Melbourne Property Market Outlook 2024

Published

March 21, 2024

The Melbourne property market has exhibited notable resilience and growth when compared to other Australian states and territories. 

Over the past few years, Melbourne has experienced a consistent annual average growth rate of 1.2% in property values, despite fluctuations in interest rates. The city’s strong population growth, driven largely by immigration, has contributed to a robust demand for housing. 

In terms of economic indicators, Melbourne’s unemployment rate settled at a tight 3.9% at the end of 2023, below the 15-year average of 5.1%. This low unemployment rate is a testament to the city’s economic strength and competitiveness compared to other advanced economies. 

These factors collectively position Melbourne as a standout performer in the Australian property market, reflecting its resilience and attractiveness to both local and international buyers.

2020-2022 were of course challenging for the Melbourne property market due to the COVID-19 pandemic and the subsequent restrictions on international travel. However, with the reopening of borders and the resumption of overseas migration, Melbourne’s property market is witnessing a resurgence. 

Current State of the Melbourne Property Market

Far East Consortium recently commissioned Urbis to produce the ‘Market Outlook: Melbourne CBD’ report to gain a further understanding into the dynamics of the city’s property market and factors affecting purchasing behaviour, as well as economic prospects. 

In recent years, the Melbourne property market has exhibited steady performance. The rental market, particularly in the central business district, has witnessed a positive trend, with a 16% premium for newly built apartments.

Significant legislative changes have also shaped the market. 

Some of the most pertinent include changes to land tax which will be enforced on properties valued above $50,000, replacing the previous minimum threshold of $300,000 set in 2023. Property owners can anticipate a fee of $500 for land valued between $50,000 and $100,000, while those with land valued between $100,000 and $300,000 will incur a charge of $975. For land exceeding $300,000 in value, the tax will be $975 plus 0.1% of the land value surpassing $300,000.

Another legislative change is an Absentee Owner Surcharge. The existing surcharge for absentee property owners will increase from 2% to 4% of the property’s dutiable land value. This surcharge exclusively affects offshore owners who do not reside in Australia.

To assist Australians earning $90,000 or less individually ($120,000 or less for households) who do not own a home, the Help to Buy co-buying scheme has been introduced. Approved buyers with a 2% deposit can partner with the federal government, which will contribute up to 30% (or 40% for new builds) of the home’s cost, equivalent to their stake in the property. This support is capped at $850,000 for metropolitan areas in Victoria and $550,000 for the rest of the state.

Understanding and navigating these changes is crucial for both buyers and sellers to make informed decisions in the current landscape.

Foreign investors and migrants, drawn by the city’s cosmopolitan lifestyle, excellent education institutions, and booming job opportunities, are once again looking to invest in Melbourne’s real estate.

The increase in searches for Australian rental properties from overseas has coincided with a rise in student arrivals. February saw 142,000 student arrivals, which registered a 190% increase on February 2022, according to data from the Australian Bureau of Statistics. This was largely fuelled by the Chinese government’s call for all international students to return to their campuses at the end of January.

The combination of returning international students and a shift in tenant behaviour, who are seeking a return to inner city living to be closer to workplaces, coupled with a reduction in rental listings has seen a sharp recovery sweeping across Melbourne’s rental market.

Domain’s June 2022 Rent Report has revealed unit rents surged 5.1% over the quarter (more than any other Australian capital city), and an impressive 10.8% over the year to $410 a week. This is the second steepest quarterly rise on record and has resulted in the sharpest annual increase since 2008.

The lower affordability barriers of unit rents as opposed to houses, are proving more attractive for tenants and continue to support a price recovery. This became particularly evident over the June quarter, with the percentage increase in unit rents more than double the rate of houses (2.2%).

Factors Influencing the Melbourne Property Market in 2024

As we step into 2024, several key economic and demographic factors are poised to influence the Melbourne property market. Interest rates, employment trends, and migration patterns will play pivotal roles in shaping market dynamics. 

Interest rates

The expected interest rate cuts in 2024 and 2025 are anticipated to stimulate real estate demand, creating opportunities for both homebuyers and investors.

