Apartments, inner Melbourne set for big 2024 turnaround

Melbourne's property market has been the laggard among capital cities but the planets appear to be aligning for a major recovery in 2024, with the apartment and inner city markets leading the way.

Melbourne's Docklands and surround buildings and apartments.
Despite statistics showing Melbourne’s property market underperformance, some pockets are delivering stellar capital growth and rental yields. (Image source:

For a city that attracts 30 per cent of the country’s international migrants, Melbourne’s real estate market performance has been fairly aneamic since the onset of Covid.

That situation may be about to change, with the inner suburban and CBD areas experiencing soaring rents that are set to be the precursor to a turnaround in 2024.

Melbourne’s property market has been the weakest performer against the other capital cities, with PropTrack data revealing that in nearly four years post-Covid, prices sit just 15.5 per cent higher compared to March 2020.

The Victorian capital’s notoriously long lockdowns drove an exodus from the state but on top of rapidly rising international migration, the city is also in the midst of a huge turnaround in interstate migration.

As other cities have become less affordable, more Melbournians are also choosing to stay in their home city.

Perth and Adelaide have been the prime performers over the past couple of years and Brisbane’s median property price recently overtook Melbourne’s.

But the statistics suggesting Melbourne is falling behind Brisbane are a little deceptive.

Despite recording a higher median dwelling value, Brisbane’s median house and unit values are still $72,000 and $49,000 below Melbourne’s medians respectively.

How is that possible?

The reason is that Melbourne has a higher share of units as a portion of the dwelling market.

CoreLogic estimates that units comprise 33.8 per cent of Melbourne dwellings, compared to 25.6 per cent of homes across Brisbane. Because units are generally lower value than detached houses, a higher portion of units brings down the median dwelling across all houses and units.

Rental prices soaring

A decade of oversupply of city apartments in Melbourne is now turning into a shortage, with rents taking off and suburbs adjoining the city centre rising in value.

Andrew McCann, Managing Director of Jellis Craig Real Estate, said supply-demand is still weighted to sellers but there is pent-up demand.

“Where the market is softening is further out - inner Melbourne has limited supply,” he said.

“The exodus of people who left Melbourne seeking lifestyle and other Covid-related moves is now reversing.

“Overseas students are returning to the city CBD and surrounds and the rental market in this sector is the strongest in Melbourne.

“I expect to see strong price growth in 2024 for one- and two-bed apartments in Brunswick, Richmond, Hawthorn and Prahran as they are close to universities, offer a great urban lifestyle and are near employment hubs.”

Mr McCann added that statistics showing Melbourne’s underperformance should not be applied universally to a very diversified market.

“There are a lot of subsections performing incredibly well and I expect the first six months of 2024 to be very strong for Melbourne.

“Inspection numbers are up, and clearance rates are stronger with a deeper number of bidders.”

Melbourne’s overall rental vacancy rate is just 1.2 per cent and rents continue to rise. Year-on-year, rents have gone up 14.6 per cent, second only to Perth (17.0 per cent) among Australian capitals.

The eight quarters of consecutive rent price growth is the longest and steepest stretch of rising house and unit asking rents in the city's history.

Annamaria Stella, Sales Director, TWIG Real Estate, said property prices were likely to rise in 2024 as the rental market tightened further.

“Investors are coming back into the market seeking the higher rental yields, while tenants and first home buyers are also turning to the apartment market to get a foothold on the property ladder and avoid the financial stress of higher rents.”

“Since early last year, rental prices have been taking off and many prospective buyers are finding it cheaper to buy than rent.”

Like Mr McCann, she expected most growth in 2024 to emerge in the inner city and inner suburbs.

“I speak to a lot of buyers agents nationally and they are seeing Melbourne as affordable, with solid rental yields and with strong prospects for capital growth, and that’s the perfect triumvirate for investors.

“Higher home equity after a period of rising property prices is also allowing investors to finance their next moves.”

Asked where buyers should direct their capital, Ms Stella said the CBD, South Yarra, West Melbourne, Prahran, Cremorne and Carlton would all be in strong demand in 2024.

She also cited an underestimated factor as giving city buyers more confidence.

“A lot of buyers were deterred from the apartment market a few years ago by issues around combustible cladding but that non-compliance problem has now been sorted out in almost all CBD buildings.”

According to Cladding Safety Australia’s latest annual report, cladding rectification has been completed on 250 of 365 buildings approved for the works, representing a reduction of more than 70 per cent of at-risk buildings.

Melbourne follows Sydney property

Melbourne’s property market is often said to lag Sydney’s by a year or so.

In Melbourne and Sydney the pace of growth has slowed sharply since the June rate hike but before that Sydney was delivering double-digit annual growth.

Mr McCann said that given Sydney is still a very expensive and rising market, he’d expect this trend to emerge again.

“Interest rates have done what the government and Reserve Bank had hoped they would do and quelled price growth but it has also contributed to higher rental prices as investors have stepped aside.

“Owning a home is definitely better than renting even if borrowing costs have gone up, so where buyers were able to borrow $1 million, they are now looking at a budget of $800,000 and that plays into the apartment market.”

Ms Stella said the prospect of interest rates easing from the middle of next year would also fuel further demand.

That prospect gained some added traction on Wednesday (10 January), with the official inflation figure coming in at 4.3 per cent in the 12 months to November 2023, down from 4.9 per cent in October.

“Property prices in Melbourne won’t necessarily go through the roof but they will go up – they’re not going down again.”

Article Q&A

Will property prices rise in in Melbourne in 2024?

Melbourne's inner suburban and CBD areas are experiencing soaring rents that are set to be the precursor to a turnaround in the property market in 2024.

What factors will drive the Melbourne property market in 2024?

Population growth, rising rents, the prospect of interest rates easing and affordability after years of minimal growth will put upward pressure on Melbourne property prices.

What is the vacancy rate in Melbourne?

The rental vacancy rate in Melbourne is 1.2 per cent.

Are rents rising or falling in Melbourne?

Year-on-year, rents have gone up 14.6 per cent in Melbourne, second only to Perth (17.0 per cent) among Australian capitals. The eight quarters of consecutive rent price growth is the longest and steepest stretch of rising house and unit asking rents in the city's history.

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