APPD Market Report Article

Melbourne

December 1, 2021

-19.2%

AUD 400

Decline
Slowing

Owner occupiers continue to dominate demand

  • Despite recent lockdowns, confidence in Melbourne’s existing housing market has remained strong and demand has bounced back rapidly since the restrictions on inspections were lifted.
  • The off-the-plan apartment sales market remains robust for quality owner-occupier stock, particularly from downsizers. Investor demand is rising, but remains moderate and competition for sales remains strong from residual unsold stock from the last supply cycle.

Developers to focus on boutique projects in premium suburbs

  • Inner Melbourne has seen an extremely strong 6,450 apartments complete over the first half of 2021. However, almost 4,700 of these were in 1Q21, with Melbourne’s lockdowns in 2020 pushing a number of major project completions from 2020 into 2021. This means that 2021 completions have already exceeded those of 2020 and 2019.
  • Rental vacancy across Melbourne remains elevated, but has fallen substantially from the very high levels reached in 2020 at the height of the pandemic. Similarly, recent evidence suggests that rents have started to grow again. Nevertheless, it remains a tenant-favourable market.

Dwelling prices (including apartments) continue to grow strongly

  • Existing dwelling prices have surged strongly over the past year, particularly for detached housing. Comparatively, a surplus of inner city apartments has significantly constrained apartment price growth, but prices have still grown on aggregate, and strongly in suburban Melbourne.
  • While rents have started to improve, growth is still being outstripped by price growth and gross investment yields are falling. In 3Q21, average gross yields were just 3.4%.

Outlook: Supply still needs to be absorbed in the short term

  • Melbourne’s last supply cycle was a large one, but one justified by very strong population growth and strong investor demand. However, neither is strong at present and the level of apartment completions has remained relatively high in 2021.
  • Nevertheless, the outlook is brighter over the medium term. Demand should recover as investors re-enter the market and once borders re-open. New apartment supply will fall further and remain low beyond 2021, which will help to re-balance the market. The strength of the overall existing market should help drive robust apartment price growth, while rental vacancy should tighten significantly.

Note: Melbourne Residential refers to Inner Melbourne apartments. Inner Melbourne data: Supply from JLL, rents from Department of Human Services Victoria, and vacancy from REIV. Greater Melbourne data: Price, sales volume and yields from CoreLogic.

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