According to Urbis, major banks CBA, NAB and Westpac are predicting the interest rate reach as low as 3.6% in 2024 and 2.85% through 2025. Lower interest rates moving forward will stimulate demand in the real estate market, in 2023 there were 29,600 apartment sales in Melbourne 21% lower than 2022 and 36% lower than 2021. 

As the RBA cuts the cash rate we can expect an uptick in demand as the cost of financing becomes cheaper, stimulating price growth.

As the RBA cuts the cash rate we can expect an uptick in demand as the cost of financing becomes cheaper, stimulating price growth.

Here are some of the most recent expert forecasts to take note of:

• ANZ forecasts a 3-4% property price rise in Melbourne in 2024.
• CBA forecasts a 5% property price rise in Melbourne in 2024.
• NAB forecasts a 5.5% property price rise in Melbourne in 2024.
• Westpac forecasts a 3% property price rise in Melbourne in 2024.
• PropTrack forecasts a 1-4% property price rise in Melbourne in 2024.
• SQM forecasts up to a -3% property price fall in Melbourne in 2024.

Migration patterns

In the next decade, Melbourne is expected to overtake Sydney as the most populous city in Australia, reaching 6.2 million residents by 2031. With a current population of 5.2 million, this is equivalent to an average of 115,000 new residents a year.

Victorian monthly arrivals have recovered strongly from pandemic levels and currently sit at 90% of pre-pandemic levels.

International students form a significant share of Melbourne’s migration each year.

Melbourne recorded a monthly average of 19,000 international student arrivals over the year to November 2023. Melbourne’s strong education sector and high ranking universities have contributed to this strong return.

Liveability and Education

Melbourne is recognised around the globe for its world class sport, entertainment, culture, art and food. It is often referred to as the cultural capital of Australia and hosts many international renowned events.

In 2023, Melbourne was again named in the top 5 most liveable cities in the world by the Economist. The city scored high for its education, infrastructure, culture, and the environment.

Driving Melbourne’s success is its prevalence of world leading Universities. Notable institutions include The University of Melbourne and Monash University which ranked in the top 3% of the World University Rankings for 2024.

Opportunities and Challenges

The City of Melbourne’s forecasted shortfall of 21,615 dwellings over the next five years, coupled with a current pipeline of only 12,300 apartments in Central Melbourne, signals a significant supply-demand gap. 

This imbalance sets the stage for property developers and investors to thrive, particularly in the CBD. The anticipated shortage in available housing suggests that newly constructed apartments, strategically located in the urban core, will be in high demand. 

As overseas migration makes a resurgence, the combination of constrained supply and increased demand creates a favourable environment for property developers. The heightened demand for modern, well-located apartments not only provides developers with the opportunity to address the housing deficit but also positions them to benefit from potential price appreciation.

This situation also holds promise for economic growth and urbanisation, as the need for additional dwellings aligns with demographic trends in Melbourne. The scenario opens avenues for property developers to initiate new projects such as the recently completed West Side Place, which contributed 2,895 new apartments to the city. Some of which are for sale and ready for purchasers to move in now. The situation also fosters construction activity, job creation, and contributing to a more robust local economy. 

In essence, the dwelling shortfall, resurging migration, and limited current supply create a conducive environment for property developers and investors to capitalise on the evolving real estate landscape, anticipating both short-term gains and long-term growth in the Melbourne property market.

Final words

The Melbourne property market in 2024 holds promise amid a backdrop of economic stability, population growth, and positive forecasts. 

For potential buyers, sellers, and investors, staying informed about market trends, leveraging expert forecasts, and considering sub-market nuances are key. While opportunities abound, it’s crucial to navigate challenges with a strategic mindset, keeping external factors in focus.

Read more about anticipated 2024 property development trends in Australia here.

Far East Consortium’s exclusive insights provide a valuable guide for stakeholders, offering a comprehensive view of the Melbourne property market in 2024. Armed with this knowledge, stakeholders can make informed decisions to maximise their gains in a dynamic real estate landscape.

Read the full Urbis ‘Market Outlook: Melbourne CBD’ here.