Best suburbs to invest in Melbourne 2019

If you are looking to invest in the Melbourne property market, you will want to know how the market has performed, and where it could be headed in 2019.

The NAB residential property index records that confidence in the housing market is collapsing in Australia’s two most populous cities - Sydney and Melbourne - so much so that these two markets have dragged Australian house prices down -2.7% in the last year. This is largely due to the fact that they comprise approximately 60% of the national value of housing - scary but true.

Read on to find out where leading property analysts and real estate agents think the market is going in 2019, and how the Melbourne housing market fared in 2018.

What did the property market in Melbourne look like in 2018?

Melbourne property market

Looking back at 2018, the underlying theme was a softening of the housing market, after 5 years of exceptional growth. Like Sydney, Melbourne is in the midst of a downturn, with most analysts predicting more of the same for the year ahead. Overall, 2018 was characterised by:  

  • Tighter availability of credit, especially for investor loans
  • Weakening foreign investor activity
  • A rise in listings with fewer buyers in the market
  • A drop in clearance rates to the lowest levels in 20 years
  • An oversupply of units in some areas

In the 12 months leading up to October 2018, the Melbourne real estate market contracted -4.7%. While significant, this drop is slightly better than Sydney, which dropped -7.4% over the same timeframe. QBE’s Australian Housing Outlook 2018-2021 reports a varied picture from Melbourne depending on the area.

"In the 12 months to October 2018 the Melbourne real estate market contracted -4.7%"

The city's more affordable outer suburbs have maintained their prices (+6.2%) since the start of the year, with some minor declines recorded. On the other hand, the biggest falls have been in and around Melbourne’s inner (-24%) and middle ring (-5.7%) suburbs, something estate agent John Costanzo of Chambers Real Estate has noticed.

“The local market in 2018 held up really well considering the circumstances, though a number of properties sold are down compared to Spring 2017. Enquiry rates are also down, as are clearance rates at auction, which have varied from the 70’s mark to under 50%”.

Melbourne property market forecast 2019

QBE’s Australian Housing Outlook 2018-2021 forecasts that by the June quarter of 2019, the median house price in Melbourne is expected to fall to $820,000. This is around 8.4% lower than the median in the December 2017 quarter. Similarly, the median unit price is also forecasted to drop approximately 3% over 2018/19, and the report suggests it will be at around $545,000 in June 2021 - some 2% lower than the June 2018 quarter median.

The report highlights a number of factors contributing to this, including a slowing in population growth and weakening investor demand. SQM also reports that interstate migration to Victoria has slowed this year, down some 4,000 compared to 2017.

John Costanzo Chambers Real Estate

Costanzo believes a lot of the negativity around the market is down to the media and that, “All indications are that the market is going to drop a bit more in 2019. Availability of finance from the banks is another factor that is placing a drag on the market.”

How are Melbourne property prices expected to change in 2019?

Louis Christopher's Housing Boom and Bust report forecasts similar price falls to Sydney for Melbourne, of -9% to -6% in 2019. He lays out a number of scenarios for Melbourne property prices in 2019, including a:

  • Drop of -9% to -6% assuming an unchanged cash rate, a slowing economy and a Labor government in May 2019.
  • Drop of -11% to -6% assuming a 0.20 per cent interest rate rise and a Labor government.
  • Drop of -3% to 0% assuming a 0.50 per cent interest rate cut, and a Labor government.

Like many other analysts, Christopher believes Labor’s policy proposals - which include a repeal of negative gearing and changes to capital gains tax - will impact the property negatively.

NAB’s Hedonic House Price Forecast predicts Melbourne house prices to remain stable - 0% growth - in 2019. Over the medium term BIS Oxford Economics forecasts median unit prices to fall -3.6% to 2020, with houses posting growth of 7.3% over the same timeframe.

Are off-the-plan properties a risk in Melbourne?

Interested in the Melbourne apartment market? Then you need to know about the potential risk of an off-the-plan property.

Almost all capital cities are suffering from potential unit oversupply, though this is localised. This has led banks, such as Macquarie Bank and NAB, to issue a ‘blacklist’ of postcodes to be wary of. In Melbourne, this includes Southbank, where some 2200+ units are scheduled to come onto the market in 2018/19.

The risk for this type of investment is that, in the current softening market, you invest in a property that falls in value very quickly. You may also not be able to find a tenant or have to drop your rent to compete with an oversupply of accomodation in a specified area. The only way to protect yourself is to conduct an in-depth analysis on a suburb’s ability to absorb the new stock.

"The risk for this type of investment is that, in the current softening market, you invest in a property that falls in value very quickly."

Best areas to invest in Melbourne in 2019

Melbourne property market forecast 2019

In terms of the best growth suburbs to invest in Melbourne, real estate agent John Costanzo believes there is still plenty of value to be had in North Melbourne, Collingwood, Ringwood and Croydon.

If you look at the data, then it is clear that the cities outer fringe is where the best prospects for property growth are. This includes Melbourne’s west, where Werribee is up 17.86%, and the south east where Officer was up an impressive 30.55%. A lot of this activity is being driven by first home buyers, expanding infrastructure and a lack of affordable housing close to the CBD.

Some analysts and major banks have recently revised their forecasts to downgrade growth predictions for Melbourne even further. Buyers are still cautious and, with tighter lending conditions still in place, it's likely the Melbourne market will tread water in 2019 - though this will vary depending on local market conditions and demand. Only time will tell.

Use the resources on this site to help you make your Australian property investment decisions. Read our online property reports and tips to help you find the right real estate agent.

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