back to the 1970s, it would take an individual three years, based on the average income, to purchase and pay off the average Melbourne house. As of 2020, that number had ballooned up to 9.2 times the average salary, which was the third-highest in Australia to Canberra’s 9.7, and Sydney’s whopping 12.2.
A contributing factor to Melbourne’s property market growth has been the growth of Melbourne’s population, which is estimated to be 5,061,439. This is just shy of a fifth of Australia’s population.
In fact, prior to the COVID-19 pandemic, the difference between Melbourne and Sydney’s population had reached the smallest level in nearly a century.
Melbourne Property Market Forecast 2021
The final quarter of 2021 will be an interesting one for Melbourne, given that it will be the beginning of “living with the virus” as opposed to trying to maintain low case numbers.
Naturally, as the city opens up, one can expect the property market to experience an uptick in activity, both in auction numbers and clearance rates as in-person auctions are permitted in late October.
However, unlike the end of previous lockdowns, which saw a boost in Melbourne’s property market, the financial safety net of disaster relief payments will no longer be there following this latest reopening.This may place additional strain on the economy as it attempts to find its feet, and Melbourne’s property market may not experience the same buoyancy that it did previously.
Additionally, surveys show that 9 out of 10 Australian workers wish to continue working remotely in some capacity once lockdowns end. Melbourne has already experienced an exodus of people fleeing the city to escape lockdowns, and it appears that this shift may be permanent to a large extent, as office life becomes less essential.
As such, Melbourne city may experience slower growth than rural areas as lockdowns come to an end.
Will the Melbourne Property Market Crash?
While the Melbourne property market has hurt in some regions due to COVID-19, it has also seen strong growth in specific suburbs, and many of the major Australian banks predict continued growth for Melbourne throughout the rest of the year and 2022.
As such, it’s unlikely that there will be any kind of Melbourne property market crash on the horizon, particularly as vaccination rates continue to increase and a resumption of international travel looks more likely each day.
When international migrants begin to flow back into the country, many will likely turn to Melbourne and help to drive up demand for property.
Most Expensive Suburbs in Melbourne
Despite being hard hit by lockdowns and a declining population, some of Melbourne’s suburbs have seen enormous growth over the past year.
The most expensive suburb in Melbourne was Toorak, which saw a 9.1% decrease in median property values over the quarter, but retained it’s spot at the top of the podium with a $5 million median sale price.
Contrastingly, another one of the most expensive suburbs in Melbourne was Hawthorn East, which saw a massive 42.2% jump in median property values between March and June, leapfrogging the suburb into second place with a $2.9155 median sale price.
Top 10 most expensive suburbs in Melbourne:
(based on median house sale price as of June 2021 quarter according to Realestate.com.au)
- Toorak: $5,000,000
- Hawthorn East: $2,915,500
- Brighton: $2,875,000
- Kew: $2.79m
- Malvern: $2,746,500
- Albert Park: $2,667,778
- Balwyn: $2,655,000
- Glen Iris: $2.62m
- Camberwell: $2.565m
- Hawthorn: $2.45m
Cheapest Suburbs in Melbourne
As affordability becomes a growing concern across capital cities in Australia, particularly among Canberra, Sydney and Melbourne, finding a cheap suburb can become increasingly difficult.
However, there are still many suburbs in Melbourne in which residents can purchase a house for less than $500,000.
Reports from CoreLogic have identified some of the cheapest suburbs in Melbourne for buying a house, and the cheapest Melbourne suburbs for buying a unit, which are as follows:
Cheapest suburbs to buy a house in Melbourne:
- Melton – Melbourne West – Median Value $389,497
- Kurunjang – Melbourne West – Median Value $450,632
- Coolaroo – Melbourne North West – Median Value $455,920
- Melton South – Melbourne West – $455,806
- Millgrove – Melbourne Outer East – Median Value $457,891
- Frankston North – Mornington Peninsula – Median Value $459,109
- Dallas – Melbourne North West – Median Value $481,842
- Harkness – Melbourne West – Median Value $480,633
- Campbellfield – Melbourne North West – Median Value $484,657
- Brookfield – Melbourne West – Median Value $489,472
Cheapest suburbs to buy a unit in Melbourne:
- Carlton – Inner Melbourne – Median Value $316,063
- Melton – Melbourne West – Median Value $321,946
- Junction Village – Melbourne South East – Median Value $326,754
- Melton South – Melbourne West – Median Value $333,787
- Bacchus Marsh – Melbourne West – Median Value $338,429
- Whittlesea – Melbourne North East – Median Value $350,705
- Harkness – Melbourne West – Median Value $352,606
- Cranbourne – Melbourne South East – Median Value $358,500
- Travanacore – Inner Melbourne – Median Value $361,742
- Darley – Melbourne West – Median Value $362,767
Melbourne Growth Suburbs
As we’ve discussed, the reduced necessity to come into the office throughout Australia has shifted demand in property from the CBD to more regional areas, where Aussies can get more bang for their buck and purchase larger properties away from the big smoke.
