What’s really happening in Melbourne’s residential property market

The supply of housing is another major factor and there is a well-documented undersupply of housing across Australia, and Melbourne is no exception. All of this points towards a positive outlook for buyer demand and activity.

The number of international immigrants and expats returning to Australia is notable, with the Australian Government’s Centre for Population anticipating that Melbourne will reach a population of 6 million by 2032, positioning it to take the title of Australia’s largest city. These additional tailwinds of immigration and population growth, along with supply issues, point to growth in the property market in the future.

Ongoing challenges in relation to renovation costs and build prices have meant quality turnkey homes across our marketplaces continue to excel.

As always, the top end of premium markets in inner Melbourne are not as impacted by economic factors as other segments of the market, and this, as well as a relatively low supply of available homes, has meant this small segment of the market remains highly sought-after and extremely competitive.

While activity abounds, the dynamic in the property market outside of metropolitan Melbourne has shifted due to increases in land tax. Taxation changes are having an impact on the flow of listings in regional Victoria and coastal markets such as the Bellarine and Mornington Peninsula, where clients are increasingly considering rationalising their property portfolios due to cost increases. If interest rates ease, as economists predict, and if Australians continue to foster ambition for lifestyle, we expect these marketplaces to rebound and ultimately thrive.

Over the past two years, the rental market has faced incredible difficulties. Demand and supply imbalances driven by low levels of development and affordability issues have contributed to a challenging period for renters. Simultaneously, increased holding costs in terms of interest costs, taxes and compliance mean that many rental providers are selling investment properties to deleverage their personal balance sheets, leading to further pressure on the market. On the flip side, investors who are maintaining their position through this point in the cycle are seeing an increase in their rental return.

For this situation to stabilise, governments will need to stimulate the economy for more housing through either build-to-rent development schemes or incentives for more residential investors to enter the market, which will be a medium-term solution to the challenge.

My prediction for the next 12 months is that interest rates will stabilise and decrease marginally in the early part of 2025, resetting the market to its new level. More steadiness in the interest rate environment will in turn create greater confidence for buyers to enter the market.

Heading into 2025, the sales market will see stable capital growth and we may start to see some alleviation in the rental market as supply and demand factors start to rebalance.