Best suburbs to invest in Melbourne 2020

As the second largest property market in the country after Sydney, investors and homeowners are both watching with keen interest what is happening to Melbourne property prices as 2020 approaches. 

After negative results for all of 2018 and the first half of 2019, the market woke up after the Federal election, with buyers back on the hunt and agents busy again. But is this just a blip, or is it a more broad-based recovery we are witnessing

Let's start by looking at how the Melbourne market performed in 2019, followed by what analysts and local agents predict for the year ahead.

What did the property market in Melbourne look like in 2019?

real estate Melbourne rent
Prior to the Federal election, uncertainty clouded Melbourne's property market.

Like elsewhere, Melbourne property prices were in the red for much of 2019, but things did turnaround in Q3. Dwelling values were up +2.4% in October, the largest month-on-month growth since 2009. This was due to a number of factors, specifically:

  • The surprise election victory for the Coalition, after being written off by pundits and polls alike
  • The RBA's cuts to interest rates, designed to revive the sluggish local economy
  • The Australian Prudential Regulation Authority (APRA) relaxing off lending requirements, giving buyers slightly easier access to credit

Real estate agent Leigh Hall of Hall and Partners/First National in Dandenong, thinks consumer sentiment revolved around the election result, "Before the election it was very bleak. People were concerned about all the negative gearing talk which impacted investors. After that, there was a lot more positive media and house prices started to rise again". 

Despite this revival in the latter half of 2019, SQM Research's Boom and Bust Report reported that dwelling values in Melbourne were still down -1.0% overall for the year to October 2019. 

Melbourne property market forecast 2020

NAB expects Melbourne house prices to be positive by the end of the year, to the tune of +0.7%, with units projected to be up +4.2%. 

Domain predicts that house and unit prices will increase by +1% by the end of the year, to end at median prices of $800,000 and $470,000 respectively. This is still +50% higher than they were just seven years ago, in 2012.

Agent John Costanzo of Woodards Northern in Carlton thinks that 2020 will be more about steady growth rather than boom, "The frustration is that people haven't been able to borrow or buy because there has been a shortage of stock. I think in the New Year, there will be more stock coming onto the market, which will help. Clearance rates are currently strong and we may see a slight increase in prices as people come into the market, but I don't forecast a boom. I think it will be a nice steady growth in 2020".

"Clearance rates are still strong and we may see a slight increase in prices as people come into the market, but I don't forecast a boom in 2020"

John Costanzo, Woodards Northern

 
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How are Melbourne house prices expected to change in 2020?

NAB predicts moderate growth for capital cities, forecasting they will advance +4.5% in 2020, while they believe house prices in Melbourne will grow +7.4%. Domain forecasts house prices to grow by +1% to +3% next year, with units a little softer at 0% to +2%. 

SQM Research plots a number of scenarios, with varying market conditions. Given this, they forecast Melbourne property prices to grow +11% to +15% next year - based on a cash rate of 0.75%, a stable economy with no changes to current lending rules. Their worst case scenario has the Melbourne market growing 0% to +4% in 2020, based on a scenario where trade talks collapse, the economy weakens and interest rates are dropped to zero.

In terms of median prices, QBE's outlook is for Melbourne's median house price to rise +5.1% to $810,000 in the three years to June 2022, while they forecast units to grow +3.8% over the same timeframe to a median of $570,000.  

What's the Melbourne apartment market like?

Melbourne apartments
With new apartments continuing to stream into the market, QBE believes unit prices will only see a modest growth in 2020.

Approvals for new unit developments peaked in 2017 but continue to come onstream. QBE believes this is likely to depress prices for new apartments into 2020, with only modest growth of +4% forecast to 2022. 

Moody's Analytics have a similarly negative forecast for unit prices in Melbourne, predicting a fall of -0.3% next year, though they believe the city's inner ring of suburbs will return to positive growth. 

The Melbourne rental market

Domain indicates that a slowdown in new housing construction is likely to boost demand for rental properties, but that rental growth is only likely to return in 2022 as yields begin to increase, which will bring investors back to the market.

The weekly median rent for houses in metro Melbourne is currently $450/week, but low volume of rental supply means this could jump in 2020. 

"Domain indicates that a slowdown in new housing construction is likely to boost demand for rental properties, but that rental growth is only likely to return in 2022 as yields begin to increase"

Best suburbs to invest in Melbourne

If you are looking to invest in Melbourne in 2020 you will want to focus your research on suburbs that have strong growth potential. With this in mind, here are 5 locations which could tick all the right boxes in terms of location and growth prospects.

  • Melton, where the median house price is an affordable $385,000 with a gross yield of +4.3% and a median unit price of $315,000 with a yield of 4.8%
  • Dallas, where the median house price is $455,000 and the gross yield is +4.0%
  • Officer, where the median house price is $547,000 and the gross yield is +3.8%
  • Thomastown, where the median house price is $587,000 with a gross yield of +3.4% and a median unit price of $437,000 with a yield of 4.2%
  • Croydon North, where the median house price is $787,000 with a gross yield of +3.4% andelt a media unit price of $588,000 and a yield of +3.6%

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