According to Realestate.com.au: “Buyer demand for regional Victorian homes has rocketed as much as 200 per cent in the past year, with remote towns shooting up pandemic-fatigued househunters’ wishlists.”
Realestate.com.au chief economist Cameron Kusher has said that “If you looked at [high demand Melbourne suburbs] 18 to 24 months ago you would get a pretty different result.”
“You would still have Albert Park and Fitzroy North … (but) we have definitely seen this push to outer areas since the pandemic, which is driving areas like Blairgowrie and Montmorency. Moving to the outer suburbs, to bigger lot sizes, has become more attractive,” concluded Kusher.
According to realestate.com.au, here are the highest viewed regions for Melbourne houses based on their average views per listing:
Melbourne Growth Suburbs for Purchasing a House:
- BLAIRGOWRIE: 15,133
- MONTMORENCY: 14,991
- ALBERT PARK: 14,903
- WATSONIA: 14,819
- SANDRINGHAM: 14,782
- GREENSBOROUGH: 13,563
- SURREY HILLS: 13,478
- HAWTHORN: 13,429
- FITZROY NORTH: 13,306
- ASHWOOD: 4074
Melbourne Apartment Market
Across Australia, the price gap between units and houses has been widening – and Melbourne is no exception.
As of June, the gap between Melbourne unit and house prices was at 52.4%, in part spurred on by the cessation of overseas migration and the outflow of domestic migrants from the capital city.
While Melbourne’s median house price has now surpassed the $1 million mark, Melbourne units currently have a median value of $572,793.
With far fewer students renting in Melbourne, and many residents leaving the lockdown to head to regional areas or other states, demand for units in Melbourne has been subdued throughout 2020 and 2021.
However, we may be witnessing a turning point in the price of Melbourne units.
According to Domain, “all but two of the Melbourne regions registered unit price increases over the past year, particularly in the north-east (up 8.5 per cent) and the outer-east (up 8.3 per cent). Units on the Mornington Peninsula skyrocketed by 18.7 per cent over the year to June.”
This may be the result of the growing issue of affordability, as many Melbourne residents simply can no longer afford to purchase a house.
Additionally, there may also be an oversupply of houses in the near future due to the HomeBuilder scheme, which will be contrasted against an undersupply of units. This discrepancy between unit and house supplies should bring some parity between the two markets, which will be further exacerbated when the borders are reopened to international migrants.
AMP Capital’s chief economist Shane Oliver has said that “we could see a reversal of what the market was doing a few years ago. That will be an undersupply of units and an oversupply of housing pushed along by the demand from HomeBuilder.”
“Approvals for units have fallen right away at the same time,” Oliver concluded.
Melbourne Rental Market
The COVID-19 pandemic sent shockwaves throughout the country’s rental market, reversing the steady upward trajectory that the market had enjoyed for over a decade.
Source: SQM Research
Melbourne units took the biggest hit to rental prices when the pandemic hit, dropping by 5.8% over the past twelve months to August 28th, while Melbourne houses dropped by 0.5% over the same period.
This is likely because of the border closures and lockdowns, which has cut the supply of international students and reduced the necessity to be close to the CBD for work.
However, unit rent prices are now making a stronger recovery than houses, with unit rent prices rising by 2.7% over the past quarter compared with the 2.4% rise in house prices.
As of August, Melbourne rental prices for houses were $520 and $371 for units.
REA Group Director Cameron Kusher said that while rents have been subdued in Melbourne, the downturn has been focused primarily in the inner city, while demands have risen in outer suburbs.
“Generally speaking, the Melbourne rental market has been weak, but it’s very much in pockets,” he said.
“The inner-city apartment market is struggling (due to) the impact of closed borders both domestically and internationally.”
