Melbourne’s housing market could outperform Sydney and other capital cities once it emerges from its current downturn, boosted by a marked improvement in affordability after years of weak growth, experts say.
Nicola Powell, Domain’s chief of research and economics, said house price declines in Melbourne could gather momentum over the near term as listings rise faster than demand.
“I think Melbourne still has its challenges with taxation, higher supply and weaker population dynamics, so the immediate outlook is still one of a struggle,” she said.
“But I believe that once we see rates falling and particularly if we see a handful in succession, that is likely to be a spark for pricing.
“So in the next cycle, we’re likely to see Melbourne overperform because it has underperformed significantly compared to other capital cities since March 2020,” Dr Powell said. “That’s exactly what we’ve seen in Perth when it underperformed during the 2010s and then prices exploded in the 2020s as it played catch up.”
Melbourne-based property investor Patrick Van is counting on that sharp upturn and plans to ramp up his portfolio.
He is in the process of settling his second investment property in the city, a two-bedroom, two-bathroom off-the-plan apartment in North Melbourne, and aims to buy another in the coming months.
“I think Melbourne offers excellent value for money compared to other cities, and the state government just slashed stamp duty for off-the-plan properties,” he said.
“Even with higher interest rates and property tax, and despite the prospect of weaker capital growth over the next few months, I believe Melbourne will take off once interest rates start dropping next year.
“So I’m happy to sacrifice the lack of growth over a short period of time for the potential of making a windfall over the medium to long term because property investing is a long-term strategy, not a get-rich-quick scheme.”
AMP capital’s Shane Oliver said Melbourne could lift between 7 per cent and 8 per cent in the next upswing, while Sydney was on track to gain about 5 per cent.
“Melbourne’s been lagging for some time, but it has made the property market relatively cheap compared to Sydney and the other cities,” he said.
“Because of its relative underperformance, it could bounce back a little bit quicker and sharper. ”
Since the onset of the pandemic in March 2020, Melbourne’s home values have increased by just 10 per cent.
By contrast, Sydney climbed 29 per cent, Brisbane was up 67 per cent, Adelaide jumped 71 per cent and Perth surged by 76 per cent, according to CoreLogic.
“It doesn’t make sense for Melbourne to stay the cheapest among the top five capital cities, so it is bound to come back and outpace any other capital city in Australia,” said Scott Kuru, co-founder of Freedom Property Investors.
“This is likely to happen because of lower interest rates, more affordable housing and government support. So, it’s only a matter of time before Melbourne becomes the second most expensive Australian city to buy a house in again.”
However, Ray White chief economist Nerida Conisbee said Melbourne’s recovery could take longer than market expectations.
“I think the downturn will be prolonged, even with rate cuts,” she said.
“I think there are other bigger problems that will take longer to fix, such as the prohibitive tax system, poor confidence and weak economy.”