Buyer sentiment in Melbourne remains soft

• Melbourne’s housing market has lagged other markets post-COVID and the Victorian Government has recently responded with ten housing policy announcements aimed at simulating activity. This includes a temporary cut in stamp duty on off-the-plan apartment sales.
• New apartment sales generally remained muted. Like other markets there is still robust demand from downsizers for luxury product, but investors remain largely absent and mass-market apartments continue to struggle to meet pre-sales hurdles.

Construction continues to fall

• Melbourne has recently seen several major BTR projects complete. However, this has not been enough to offset a sharp fall in BTS completions and supply levels have been falling for some time now. Supply will remain moderate over at least the next few years.
• Rental vacancy in Melbourne has risen slightly over recent months, but still remains low at 1.7% in September 2024 (SQM Research).

Prices moderate

• Existing Melbourne apartment prices have fallen moderately over the past two quarters. A combination of subdued buyer sentiment and rising listings in the existing sale market have contributed to the softening of prices.
• Melbourne rents have grown strongly the past three years after initially being impacted heavily by COVID-19. However, growth has largely stalled the past three months, which in part reflects greater competition following some recent BTR completions.

Outlook: The worst is likely over for Melbourne

• The recent policy measures taken by the Victorian Government should work to boost confidence and stimulate demand somewhat. At a fundamental level, much lower current new supply levels and still very strong population growth should quickly swing the market balance into supply-deficit.
• Against this backdrop, prices and rents should largely stabilise in coming quarters and then relatively quickly move back into growth as growing supply shortages again assert upward pressure on pricing.