“But outer suburbs have been really strong, (particularly) on the Mornington Peninsula, which speaks to the fact people are looking for lifestyle.”
This phenomenon was observed in the ‘June quarter 2021 Rental Report’, which noted:
“Over the previous quarter the median rent in metropolitan Melbourne reduced by $5 per week to $395 per week but in regional Victoria, it increased by $10 per week to $360 per week.”
Melbourne rental vacancy rate
As we’ve mentioned, there was an exodus from Melbourne amid the ongoing lockdowns during the pandemic, which led to Melbourne having the highest vacancy rate of any capital city as of May this year at 3.7%.
The only other capital city to have vacancy rates even above 1% were Sydney and Brisbane at 2.9% and 1.3%.
Vacancy rates have since improved for Melbourne, albeit only slightly with the Melbourne vacancy rate falling from 3.7% to 3.5% between May and June, however the state still has the highest vacancy rate of any capital city.
Melbourne’s CBD vacancy rate sits at 5.8%, and the office vacancy rate is currently at a 20-year-high of 10.4%, the highest vacancy rate recorded in Melbourne since January 2000.
The Victorian Executive Director of the Property Council of Australia Danni Hunter spoke on the sky-high office vacancy rate in Melbourne, stating that “every lockdown is a step backwards for Melbourne and particularly our CBD and there is residual uncertainty about the future with more supply coming online over the next six months.”
“These numbers and declining office occupancy reinforce the urgent need for a plan to revitalise our CBD and ensure Melbourne continues to be a place to live, work and invest.”
“We need the Victorian Government to come to the table with a plan to get people back to the city and encourage investment in our CBD. This includes a hybrid working model that enables people to work from home and the office, a stimulus package targeted at preserving CBD businesses, and an aggressive attraction strategy for national and global headquarters to locate in Melbourne’s CBD.”
Melbourne Rental Yield
Like all other aspects of the rental market in Melbourne, rental yields were hit hard during COVID-19 – particularly in the CBD – as demand plummeted and vacancy rates skyrocketed.
For example, Werribee units boasted one of the highest rental yield rates in Melbourne at 4.3%, but growth in rental demand for a Werribee unit was down 12.6% year-on-year.
Source: Herald Sun
Contrastingly, Frankston is situated further away from the CBD, and units in the region have a rental yield of 4.2%, having grown 4.6% over the past year.
Evidently, there is a shift from properties located near the CBD to regional properties in Melbourne and throughout Victoria.
Property Investment in Melbourne
Melbourne’s property market was one of the hardest hit during COVID-19 as the city was plunged into more lockdowns than any other part of Australia.
These lockdowns caused an exodus of both international and domestic residents out of Melbourne city and either out of the country or into more regional areas.
In fact, most of those that left Melbourne headed for Queensland, helping to cause a boom in the Property Market in Brisbane.
As such, Melbourne property investors may want to look toward regional areas over the short term, though when borders open and international travel resumes it’s safe to assume that CBD demand will resurface, particularly in light of declining rental costs.
Furthermore, as companies adapt to COVID-19 it’s possible that working from home may become the norm for more professions, the pandemic may have permanently reduced the necessity of heading into the office for many people.
Put simply, the post-COVID-19 landscape will be a murky one and many kinks must still be ironed out before the dust settles.
Frequently Asked Questions
How is the property market in Melbourne?
The property market in Melbourne has been hit hard during the COVID-19 pandemic and lockdowns, with many residents and foreign students leaving Melbourne and vacancy rates skyrocketing to levels not seen in over twenty years.
When will house prices fall in Melbourne?
House prices have fallen in specific suburbs in Melbourne, like Toorak, the most expensive suburb in Melbourne, which dropped 9.1 percent during the quarter, suggesting that affordability is beginning to become a problem across the region.
Conversely, prices are rising outside of Melbourne’s CBD as people seek out more affordable, larger properties to live in.
When will house prices increase in Melbourne?
House prices have been rising across various regions in Melbourne, like Hawthorn East which saw a massive 42.2% jump in median property values between March and June. Low interest rates and a desire to get out of big cities is placing upward pressure on specific regions outside of Melbourne’s CBD.
How much do houses cost in Melbourne?
The median house price in Melbourne as of the June Quarter in 2021 is $1,022,927, reflecting an increase of 4.1% over the quarter according to CoreLogic.
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